OTS recommended changes to IR35

[malvolio]

If this is the case then what are the benefits of Ltd Co over self employed? If I have insurance to cover the increased liability I can have all my turnover sitting there offset against my mortgage.

Maybe I'm missing something as this is an off the cuff response...

If you work through agencies, you still need the Limited Company to cover off the risk of tax defaulting, as per the original S134c - which is the thing I would much rather they sorted out since that would also make IR35 unnecessary and allow you to work any way you wanted to.

[ratewhore]

If you work through agencies, you still need the Limited Company to cover off the risk of tax defaulting, as per the original S134c - which is the thing I would much rather they sorted out since that would also make IR35 unnecessary and allow you to work any way you wanted to.

I figured something useful would be outside the scope of the report. Shame...

[d000hg]

If this is the case then what are the benefits of Ltd Co over self employed?

Well if they remove the advantages maybe there will be a lot less 1-man Ltds and things will get simpler all round. Bad news for accountants perhaps.

However what about VAT, in response to your question?

[malvolio]

OTS Report now published

And can be found on the main PCG website, among other places.

Key point is that PAYE and NICs should be merged into a single tax. That, while horribly difficult to do, would not be a bad idea.

As regards IR35, there are two suggestions; suspend IR35 with immediate effect with a view to abolition, and improve administration of IR35 by HMRC. The first is dependent on the acceptance of the PAYE/NIC merger, the latter is widely regarded as not the preferred option (for which read "total p!55 take" ).

A third option, of using a set of "In business" tests to determine if IR35 is applicable is in there and has some merit and support

Of course these are suggestions for the Chancellor, it's up to him what he does with them. We won't know that until the budget. But meanwhile, it still looks like a major step forward

[Jog On]

And can be found on the main PCG website, among other places.

Key point is that PAYE and NICs should be merged into a single tax. That, while horribly difficult to do, would not be a bad idea.

As regards IR35, there are two suggestions; suspend IR35 with immediate effect with a view to abolition, and improve administration of IR35 by HMRC. The first is dependent on the acceptance of the PAYE/NIC merger, the latter is widely regarded as not the preferred option (for which read "total p!55 take" ).

A third option, of using a set of "In business" tests to determine if IR35 is applicable is in there and has some merit and support

Of course these are suggestions for the Chancellor, it's up to him what he does with them. We won't know that until the budget. But meanwhile, it still looks like a major step forward

Can someone explain what will happen to dividends up to the £42,475 threshold? Say if I take salary of £20k and divis of £22,475 - what happens to the £22,475 divis?

I thought IR35 was there to force people to take 95% of the income from a contract as PAYE and not divis. Thie IT/NI merger just makes it simpler for people to make their PAYE payments whatever they are. I make them all in 1 go anyway - TAX/emeNIC/emerNIC...

[dx4100]

Hi Guys

I am getting a bit confused about how merging NIC + Income Tax gets rid of IR35.

I am guessing the average contractor takes a NMW salary or less and then the rest is dividends. If they merge NIC and Income Tax will we then pay NIC on dividends ? Will it just be the Employee NIC ? What about the Employers NIC ?

It seems above it is being suggested we would continue drawing salary and dividends but the extra tax paid would be little to none. If this the case then I don't see how the change made IR35 useless.

I know its probably all guess work at this stage but if someone could just clear up the basics of this suggestion I would grateful.

[malvolio]

Can someone explain what will happen to dividends up to the £42,475 threshold? Say if I take salary of £20k and divis of £22,475k - what happens to the £22,475k divis?

The quick answer is "nothing at all". Your total earned income will be subject to a single rate of tax, so no point in using dividends (which, according to HMRC, is the only reason we have limited companies, because dividends are not liable to NICs. But that is about 10% of the answer. Very briefly, UK PLC still needs a way to separate earned income from investment income, else there is no incentive to build a company up; so simply ditching dividends won't work.

[dx4100]

The quick answer is "nothing at all". Your total earned income will be subject to a single rate of tax, so no point in using dividends (which, according to HMRC, is the only reason we have limited companies, because dividends are not liable to NICs. But that is about 10% of the answer. Very briefly, UK PLC still needs a way to separate earned income from investment income, else there is no incentive to build a company up; so simply ditching dividends won't work.

So they subject the whole lot to Income Tax + Employees National Insurance. What about Employers National Insurance ?

[Jog On]

The quick answer is "nothing at all". Your total earned income will be subject to a single rate of tax, so no point in using dividends (which, according to HMRC, is the only reason we have limited companies, because dividends are not liable to NICs. But that is about 10% of the answer. Very briefly, UK PLC still needs a way to separate earned income from investment income, else there is no incentive to build a company up; so simply ditching dividends won't work.

So all income - even divis are taxes as PAYE? Will this apply to all businesses or just contractors that are cought by a new revamped 'employment' test (IR35 2.0)?

So effectively we're taxed as self employed but with limited liability?

[SueEllen]

So they subject the whole lot to Income Tax + Employees National Insurance. What about Employers National Insurance ?

If you google for accountancy age they have a few articles on it.

*I would put the link but I don't think I'm suppose to advertise or endorse things.