Tax Avoidance Attack on Newsnight 01/02/12

[Nixon Williams]

After watching this item on Newsnight last night, it was frustrating that the full figures on their assumptions were not provided.

However, the 'salary' they used was £182,000, giving net income to the consultant of just over £105,000

When they compared this to his income through a company they made some assumptions which were not shown, however I did note that they included expenses of £28,000 and utilised a salary to his 'wife'.

In reality I would guess that if he became an employee he would insist that his salary was at least £210,000 to cover the 'expenses' that he could no longer claim.

Based on this higher, but more realistic salary, his net income would be £119,419 - so his tax saving is now reduced to about £20,000.

However savings remain for the taxpayer, they have a flexible worker who can be removed at very little cost, no expensive pension provison to fund, no sick pay, holiday pay etc.

Sadly this side of the argument was not made last night but just another media frenzy to attack freelancers and business in general.

Alan

[bobspud]

After watching this item on Newsnight last night, it was frustrating that the full figures on their assumptions were not provided.

However, the 'salary' they used was £182,000, giving net income to the consultant of just over £105,000

When they compared this to his income through a company they made some assumptions which were not shown, however I did note that they included expenses of £28,000 and utilised a salary to his 'wife'.

In reality I would guess that if he became an employee he would insist that his salary was at least £210,000 to cover the 'expenses' that he could no longer claim.

Based on this higher, but more realistic salary, his net income would be £119,419 - so his tax saving is now reduced to about £20,000.

However savings remain for the taxpayer, they have a flexible worker who can be removed at very little cost, no expensive pension provison to fund, no sick pay, holiday pay etc.

Sadly this side of the argument was not made last night but just another media frenzy to attack freelancers and business in general.

Alan

Where is the VAT in the calculations? He must of been collecting VAT as a limited Company... So theres a 20% additional revenue going to HMRC on top of the figures...

[MrRobin]

Looks like the baying mob won... http://www.bbc.co.uk/news/uk-politics-16854187

At least it's not back dated...

[craig1]

Where is the VAT in the calculations? He must of been collecting VAT as a limited Company... So theres a 20% additional revenue going to HMRC on top of the figures...

Not really... B2B transactions rarely result in new VAT money going into the public purse as most of it is a nil sum game. VAT a commercial business pays out is usually matched by VAT paid in, even if the SLC paid more VAT than they recouped they'd be able to reclaim.

[MrRobin]

Not really... B2B transactions rarely result in new VAT money going into the public purse as most of it is a nil sum game. VAT a commercial business pays out is usually matched by VAT paid in, even if the SLC paid more VAT than they recouped they'd be able to reclaim.

I think what he meant was that it's not a zero sum game for HMRC because they don't collect VAT to pay themselves so outwards payments cannot be offset.

[bobspud]

Not really... B2B transactions rarely result in new VAT money going into the public purse as most of it is a nil sum game. VAT a commercial business pays out is usually matched by VAT paid in, even if the SLC paid more VAT than they recouped they'd be able to reclaim.

Its only a money in and out transaction if both parties are vat registered. (many government departments are not). Even so, the money will still sit in the HMRC coffers at some point, and as any good bank manager will tell you keeping 40K of someones cash in your own deposit account for a few days before passing it on to the customer will earn you quite a tidy sum of interest. over a few thousand customers...

Lets not even start trying to understand recharging of expenses and disbursements...

As I understand it my agent cannot reclaim the portion of VAT on my bills because they resell my services meaning the end client gets a bill made up of

((my day rate + vat) + agent fee) + vat)

[northernladuk]

He said official guidance said public sector organisations should "avoid using tax advisers and avoidance schemes".

Lot of people at the BBC could be sweating over this one.

[craig1]

Its only a money in and out transaction if both parties are vat registered. (many government departments are not). Even so, the money will still sit in the HMRC coffers at some point, and as any good bank manager will tell you keeping 40K of someones cash in your own deposit account for a few days before passing it on to the customer will earn you quite a tidy sum of interest. over a few thousand customers...

Lets not even start trying to understand recharging of expenses and disbursements...

As I understand it my agent cannot reclaim the portion of VAT on my bills because they resell my services meaning the end client gets a bill made up of

((my day rate + vat) + agent fee) + vat)

Hmmm... not how I understand it at all. I'm a local councillor in my part time (parish council), we're not VAT registered but can reclaim VAT on purchases and that's right at the furthest reaches of the state's influence. The SLC is a government owned private company (much like Northern Rock!) that undoubtedly reclaims VAT, its budget would have to be that much higher if it couldn't.

Also, your agent can reclaim VAT, it's a pass-through cost for them. For example, last contract when I went through an agency, I managed my own budget, agency paid me rate+VAT, they then charged the client (rate+cut)+VAT, the VAT was a real-terms irrelevance for all parties beyond cash-flow. If an agent has told you that as justification for keeping your rate low then they're lying, and not subtly either.

[bobspud]

Hmmm... not how I understand it at all. I'm a local councillor in my part time (parish council), we're not VAT registered but can reclaim VAT on purchases and that's right at the furthest reaches of the state's influence. The SLC is a government owned private company (much like Northern Rock!) that undoubtedly reclaims VAT, its budget would have to be that much higher if it couldn't.

Also, your agent can reclaim VAT, it's a pass-through cost for them. For example, last contract when I went through an agency, I managed my own budget, agency paid me rate+VAT, they then charged the client (rate+cut)+VAT, the VAT was a real-terms irrelevance for all parties beyond cash-flow. If an agent has told you that as justification for keeping your rate low then they're lying, and not subtly either.

No I was told to put a bill into my current client for all my expenses in full + an additional 20% VAT on top of the vat already shown in my figures (something to do with provision of services). My agency had said at the time that they will also need to add vat onto that final bill because its a provision of service . I made the assumption that it extends to my normal bills having read the VAT guidance notice that says that a vat registered company may not reclaim vat on items that they intend to resell to a third party... So it was an assumption based on those two sources of information.

In the background, there was also something about the one of the London government agencies making a ginormous balls up in assessing an infrastructure bid by making the assumption that they didn't need to pay the VAT portion of the figures. HMRC had turned round and said actually yes you do...

[craig1]

No I was told to put a bill into my current client for all my expenses in full + an additional 20% VAT on top of the vat already shown in my figures (something to do with provision of services). My agency had said at the time that they will also need to add vat onto that final bill because its a provision of service . I made the assumption that it extends to my normal bills having read the VAT guidance notice that says that a vat registered company may not reclaim vat on items that they intend to resell to a third party... So it was an assumption based on those two sources of information.

In the background, there was also something about the one of the London government agencies making a ginormous balls up in assessing an infrastructure bid by making the assumption that they didn't need to pay the VAT portion of the figures. HMRC had turned round and said actually yes you do...

I think there's a confusion there. Recharging expenses is very different to recharging day rates. For example, my day rates are passed through as VAT transparent but, say, a claim for mileage expenses (VAT free from me to my co) would get recharged with VAT to the client.