Spring Budget 2017

[eek]

Darn right, you are probably as amused as I am by the thought. "I don't want to be an employee. But I will see you in court for my holiday and sick pay". Yeah right. Very convincing.

Yep but this expresses my point better than I can so I will repeat it.

Absolutely employment rights needs to be fought. It's really the only way contractors have to fight back.

First, it is simple justice. If people are going to be taxed as employees, they should have employee rights.

Second, it undercuts the stupid over-simplistic HMRC argument that "people who work the same should be taxed the same". When there are other things that AREN'T the same, like employment rights / benefits, then that's a gross over-simplification.

Third, it will get industry actively on the side of contractors. Right now, they are benefiting from having contractors and letting contractors take the heat for "tax avoiding." They need to get aggressively on board in telling government and the press that they need contractors, they need a flexible workforce of people who are running their own business and so aren't insisting on employment rights, and those people SHOULD be treated differently. Those people are taking risks, they have down time, they have to plan for that down time, they don't get paid holidays, etc, etc. Those people should NOT be taxed as employees even if they do the same job because they don't have the same benefits and protections. They are taking risks that benefit industry, and they should not be seen as the bad guys or tax dodgers because they do that.

And unless we force things to the point that being taxed like employees due to x,y,z means we can win an employment tribunal due to x,y,z or even just x and y companies won't fight to allow us to be treated differently. The reason to fight for employee rights is to ensure companies don't accept the default logic that we are inside and actually have an incentive to make an effort and keep us outside.

[WordIsBond]

The problem with apportionment or compulsory look-through is not whether it can be done, but whether it should be done. It clearly shouldn't be done, because it's anti-business, in general, and it would specifically hobble certain classes of what HMG would consider "legitimate businesses".

Of course it can be done. I wasn't trying to argue that. I was saying it is a bad idea because it reduces flexibility and would damage some businesses. Sounds like you agree.

Ruined my whole day. Here I am in an argument with you that I know I'm winning because I know I'm right, and then I find out you agree with me. Could you please disagree with me sometime where it's crystal clear that I'M right and YOU are wrong?

[Fred Bloggs]

Yep but this expresses my point better than I can so I will repeat it.




And unless we force things to the point that being taxed like employees due to x,y,z means we can win an employment tribunal due to x,y,z or even just x and y companies won't fight to allow us to be treated differently. The reason to fight for employee rights is to ensure companies don't accept the default logic that we are inside and actually have an incentive to make an effort and keep us outside.

Yes, I see your point. But if the agency or the client are picking up the bill for unpaid tax, realistically, how many of my blue chip (ex) clients would ever take the risk of declaring outside IR35? The world just doesn't work that way.

[jamesbrown]

Of course it can be done. I wasn't trying to argue that. I was saying it is a bad idea because it reduces flexibility and would damage some businesses. Sounds like you agree.

Ruined my whole day. Here I am in an argument with you that I know I'm winning because I know I'm right, and then I find out you agree with me. Could you please disagree with me sometime where it's crystal clear that I'M right and YOU are wrong?

Sure, we agree I'm just trying to look at this from HMRC's perspective w/r to achieving their stated aim of increasing employment for tax purposes without increasing employment (or mandating against PSCs), but their perspective doesn't always matter, of course, and in this instance I would expect pushback from HMT and, more importantly, from the Tory backbenches. Bottom line, it isn't something I'd advocate, beyond achieving HMRC's stated aim (i.e. the nuclear option), but I expect it has received some consideration. Frankly, I have no idea what they'll do. Probably more short-term measures like an increase in dividend taxation and an increase in Class 4 NI from 9% to 12% (perhaps with a "sweetener" on pensions, along the lines that Steve Webb has advocated). Until that comment in the Gruaniad about the difficulty in getting it through the Commons, I thought a rapid extension of the PS rules to the private sector was guaranteed.

[WordIsBond]

I'm just trying to look at this from HMRC's perspective w/r to achieving their stated aim of increasing employment for tax purposes without increasing employment

I see. You're forgetting the most important point of this part of the discussion -- I'm going to be Chancellor, and I'm implementing sanity. HMRC will need to get with the sanity agenda when I'm in charge.

Until that comment in the Gruaniad about the difficulty in getting it through the Commons, I thought a rapid extension of the PS rules to the private sector was guaranteed.

I thought so, too. That was very encouraging, wasn't it?

Private sector clients know what a nightmare the PS is about to face, so they'll push back hard. Even Brown, with a massive Labour majority, couldn't get those rules in when he brought in IR35. It's incredible that a Tory government (not even a coalition one) has done worse with this than the Blair/Brown government did. What a bunch of idiots. But it's nice to know that their backbenchers are listening enough to industry to reign them in on this. Maybe there is a chance Britain can survive.

[ChimpMaster]

Just hope I have enough time to quit contracting by whichever date these punitive changes come in!

[jamesbrown]

Frankly, I have no idea what they'll do. Probably more short-term measures like an increase in dividend taxation and an increase in Class 4 NI from 9% to 12% (perhaps with a "sweetener" on pensions, along the lines that Steve Webb has advocated).

Sounds as though they're going to do the latter. Probably an increment to dividend taxation too (as usual, the press are confused by PSC vs. sole trader), but they tend not to pre-announce avoidable measures.

[PurpleGorilla]

Sounds as though they're going to do the latter. Probably an increment to dividend taxation too (as usual, the press are confused by PSC vs. sole trader), but they tend not to pre-announce avoidable measures.

Still avoids targeting cash in hand.

[WordIsBond]

Sounds as though they're going to do the latter. Probably an increment to dividend taxation too (as usual, the press are confused by PSC vs. sole trader), but they tend not to pre-announce avoidable measures.

So much for discouraging tax-motivated incorporation. "Oh, let's tax the guys who aren't incorporated even more."

This actually isn't horrible, if they do it. The tax burden on sole traders will still be lower than on employees. It's not enough to discourage someone who wants to be an entrepreneur, but it reduces the tax benefit of fake entrepreneurship to a level where it probably isn't worth it.

I'm also not sure it is signalling another dividend tax increase. This is probably about taking away Class 2 and replacing it with Class 4 and a contributory benefit test. I'm guessing it won't go into effect until 2018, but will be announced now so accountants and others have time to prepare. It may be revenue positive, but probably not as much as the Sun says (really? We're citing the Sun for anything substantive? ).

I also would expect an increase to dividend taxation, if it happens, to be preannounced. That's what they did with the last change to dividend taxation. A Labour government might spring it without warning, but I doubt a Tory one would. If they did, it would set a very bad precedent that would skew business behaviour leading up to the Budget for years. Labour might not care, but the Tories and their big business contributors would.

[m0n1k3r]

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.

This is similar, but not identical to how some Scandinavian countries have solved this. There is nothing like IR35. A self-employed person pays the same tax and almost exactly the same social security as an employee, but is paid in gross and have more freedom about what to use the money for, what pensions provider to use etc than employees. Owner of close limited companies must first take a PAYE salary of at least £52,000 before they can draw dividends (technically, they can draw dividends at any time, but it will be taxed as if it was a salary). Dividends are then taxed at a flat rate of 20% up to a threshold that is higher the more the company has paid in salaries but is at least £14,000. Dividends are taxed as PAYE salary above that threshold. The corporation tax is 22%.

E.g. there is very little tax incentive to incorporate. It is more a matter of freedom and flexibility, and the governments there see very little reason to have anything such as IR35 in place as about the same amount of tax will eventually be paid anyway.