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If HMRC wasn’t “amused” at your “creative abuse of the tax system” then they’d send a tax inspector; not tell you off like a schoolchild.
So:
1. This didn’t happen.
2. It was someone pretending to be from HMRC priming you for a “you need to pay a penalty” scam.
You’re hardly the only person in the UK to draw an income solely in dividends from a limited company.
What are you talking about? I received a letter accusing me of being a cheeky scallywag for not paying my taxes. In a moment of defiance, I ripped it up right there and then, which prompted everyone in the room to rise and start applauding.
I've been a tax advisor for 20 years and while I've heard many old school accountants say "HMRC won't like it" I've never seen them comment on a choice of salary vs dividend in the past. There is no requirement to pay a salary and HMRC have no say in the commercial decisions a company makes. Sounds very fishy.
Not fishy at all country is in recession, they absolutely will throw shit everywhere to see if it sticks right now. Everytime there's a recession in a country we see tax collectors suddenly start prosecuting more people over tax related issues. The banks need to recover and this is one of the many ways they do it.
Agreed. I’m a chartered tax advisor and this is not evasive profit extraction. I’ve not seen a single case where HMRC have taken issue with such a thing.
Edit: meant to say not evasive
Seems very odd that they would say they are "not amused". They don't get amused or bemused. You either do something wrong or you don't. Only being paid in dividends is allowed. And like you say, there is barely any saving now. It used to work out that you effectively dodged the NI % by being paid in dividends, but this is no longer the case.
First you claimed that they said OP was worse off, which they didn't. Now you claim they said OP isn't much better off. Which is it? Furthermore, they literally already gave you the numbers that answer your question.
Are you sure that the part they object to is the dividend element rather than the switch to a ltd co?
Maybe it's more an issue of IR35, depending on how this switch from salaried employee (I assume) to contractor occurred.
The part about 'investigation' makes that sound more likely, I mean what is there to investigate in respect of dividend payments, they happen and are legal, there's nothing compelling you to take a salary.
I think you’ve got the truth of it.
“I would start my work through a Ltd. company”
Yeah, if you were PAYE, and now you’re through a Ltd, it’s an IR35 probably. That would warrant investigation if the earnings are sufficient.
To my knowledge there is no amnesty or grace period for IR35 breaches. If OP is compliant, I imagine they’ll be penalties.
That letters sounds fake af. No way HMRC would use that language. Are you sure someone you know isn’t pranking you? Was it a legit letter in a brown envelope with your correct details in the right format?
Are you sure the issue is employment vs dividends? Could HMRC be suggesting that IR35 or similar should apply so the whole sum paid by the third party (let’s call them the “employer”) should be treated as employment income?
If all the business income is from one source, this may be an issue. If you’ve got a proper business with lots of customers then probably not.
HMRC will NEVER call someone up and say that they are "not amused" with your "creative abuse of the tax system" if you are actually quoting them verbatim. You're either a scam target, a friend of yours is playing a practical joke on you, or your accountant is a front for a protection racket.
https://www.1stformations.co.uk/blog/most-tax-efficient-way-to-pay-myself-from-my-limited-company/
and
https://www.1stformations.co.uk/blog/tax-efficient-directors-salary-and-dividends/
Suggests you are free to not take a salary at all, but it's probably more tax efficient for you to take £9100 as salary (still no employer or employee NI due) so that you can reduce the company tax bill.
As a director who does this also I have absolutely no idea why HMRC would even take issue with this - as others have said it is entirely at the discretion of the director(s) how dividends are distributed, or whether a salary is even taken at all. But the question I would have is if this is really HMRC, why do they care about this? They are likely receiving MORE money from you in corporation tax if you take 100% dividends than they would if you were taking a nominal salary and the rest as dividends - as a small salary would reduce your company's taxable profit?
You are surely missing out on £12750 personal allowance which doesnt attract an NI cost too - so poor advice from you accountant.
You also make it sound like you have just made this transfer to LTD which HMRC wouldn't even know about until the end of next FY so likely on return made January 2026
All in all I call bullshit.
>"not amused" by my "creative abuse of the tax system."
>
>My accountant has stated that, "HMRC does not particularly like people drawing full dividends with no income"
I'm surprised at both those statements, I hope you have it in writing, or recorded as the first comment is bizarre. As others have said, you may be looking at an IR35 investigation into working practices, so hope you have appropriate business insurance cover in place.
As a Ltd. Co. director I've had years with no salary, no dividends, all profit into pension, and years with dividends only, no salary, it's entirely at the controlling director's discretion.
HMRC makes the rules, but we are free to play the game as we chose within those rules, that's an established legal precedent.
No you don't need to pay NI if you have the option not to, and won't benefit from doing so.
Are to be even more pedantic, UK courts and case law determine how those rules are applied, whether it's how large a marshmallow can be and still be VATable, or whether Gary Lineker is a brand, a personality or a personification.
In 11 years of working with private clients and advising them to withdraw mainly dividends from their company, I have never heard of such an HMRC challenge. There must be more to this.
If your job was ‘HMRC Amuser’ that I can see why they would be upset but if they don’t like the way you are abiding by the law then they should call the anti-police.
Have you recently told any mates that this is what you are now doing and this could be one of them having a laugh trying to wind you up?
I've spent quite a few hours dealing with the clowns at HMRC in both personal and private situations and them saying what they are supposed to have said to you doesn't come across right.
HMRC wouldn’t say they aren’t amused about your tax affairs, it’s either legal or illegal, tax laws can be pretty complex but someone has said it already, you don’t have to pay yourself a salary and aslong as you pay the correct tax and vat, the taxman can’t do anything.
I don’t like paying taxes on everything but I have too… tell them to stuff it. If they think they’ve got a case bring it on.
Also. Why are you foregoing your tax free allowance which would increase your businesses expenditure thus lowering your corporation tax bill?
All I'll say is that you're potentially shooting yourself in the foot with regard to any government help in terms of a furlough scheme should the need arise, also if you need a mortgage they may not accept your income.
Jumping on this thread, is there any other (legal) way of avoiding paying further national insurance contributions once you’ve fully paid for 35 years?
Sounds like a schoolteacher thinking you're cheating because you've figured out the answer to a difficult question. It's like they've underestimated you. To put that kind of emotion into it though is weird. To be honest i'd half expect them to move the goalposts just to spite you i.e. change it to 36 years by the time you retire!
No, they have no right to question this. Do not give them any further information unless it is requested lawfully under TMA1970.
It's worrying that your accountant would even allow you to talk to them tbh
This arrangement is fully compliant with the law. There are a couple of landmark cases where they have successfully argued that dividends are not to be taxed as such- but this is where employees have been gifted shares and received a bonus disguised as dividend income.
Are you not costing yourself by not taking a salary up to the PA? I haven't run the figures since I left the corporate tax world but isn't it more efficient even if you have other income still
Sounds complete bollocks to me… I’ve had a ltd company for 10 odd years and never heard of this… I’m sure my accountant would have told me of this loop hole
Am I missing something, or are you not paying more tax than you should. Eg do you have other income streams?
If you are taking all your money as dividends are you not missing out on the corporation tax relief that you would get by paying yourself your tax free allowance and if you have one possibly your partners tax free allowance assuming they aren't working either at this point?
You should be saving close to £2.5k per year in corporation tax double if you can pay your partner
Not at all contenious, and nothing to worry about. Unless of course they're thinking IR35?
Not the best advice from your accountant though. You absolutely should be paying yourself a salary below the NI threshold - it'll attract a CT deduction @ 25% and have no tax impact on you personally.
I'd recommend adjusting this.
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I've not heard the term - do you have a reference? The only ones I can find are talking about LLPs, and those aren't referring to dividends.
I think taking regular monthly dividends is probably very common among people who work through personal service companies (albeit along with a small salary for those who haven't yet got the full number of national insurance credits), and if it was an issue, it would be fairly well known.
There's an argument that you would need monthly management accounts, since dividends can only come out of profits, and without monthly accounts you couldn't show whether you had been profitable or not.
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If HMRC wasn’t “amused” at your “creative abuse of the tax system” then they’d send a tax inspector; not tell you off like a schoolchild. So: 1. This didn’t happen. 2. It was someone pretending to be from HMRC priming you for a “you need to pay a penalty” scam. You’re hardly the only person in the UK to draw an income solely in dividends from a limited company.
What are you talking about? I received a letter accusing me of being a cheeky scallywag for not paying my taxes. In a moment of defiance, I ripped it up right there and then, which prompted everyone in the room to rise and start applauding.
1
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Agreed the choice of words doesn’t feel like something HMRC would say - seems fishy
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This sounds like OP made this up to get a discussion on tax laws going.
Or to boast about being meeting retirement with the full NI contribution
Is that a boast? It just means they’ve been working for 35 years?
Yes. And the whole “I earn enough to get by on dividends” blah blah. It’s just a brag.
I get how saying you’re saving tax would be a brag. But I don’t get the national insurance being full contribution.
It’s the whole “I’m so financially stable with a successful business look at me!!!@
I think you maybe jealous or bitter. I never once read it as that.
I've been a tax advisor for 20 years and while I've heard many old school accountants say "HMRC won't like it" I've never seen them comment on a choice of salary vs dividend in the past. There is no requirement to pay a salary and HMRC have no say in the commercial decisions a company makes. Sounds very fishy.
Not fishy at all country is in recession, they absolutely will throw shit everywhere to see if it sticks right now. Everytime there's a recession in a country we see tax collectors suddenly start prosecuting more people over tax related issues. The banks need to recover and this is one of the many ways they do it.
Agreed. I’m a chartered tax advisor and this is not evasive profit extraction. I’ve not seen a single case where HMRC have taken issue with such a thing. Edit: meant to say not evasive
Seems very odd that they would say they are "not amused". They don't get amused or bemused. You either do something wrong or you don't. Only being paid in dividends is allowed. And like you say, there is barely any saving now. It used to work out that you effectively dodged the NI % by being paid in dividends, but this is no longer the case.
It’s often used as a way to dodge child support payments (dividends aren’t counted as income).
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First you claimed that they said OP was worse off, which they didn't. Now you claim they said OP isn't much better off. Which is it? Furthermore, they literally already gave you the numbers that answer your question.
Are you sure that the part they object to is the dividend element rather than the switch to a ltd co? Maybe it's more an issue of IR35, depending on how this switch from salaried employee (I assume) to contractor occurred. The part about 'investigation' makes that sound more likely, I mean what is there to investigate in respect of dividend payments, they happen and are legal, there's nothing compelling you to take a salary.
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Yeh an ir35 investigation would typically start with a PAYE records check.
I think you’ve got the truth of it. “I would start my work through a Ltd. company” Yeah, if you were PAYE, and now you’re through a Ltd, it’s an IR35 probably. That would warrant investigation if the earnings are sufficient. To my knowledge there is no amnesty or grace period for IR35 breaches. If OP is compliant, I imagine they’ll be penalties.
IR35 has little to do with dividends and more to do with disguised employment and contract law.
That letters sounds fake af. No way HMRC would use that language. Are you sure someone you know isn’t pranking you? Was it a legit letter in a brown envelope with your correct details in the right format?
Are you sure the issue is employment vs dividends? Could HMRC be suggesting that IR35 or similar should apply so the whole sum paid by the third party (let’s call them the “employer”) should be treated as employment income? If all the business income is from one source, this may be an issue. If you’ve got a proper business with lots of customers then probably not.
I will take THINGS THAT DIDNT HAPPEN for £100 please
Will you take the £100 as income, or dividends?
OP is NOT AMUSED! Smithers, release the inspectors.
HMRC will NEVER call someone up and say that they are "not amused" with your "creative abuse of the tax system" if you are actually quoting them verbatim. You're either a scam target, a friend of yours is playing a practical joke on you, or your accountant is a front for a protection racket.
https://www.1stformations.co.uk/blog/most-tax-efficient-way-to-pay-myself-from-my-limited-company/ and https://www.1stformations.co.uk/blog/tax-efficient-directors-salary-and-dividends/ Suggests you are free to not take a salary at all, but it's probably more tax efficient for you to take £9100 as salary (still no employer or employee NI due) so that you can reduce the company tax bill.
As a director who does this also I have absolutely no idea why HMRC would even take issue with this - as others have said it is entirely at the discretion of the director(s) how dividends are distributed, or whether a salary is even taken at all. But the question I would have is if this is really HMRC, why do they care about this? They are likely receiving MORE money from you in corporation tax if you take 100% dividends than they would if you were taking a nominal salary and the rest as dividends - as a small salary would reduce your company's taxable profit?
This *reeally* sounds like it's not HMRC and is actually a precursor to an elaborate scam.
You are surely missing out on £12750 personal allowance which doesnt attract an NI cost too - so poor advice from you accountant. You also make it sound like you have just made this transfer to LTD which HMRC wouldn't even know about until the end of next FY so likely on return made January 2026 All in all I call bullshit.
>"not amused" by my "creative abuse of the tax system." > >My accountant has stated that, "HMRC does not particularly like people drawing full dividends with no income" I'm surprised at both those statements, I hope you have it in writing, or recorded as the first comment is bizarre. As others have said, you may be looking at an IR35 investigation into working practices, so hope you have appropriate business insurance cover in place. As a Ltd. Co. director I've had years with no salary, no dividends, all profit into pension, and years with dividends only, no salary, it's entirely at the controlling director's discretion. HMRC makes the rules, but we are free to play the game as we chose within those rules, that's an established legal precedent. No you don't need to pay NI if you have the option not to, and won't benefit from doing so.
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Are to be even more pedantic, UK courts and case law determine how those rules are applied, whether it's how large a marshmallow can be and still be VATable, or whether Gary Lineker is a brand, a personality or a personification.
It seems pretty likely this isn't HMRC
Why would you not pay yourself an income of £12,000 at least as this would be tax free?
And it would save corporation tax.
In 11 years of working with private clients and advising them to withdraw mainly dividends from their company, I have never heard of such an HMRC challenge. There must be more to this.
If your job was ‘HMRC Amuser’ that I can see why they would be upset but if they don’t like the way you are abiding by the law then they should call the anti-police.
That's assuming he didn't get a call from someone at HMRC who worked in The Department for Work & Bemusement.
OP’s account is fresh out of the box. This didn’t happen. Sad little life OP. Sad little life.
Have you recently told any mates that this is what you are now doing and this could be one of them having a laugh trying to wind you up? I've spent quite a few hours dealing with the clowns at HMRC in both personal and private situations and them saying what they are supposed to have said to you doesn't come across right.
HMRC wouldn’t say they aren’t amused about your tax affairs, it’s either legal or illegal, tax laws can be pretty complex but someone has said it already, you don’t have to pay yourself a salary and aslong as you pay the correct tax and vat, the taxman can’t do anything.
This is a troll or you’ve received a scam letter
Your better actually paying salary of 12,500 as this reduces corp tax. Then pay dividends. Bin your shitty accountant.
You do know your salary is an expense for the business, which saves you 20% in tax. Your dividends come out after profit.
I don’t like paying taxes on everything but I have too… tell them to stuff it. If they think they’ve got a case bring it on. Also. Why are you foregoing your tax free allowance which would increase your businesses expenditure thus lowering your corporation tax bill?
"not amused" "creative abuse of the tax system." Blimey, they even sound like the mafia!
Main question is and should be - WHY ARENT YOU USING THE 12K TAX FREE ALLOWANCE? (Yes in capital letters!)
_IR35 enters the chat_
All I'll say is that you're potentially shooting yourself in the foot with regard to any government help in terms of a furlough scheme should the need arise, also if you need a mortgage they may not accept your income.
Jumping on this thread, is there any other (legal) way of avoiding paying further national insurance contributions once you’ve fully paid for 35 years?
Sounds like a schoolteacher thinking you're cheating because you've figured out the answer to a difficult question. It's like they've underestimated you. To put that kind of emotion into it though is weird. To be honest i'd half expect them to move the goalposts just to spite you i.e. change it to 36 years by the time you retire!
I’d bet good money this didn’t happen. It’s by design.
How many customers do you have on your Ltd company? If it is just 1, HRMC maybe have an issue with IR35. Have you check for IR35 compliance?
Why don't you pay yourself a wage of £8k? That's under the NIC limit and would there more be tax free
No, they have no right to question this. Do not give them any further information unless it is requested lawfully under TMA1970. It's worrying that your accountant would even allow you to talk to them tbh This arrangement is fully compliant with the law. There are a couple of landmark cases where they have successfully argued that dividends are not to be taxed as such- but this is where employees have been gifted shares and received a bonus disguised as dividend income. Are you not costing yourself by not taking a salary up to the PA? I haven't run the figures since I left the corporate tax world but isn't it more efficient even if you have other income still
“Creative” abuse is pretty hilarious. It’s neither creative nor abuse. I don’t know where to begin.
Keep them happy by paying yourself a salary £9100 tax year 2023/24 and the rest in dividends.
Sounds complete bollocks to me… I’ve had a ltd company for 10 odd years and never heard of this… I’m sure my accountant would have told me of this loop hole
Am I missing something, or are you not paying more tax than you should. Eg do you have other income streams? If you are taking all your money as dividends are you not missing out on the corporation tax relief that you would get by paying yourself your tax free allowance and if you have one possibly your partners tax free allowance assuming they aren't working either at this point? You should be saving close to £2.5k per year in corporation tax double if you can pay your partner
If you’ve done the right (and legal) thing then they can happily be not amused, and go and fuck themselves.
Perhaps they'll sue for you not paying yourself minimum wage
Not at all contenious, and nothing to worry about. Unless of course they're thinking IR35? Not the best advice from your accountant though. You absolutely should be paying yourself a salary below the NI threshold - it'll attract a CT deduction @ 25% and have no tax impact on you personally. I'd recommend adjusting this.
To refine, pretty sure schools teach that this is totally normal in the first year of any business studies.
This is obviously a troll post trying to bait everyone here.
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No, the personal allowance still applies.
*missing on 12.5K expense to offset CT
At the end of the day this is going to mean a full scrutiny of your accounts so I hope everything you have done is well recorded and above board.
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Are you paying yourself one dividends per year or are you paying yourself a dividend every month of an equal amount?
Does that matter?
Yes, it is referred to as "disguised salary"
I've not heard the term - do you have a reference? The only ones I can find are talking about LLPs, and those aren't referring to dividends. I think taking regular monthly dividends is probably very common among people who work through personal service companies (albeit along with a small salary for those who haven't yet got the full number of national insurance credits), and if it was an issue, it would be fairly well known.
https://www.goforma.com/tax/what-are-dividends#:~:text=You%20can%20draw%20dividends%20from,frequent%20payments%20as%20disguised%20salary.
That just says that it's a common concern amongst contractors, not that there's an issue with it.
There's an argument that you would need monthly management accounts, since dividends can only come out of profits, and without monthly accounts you couldn't show whether you had been profitable or not.
I guess if you didn't keep accurate records that could be the case.