Gullible, Greedy, or Honest

[VectraMan]

What I never understood is why dividends aren't taxed as normal income in the first place. Then we would never have had all these issues over IR35.

7. Hector is pissed off..

So will step 8 be IR35 v2, that won't be so easy to work around?

[Hex]

What I never understood is why dividends aren't taxed as normal income in the first place. Then we would never have had all these issues over IR35.

Tax it as normal income wouldn't solve the problem. You'd have to charge Employer's and Employee's NI on it as well. If you're going to do that for Dividends then why not for all other forms of income such as interest payments?

The fact that NI is charged on income from employment but not from other forms of income is what gives the problem. You could, of course, suggest that NI should be scrapped and income tax increased to compensate, but it is politically very difficult to do this.

[VectraMan]

Tax it as normal income wouldn't solve the problem. You'd have to charge Employer's and Employee's NI on it as well. If you're going to do that for Dividends then why not for all other forms of income such as interest payments?

The fact that NI is charged on income from employment but not from other forms of income is what gives the problem. You could, of course, suggest that NI should be scrapped and income tax increased to compensate, but it is politically very difficult to do this.

Obviously that's what I meant. To the man in the street NI and income tax are the same thing. If you're a bit more cynical you'd say that NI is just a way of making the income tax rate look less than it really is, but that's a whole different issue. Why aren't dividends paid from a company taxed exactly the same as salary paid from a company?

Obviously I don't want it to happen that way, but what they've basically done is set up a rule, set up an exception to that rule, then try to setup an exception to the exception to apply the original rule to the people that the exception applies to. And they say tax is complicated.

[tim123]

There seem to be three types of contractors on this board with regards to Umbrellas

The Gullible - who believe that the IR gives them money for expenses that are not incurred.

Personally I don't believe that anyone is that gullible to believe that the IR will let them off tax for false expenditure.

I think you're wrong. The financial/tax knowledge of the average person (even graduates) is stunningly low. If "someone who I know" tells them it is OK, then they will believe it. It really is like that.

tim

[expat]

What I never understood is why dividends aren't taxed as normal income in the first place. Then we would never have had all these issues over IR35.

Because dividends, like interest, result from an investment made with money that was already taxed in the first place.

What is wrong here is that these "dividends" aren't dividends. They're distributed income, not the proportional reward for investing capital into a company which then uses that capital to do its business.

[VectraMan]

Because dividends, like interest, result from an investment made with money that was already taxed in the first place.

But we do pay some tax on interest and dividends. So that's double tax.