How come directors aren't entitled to PAYE credit

H

Helen

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Hi,

I've just found out that as a director of my IT contracting company, I am not entitled to the PAYE tax credit and as a result have received a bill from revenue for 650 euros. This is not something I was aware of up until now.

I'm just wondering why anyone would be a director if not getting this credit? Are there advantages that outweigh this disadvantage (from a 1 person IT contractor point of view)?

Thanks,
 
There was a thread about this specific issue a while back here on AAM but I can't find it at the moment. I guess you don't get the PAYE credit because you are not a PAYE employee but a director. Did your accountant apprise you of the details of this situation?
 
i think the reasoning behind not giving the PAYE credit to directors is to discourage the type of one-man (or woman!) companies that you might have, whereby you claim to be a consultant rather than an employee.

In the last several budgets there have been large increases in the PAYE credit compared to other credits.

If you factor this in, plus the costs of running a company, you are down a few thousand euro by operating via a company rather than being an employee. Unless you get the "employer" to up your "salary" by at least an equal amount you are out of pocket.

You also have much fewer entitlements to social welfare benefits than employees.
 
Thanks for the replies. I knew about the fewer social welfare entitlements but you pay a lower rate of PRSI to compensate for this.

I've since been told that if I own less than 15% of the share of the company, then I can avail of the PAYE credit.

I'll give revenue a call and see if they can confirm this. In the meantime if there are any other 1 man/woman companies have come across this before, maybe you'd let me know your experience with it.

ClubMan said:
Did your accountant apprise you of the details of this situation?
Click to expand...

Clubman, this is a sore point! I've yet to find an accountant who will proactively ask me questions about my setup and offer advice. Up to this point I was not aware that I wasn't entitled to the PAYE credit, so have never posed the question and as a result never got advice on it before.
 
You are not entitled to the PAYE credit becasue you have control over the amount of salary that you can command (in theory at elast)

If you want to pay yourself more money, and it's there, then you could

That was the original argurement behind the concept when it was an allowance

Many people will argue that directors and/or self emplyed people are allowed more dedcutions against their income and that is also part of the reason it is disallowed

The rules for tax deductions for employees and self employed people are different but mot necessarily for directors

[email protected]
 
I've since found out that if I reduce my shareholding to less than 15%, then I have to pay the higher PRSI rate and also the employers contribution, so can't gain anything by doing that.
Will just have to accept my new credits and my bills for the last 2 years!
 
On this particular theme, I was recently talking to a company director who is a 50% shareholder in a company. His part time financial controller completed his p60 and P35's etc on the basis that he was entitled to the paye credit ie he was an employee, so he received too many credits last year 31/12/2004. The downside however is that the company suffered the 10.5% (or whatever) employers prsi, which was far in excess of the saving to him. How/should can this be rectified?
 
I would think if he contacted the revenue and explained the situation they would charge him the extra PAYE instead of the company.
Either way, one side has to give.
 
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