OTS recommended changes to IR35

[SueEllen]

If there are indeed changes to the way the dividends are taxed to be announced on the 23rd, does it make sense to declare the next tax year's dividends now and pay after the 6th of April ?

You can't just change the tax on dividends like that.

There are other groups of people who get dividends i.e. pensioners, Tory ministers who they don't want to upset.

[Nixon Williams]

I haven't seen anyone mention the fact that we pay tax of 21% before we get our dividends in our hands.

This is why I do not think a full transfer of the NIC rate (12% from 2011/12) would be added to the income tax rate on dividends.

Remember that the small company corporation tax falls to 20% from 01/04/11 !!

[Nixon Williams]

If there are indeed changes to the way the dividends are taxed to be announced on the 23rd, does it make sense to declare the next tax year's dividends now and pay after the 6th of April ?

I cannot see that such a major change in tax/NIC would be made in time for it to apply from 6th April 2011.

I have however often warned about the risk of long term planning around current tax rates and rules.

An example is the hoarding of cash in a company with the aim of taking it out on closure, it is possible we could see a severe restriction on this route in the forthcoming Budget.

This could result in someone effectively paying some tax at 36.1% on accumalated profits rather than the 25% rate we had 12 months ago (and still have for lower amounts).

Alan

[IR35 Avoider]

IF income tax and NIC are merged then it is quite possible (more likely probable) that some sort of employers NIC would remain, although it may be rebranded as something else. The revenue from this is too large for it to be abolished.

When I was redesigining the tax system, for my own amusement, a few years ago, the solution I came up with to allow employers NI to also merge with income tax was still to have a (possibly renamed) employers deduction at the swichover date, but for employee tax purposes treated as a payment by the employer of part of the employees tax bill, and therefore a taxable benefit. The tax rate would be set higher to reflect the fact that this amount was now included in the rate.

The net effect would be, that for tax purposes, the employee gets an overnight 13.8% increase in taxable salary (which is now 13.8% higher than nominal/contractual/legal salary) but all that increase is then taken away by a higher tax rate.

Once this was implemented, one could gradually eliminate the employers deduction by decreasing it, by say 1% each year. One wouldn't on the whole be losing any revenue because these decreases merely transfer the burden of the tax from the employer to the employee, who is hopefully getting pay increases of at least 1% a year anyway.

[IR35 Avoider]

My tax redesign was for the purpose of calculating a flat tax. I concluded that the rate would have to be in the region of 40% to 50% for government revenue to be unchanged. The flat tax design (to prevents avoidance) required that the corporation tax rate also be set to that flat rate. Under my flat tax contractors would pay exactly the same rate of tax regardless of whether there income was taxed as employment income, sole-trader income or investment income.

Edit: blog article at the following link:-

http://chris-king-uk.blogspot.com/20...for-uk_09.html

[VectraMan]

The net effect would be, that for tax purposes, the employee gets an overnight 13.8% increase in taxable salary (which is now 13.8% higher than nominal/contractual/legal salary) but all that increase is then taken away by a higher tax rate.

A shame that'd be political suicide. All the people in denial about employers' NI thinking they pay 20% tax are going to be up in arms at paying 30-something% tax (whatever it is), even if it makes no difference.

The biggest issue for me is not necessarily the amount of tax that IR35 brings, but the lack of flexibility. IR35 dictates that you pay tax on money you haven't earned (i.e. in the year yourco earned it, not that you earned it, and a 5% limit on expenses). I like to be able to choose to stay below the limit in one year, perhaps planning to take a break in the next year, or to act as a proper business and use the money to fund a new project. IR35 doesn't let you plan ahead as a business, it assumes your income is going to stay constant like an employee.

What I'd like to see is a new class of Ltd company with no CT, accounts or annual return nonsense, and no PAYE, where the director can just help himself to the cash and fill out a tax return once a year. That might mean more tax, but on the bright side would be so simple most of us would save £1000 per year on accountants.

[shoes]

Oh wake up.

ooOOO! get her!

The average contractor's bill will stay much the same overall in proportion to the employees' one.

WE SHALL SEE

[malvolio]

ooOOO! get her!

Gosh, how witty...

WE SHALL SEE

Perhaps you should distinguish between "proportion" and "amount". Everyone's taxes are already going up. Or have you been asleep again...?

[Jog On]

I like to be able to choose to stay below the limit in one year, perhaps planning to take a break in the next year, or to act as a proper business and use the money to fund a new project. IR35 doesn't let you plan ahead as a business, it assumes your income is going to stay constant like an employee.

I'm in this camp as well. I've got a Plan B going through the same LTD as my contracting LTD being funded by income from contracting. What about those of us who subcontract people to work on other contracts?

Maybe some enterprising agents could start coming up with 'schemes' where they can supply people to contracts through your LTD to show that you're in business on your own account....

I wonder if bobs4contractors.com is still available....

[shoes]

Gosh, how witty...




Perhaps you should distinguish between "proportion" and "amount". Everyone's taxes are already going up. Or have you been asleep again...?

There's really no need to be such a pr1ck, it completely obscures any points you might be making, I'm done, bye.