OTS recommended changes to IR35

[centurian]

Although most of us dismissed it, maybe option 1 identified by the OTS (merge Tax and NI) may be the option taken up after all if these press reports are to be believed

http://www.ft.com/cms/s/0/9376fd02-5...#axzz1H8Vn3gye

Osborne's secret plan to raise tax – and scrap national insurance - Tax, Money - The Independent

If that's the case, IR35 will be abolished - as it will be no longer relevant. But don't break open the champaigne too quickly as it will be almost certain that dividends will then be taxed at the new Tax+NI combined rate - although we might get a few years grace until it is implemented.

We might still gain a bit - depending what happens with Employers NI


From an impartial idealistic point of view, it is clearly the best option. It reduces tax complexity and kills many tax avoidance schemes (not just IR35) stone dead. The fact that it is politically hard to implement doesn't mean it shouldn't be done. George Osbourne will certainly need some Balls (every pun intended) to drive this through though.

I guess we'll get an indication on Wednesday

[Waldorf]

I noticed this on the front page of The Sunday Times this morning, but have not read it yet.

I wouldn't have thought that the full NIC rate would/could be added to the tax on dividends, generally NIC was only a tax on earnings, however even if the full rate is not added, it does leave the door open for a future labour government to raise more tax from increasing this tax. The general public will be fooled as they were when the dividend tax credit was removed from the pension funds.

[centurian]

I wouldn't have thought that the full NIC rate would/could be added to the tax on dividends

Why not - it effectively ceased to be an "insurance" decades ago. It's basically just an income tax now in all but name, but only applies to certain types of income. It makes perfect sense to just expand it to other income types - the natural conclusion of which is just to combine it with income tax.

To be revenue neutral, the full rate wouldn't need to be added, because the idea is it would be more inclusive, covering more people. The 12% NI could be removed - and covered by an 8-10% increase in income tax.

The fact we'd prefer it not to happen for our own financial reasons, doesn't mean it isn't a sensible change.

Also don't underestimate the public perception on this. Rightly or wrongly, the general public at large have a major beef with tax avoidance right now and if this is seen as killing most schemes stone dead, you may find it has far more support than you might think.

The key issue in selling it will be what to do with pensioners. This can be covered by a large increase in the personal allowance for pensioners, meaning the "average" pensioner will pay no more in tax.

Of course, that will raise the question "why should a pensioner pay less tax than a worker earning the same amount of money". But if people suddenly start noticing how much tax the government is (and always has been) taking from them, is that a bad thing.

[Waldorf]

Why not - it effectively ceased to be an "insurance" decades ago. It's basically just an income tax now in all but name, but only applies to certain types of income. It makes perfect sense to just expand it to other income types - the natural conclusion of which is just to combine it with income tax.

To be revenue neutral, the full rate wouldn't need to be added, because the idea is it would be more inclusive, covering more people. The 12% NI could be removed - and covered by an 8-10% increase in income tax.

The fact we'd prefer it not to happen for our own financial reasons, doesn't mean it isn't a sensible change.

Also don't underestimate the public perception on this. Rightly or wrongly, the general public at large have a major beef with tax avoidance right now and if this is seen as killing most schemes stone dead, you may find it has far more support than you might think.

The key issue in selling it will be what to do with pensioners. This can be covered by a large increase in the personal allowance for pensioners, meaning the "average" pensioner will pay no more in tax.

Of course, that will raise the question "why should a pensioner pay less tax than a worker earning the same amount of money". But if people suddenly start noticing how much tax the government is (and always has been) taking from them, is that a bad thing.

I don't disagree with anything you have said - but to do this politically will be hard, especially with the other tasks the coalition is trying to achieve, not least reducing the deficit.

I suppose a side effect of doing this will be to discourage paying dividends and so this may be good for growth, with companies investing for the future?

We will see on Wednesday, or perhaps we won't

[centurian]

And I think that's why many (including myself) thought that option 1 would be discarded - it will be put in the "too difficult" file.

If (and I repeat, IF), these reports are to be believed, then it appears that George is not going to shy away from the politically difficult decisions. Kudos to him if he decides to do that, even though financially I might prefer if he didn't.

I think on Wednesday, the best we'll get is a hint as to which option is preferred.

[swamp]

It's in all the papers today. It seems they have leaked it to gauge the reaction, but it looks like they are serious about it. Unfortunately most people are too thick to realise this is a good idea. Expect lots of hysterical rants if any groups are even slightly worse off, apart from contractors, who everyone dislikes.

It would be easy to implement if they phase it in over a couple of years. They'll leave Employers' NI alone and maybe rebrand it Payroll Tax or something.

[centurian]

They'll leave Employers' NI alone and maybe rebrand it Payroll Tax or something.

That's what I reckon as well - which means we can still avoid employers NI (as it currently is now) by paying dividends.

This will probably take the sting out of the tail of the tax avoidance argument as well. What I really begrudge about IR35 is not the fact that I have to pay NI - but that I have to pay it twice.

[Bagpuss]

And I think that's why many (including myself) thought that option 1 would be discarded - it will be put in the "too difficult" file.

If (and I repeat, IF), these reports are to be believed, then it appears that George is not going to shy away from the politically difficult decisions. Kudos to him if he decides to do that, even though financially I might prefer if he didn't.

I think on Wednesday, the best we'll get is a hint as to which option is preferred.

If Labour were doing this you would be playing hell. It seems to me there is nothing to celebrate in paying more tax. What is the old saying.. be careful what you wish for...

[TykeMerc]

If they merge NI and Income Tax I wonder how will the various classes of NI be handled? It will be interesting to see how they sort this all out.

While IR35 has been a gigantic cockup and a major pain in the rear I'm concerned that what will follow will make a significant hole in my earnings as a contractor, I will review the implications and work out if it's still viable to stay with the risks of contracting.

[swamp]

The devil will of course be in the details. It always was going to be like that.

Merging the two taxes will go some way to fixing the tax system. IR35 was a bodge to fix a bodge, and it and probably many other badly thought out tax rules could be swept aside if they finally tackle the true underlying problem. For this they are to be congratulated.

However at the end of the day us contractors will pay more tax, of that I am sure. The (small) silver lining is that our limited company accounts may eventually become much simpler for one-man-bands. I suspect many contractors will ditch traditional accountants, preferring instead to fill their accounts online themselves. This may happen for personal tax too.

So we'll claw back £1200 a year for accountancy and £200(ish) for IR35 insurance, and then get clobbered for another £5000 or so in extra taxes. We'll survive. SJD, QDOS, PCG etc. may not.