Spring Budget 2017

[Fred Bloggs]

Come on now, don't be surprised. This has been brewing for the best part of twenty years. How can anyone not have expected this?

[jamesbrown]

Come on now, don't be surprised. This has been brewing for the best part of twenty years. How can anyone not have expected this?

Didn't you read the chorus of unsurprise? Still, it won't be easy to implement something that successfully renders equivalent various forms of income without loopholes or major impacts on flexible working, such as the ability to retain a warchest at a reasonable marginal rate of taxation. Wholesale reform is needed, but I doubt that's what they have in mind.

[b r]

'War-chest'?

They don't care about how we'll get through periods on bench/unemployment, as they want their income tax and NI as we (our businesses) earn it, not when we pay ourselves.

Once making-tax-digital really hits, between this and anti-PSC legislation they'll kill off whatever entrepreneurial spirit is left in the UK - and just when (with Brextulip) we really need it.

[jamesbrown]

'War-chest'?

They don't care about how we'll get through periods on bench/unemployment, as they want their income tax and NI as we (our businesses) earn it, not when we pay ourselves.

Once making-tax-digital really hits, between this and anti-PSC legislation they'll kill off whatever entrepreneurial spirit is left in the UK - and just when (with Brextulip) we really need it.

They will care when their overall tax receipts take a turd and unemployment increases, but they won't join any dots. That's what happens when you regulate against more flexible forms of working or make them uneconomic. However, this argument is rather vague and subjective, whereas the "tax gap" carries the illusion of precision and objectivity, so it was always clear which argument would "win".

[SussexSeagull]

In the meantime people who work cash in hand seemingly avoid tax with impunity.

[WordIsBond]

This is easy.

Increase the dividend allowance by £2.5K. Increase the dividend tax by another 5% on all close companies. Scrap IR35.

You will have made the pensioners happy with the first provision. The second provision virtually eliminates the "motivation" component of the phrase "Tax Motivated Incorporation" -- the small benefit close company shareholders get from the increased allowance will be quickly wiped out by the higher tax for anyone who is mostly paid in dividends. Since you've now eliminated TMI, you can eliminate IR35, too.

Now, people can run their business like a business without worrying about getting dragged into a draconian IR35 mess. If someone acts like an employee but wants to call themselves a business, they might pay a little bit less tax but they make up for it with loss of employment rights, accounting fees, and other hassles. So there's no real incentive to do it, but if they do, it's the business of those who do it and their clients. Reduce the taxation imbalance and no one except you and your engager should care whether you are a business or an employee.

This whole fiasco comes from imbalances in the tax system. Reduce the imbalances and you reduce the need to use artificial laws and distinctions to try to prevent unethical exploitation of the imbalances.

Sure, it won't be popular around here to tell contractors they pay another 5% dividend tax, but on the other hand, if you save on IR35 insurance and the need to keep track of IR35 developments, and can quit worrying about stuff that you only worry about because of IR35, there will actually be more flexibility, more freedom, and it is probably easily worth it.

I suppose the other significant imbalance is ER. You can avoid the increased dividend tax by just leaving a huge warchest in your company and then winding it up. That's relatively easy to address, too. Kill ER for MVLs of close companies.

There, I just solved the whole mess, simplified tax, helped industry, restored flexibility to the public sector, saved us all between £100-300 a year in IR35 insurance (depending on what we buy), let us quit worrying about getting invited to Christmas parties or using the client's gym, and cost us all another £1K a year with the dividend tax increase I just proposed, to say nothing of what I cost all of you with massive warchests. Anyone want to vote for me for Chancellor? I'm not qualified, since I actually know something about how business and economics work, but I'd try anyway.

[Lance]

This is easy.

Increase the dividend allowance by £2.5K. Increase the dividend tax by another 5% on all close companies. Scrap IR35.

<snip>
Anyone want to vote for me for Chancellor? I'm not qualified, since I actually know something about how business and economics work, but I'd try anyway.

I agree. And get rid of NICs as well and make income tax cover that shambles.
You can have my vote.

[jamesbrown]

Nothing less than taxation of corporate income as personal income at the marginal rate of the controlling persons will be sufficient. As they've stated many times now, they want to increase employment for tax purposes without increasing employment. Dividend taxation and other measures may be considered in the interim, but they're all messy approximations. Look-through structures are tried and tested in other jurisdictions.

[WordIsBond]

Nothing less than taxation of corporate income as personal income at the marginal rate of the controlling persons will be sufficient. As they've stated many times now, they want to increase employment for tax purposes without increasing employment. Dividend taxation and other measures may be considered in the interim, but they're all messy approximations. Look-through structures are tried and tested in other jurisdictions.

I don't agree. Messy approximations that get close are good enough. As long as the imbalances aren't severe, let people use the structure they prefer for the way they want to do business.

Look-through is fine, but it should be optional as it is in America. If you make look-through mandatory, you take away the ability to plan when to take personal income, to build reserves for future investment or future down times, etc. People should be able to run their business like a business, to build a warchest, for instance, and be taxed accordingly.

I agree. And get rid of NICs as well and make income tax cover that shambles.
You can have my vote.

Thanks. I'll take your statement as a mandate on NICs, consider it done.

I'm also going to find a revenue-neutral way to kill Gordon Brown's abominable tax credits.

[jamesbrown]

I don't agree.

I know you don't agree, I was disagreeing with you. If they want to increase employment for tax purposes without increasing employment, then a compulsory look through achieves that. A tax deferred is a tax (potentially) avoided (pension payments, moving overseas etc.) and they won't want that in the long-run. If they want to sustain an overly-complicated and approximate treatment of different income streams, they'll mess around with dividend tax and ER, but this has broader implications. As I've said elsewhere, I think they're likely to go with the ugly option in the short-term, but it isn't sensible and it won't be the end of their fiddling.