OTS recommended changes to IR35

[malvolio]

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

Don't you just love dealing with grown ups...

[wurzel]

As I see it, the positive upshot from getting rid of IR35 & levying tax and NI on dividend payments is that ultimately you will have more control over your co's money. Under IR35 you have to take everything as salary so you don't get to build up any money in your company's coffers to invest in your business or plan B or whatever. If I'm not mistaken (and I probably am) , I'd say it's a huge improvement on the existing legislation as its a good incentive for business growth.

[craig1]

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.

You could go LLP with your missus as the other partner, no PAYE, no employees, profit payments on demand, no CT, and slightly simpler accounts because you have no PAYE, CT or other faffing about. Still limited liability and still hands-off separate legal entity meaning added protections over sole trader.

You will pay more tax but it's a simpler life. Lots of potential drawbacks though, speak to an accountant before jumping in!

[mudskipper]

If I've got this right the recommendation is:

1) Combine tax and NI
2) Suspend IR35 in expectation that 1. will happen

Are the government really going to go for combining tax and NI? Lots and lots of issues already outlined by others in this thread. And unless employers NI gets included, it's still not clear whether Ltd Co will have to pay this as well - currently those inside IR35 pay both employers and employees, those outside pay neither. I'm still confused...

[malvolio]

If I've got this right the recommendation is:

1) Combine tax and NI
2) Suspend IR35 in expectation that 1. will happen

Are the government really going to go for combining tax and NI? Lots and lots of issues already outlined by others in this thread. And unless employers NI gets included, it's still not clear whether Ltd Co will have to pay this as well - currently those inside IR35 pay both employers and employees, those outside pay neither. I'm still confused...

Thing is, combining the two is a horribly difficult thing to do if you aren't going to damage all sorts of related stuff, like divi payments and pension income. IT is accepted that it may well take many years to achieve fully.

However, the deal on the table is that if Osborne accepts that we should start to look in anger at combining the two, then IR35 should be suspended with immediate effect. By the time the combination work is done, or proven to be unworkable, we should hopefully have proved tat IR35 has no impact on anything other than generating uncertainty and it won't get reinstated anyway.

The big "If" is that Osborne doesn't commit to looking at combination, which is why PCG and others are only cautiously optimistic. But to get the admission that IR35 can be turned off, even if only temporarily, is a huge step forward

[philip@wellwoodhoyle]

Is the answer to go back to advance corporation tax?

Putting IR35 aside, the problem is bigger than IR35, it's that a company/person paying a £6k wage and the rest in dividends is paying a lot less tax/nic than a company caught by IR35, or a company paying a market salary to its directors, or a sole trader who'd be paying tax and NIC on profits. So ultimately the answer has to be some form of higher tax on dividends, either a higher tax rate or some form of NIC, to make a level playing field. That's obviously going to worse for those outside IR35 and better for those inside, and more comparable with a sole trader.

What about bringing back advance corporation tax combined with a higher dividend tax credit? Say, something like 25%. when the company pays a dividend, it pays over 25% tax credit to HMRC. At the year end, it deducts the amount of dividends from it's profits for corporation tax so it pays 25% tax on profits paid out as dividends but only 20% on profits retained. Recipient is taxed at 25% on dividends if he's within basic rate or 40/50% if higher rate, with credit given for the tax credit. This is virtually what we had 15 years ago before it was scrapped and replaced by the "pretend" notional 10% tax credit.

That way, all limited companies pay a bit more tax if they pay dividends and IR35 can be consigned to the garbage where it belongs.

[craig1]

In reality, making this a responsibility of the tax simplification work missed the point. The problem is that there's a genuine concern with disguised employees being stiffed relentlessly by unscrupulous employers. IR35 really needs to be re-targeted to be less of a tax evasion measure and more of a low-end employee protection mechanism, it needs to be moved from HMRC "ownership" to another government organisation who protects employees rights.

Until then, HMRC will see no benefit in assisting someone being genuinely stiffed in a disguised employee relationship but will see internal targets being improved going after the relatively high paid world of contracting. Bean counters go after more beans, they're not interested in those without two beans to rub together.

[SueEllen]

In reality, making this a responsibility of the tax simplification work missed the point. The problem is that there's a genuine concern with disguised employees being stiffed relentlessly by unscrupulous employers. IR35 really needs to be re-targeted to be less of a tax evasion measure and more of a low-end employee protection mechanism, it needs to be moved from HMRC "ownership" to another government organisation who protects employees rights.

Problem is there isn't a department solely responsible for this.

[Waldorf]

What about bringing back advance corporation tax combined with a higher dividend tax credit? Say, something like 25%. when the company pays a dividend, it pays over 25% tax credit to HMRC. At the year end, it deducts the amount of dividends from it's profits for corporation tax so it pays 25% tax on profits paid out as dividends but only 20% on profits retained. Recipient is taxed at 25% on dividends if he's within basic rate or 40/50% if higher rate, with credit given for the tax credit. This is virtually what we had 15 years ago before it was scrapped and replaced by the "pretend" notional 10% tax credit.

That way, all limited companies pay a bit more tax if they pay dividends and IR35 can be consigned to the garbage where it belongs.

This doesn't sound like tax simplification to me

[v8gaz]

In reality, making this a responsibility of the tax simplification work missed the point. The problem is that there's a genuine concern with disguised employees being stiffed relentlessly by unscrupulous employers. IR35 really needs to be re-targeted to be less of a tax evasion measure and more of a low-end employee protection mechanism, it needs to be moved from HMRC "ownership" to another government organisation who protects employees rights.

Until then, HMRC will see no benefit in assisting someone being genuinely stiffed in a disguised employee relationship but will see internal targets being improved going after the relatively high paid world of contracting. Bean counters go after more beans, they're not interested in those without two beans to rub together.

So, you cant work freelance for your last employer. Simples.