Hi all
First let me first apologise in advance, as I'm mainly here to have a rant.
Now down to it: IR35, including the new reforms, are complicated and controversial. They require application of a set of loosely defined principals to determine whether a person is an employee for tax purposes. HMRC do not understand these principals and apply them incorrectly in many cases, and highly experienced judges often disagree on their application.
All of these stem from a perceived unfairness in the different tax treatment of Ltd contractors and employees, and there is also a perceived unfairness in taxing a contractor as an employee without giving them the rights and benefits of employment.
All of this started me thinking: Is there a better way?
Many have espoused aligning tax and employment law to ensure an "employee for tax purposes" is treated as an employee in other ways, too. However, even this misses the mark as employment law is just as complicated (if not more so).
So, what if we removed the perceived unfairness a different way?
The perception of unfairness stems from an overcomplicated tax code. If this were simplified and aligned, much of this perception would be rectified.
My solution would be as follows:
This would completely remove any advantage of declaring dividends rather than taking a salary. It would also make taxation more transparent. Employers NI would stop being seen as a tax on the employer (which it has never been, it's really a tax on the employee but hidden from them, all employers have to consider this cost when calculating an employee's salary).
However, it does retain legitimate advantages available to contractors. As business owners, for instance, we can offset valid business expenses, and we can choose how much to pay ourselves and how much to retain in the company. None of these are tax avoidance, just business decisions.
Now, I don't see common sense taking over in government any time soon, nor in HMRC. I am aware that these would increase our tax bills. However, this would appear to be a much simpler and more honest way to deal with taxation in general, and IR35 especially.
Again, apologies for the rant.
Anyone have any thoughts?
First let me first apologise in advance, as I'm mainly here to have a rant.
Now down to it: IR35, including the new reforms, are complicated and controversial. They require application of a set of loosely defined principals to determine whether a person is an employee for tax purposes. HMRC do not understand these principals and apply them incorrectly in many cases, and highly experienced judges often disagree on their application.
All of these stem from a perceived unfairness in the different tax treatment of Ltd contractors and employees, and there is also a perceived unfairness in taxing a contractor as an employee without giving them the rights and benefits of employment.
All of this started me thinking: Is there a better way?
Many have espoused aligning tax and employment law to ensure an "employee for tax purposes" is treated as an employee in other ways, too. However, even this misses the mark as employment law is just as complicated (if not more so).
So, what if we removed the perceived unfairness a different way?
The perception of unfairness stems from an overcomplicated tax code. If this were simplified and aligned, much of this perception would be rectified.
My solution would be as follows:
- Remove the different tax treatment of different types of income
- Abolish National Insurance and roll it into income tax
- Ensure a one-off payrise for all employees to account for employers NI now being part of income tax
- Apply a pre-tax adjustment for dividends to "refund" the corporation tax already paid
This would completely remove any advantage of declaring dividends rather than taking a salary. It would also make taxation more transparent. Employers NI would stop being seen as a tax on the employer (which it has never been, it's really a tax on the employee but hidden from them, all employers have to consider this cost when calculating an employee's salary).
However, it does retain legitimate advantages available to contractors. As business owners, for instance, we can offset valid business expenses, and we can choose how much to pay ourselves and how much to retain in the company. None of these are tax avoidance, just business decisions.
Now, I don't see common sense taking over in government any time soon, nor in HMRC. I am aware that these would increase our tax bills. However, this would appear to be a much simpler and more honest way to deal with taxation in general, and IR35 especially.
Again, apologies for the rant.
Anyone have any thoughts?
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