The Official Budget 2016 thread

[m0n1k3r]

If you read the examples, there will be a credit for tax paid. Sounds like an administrative nightmare.

The credit will only be for the same kind taxes - e.g. PAYE, not for corporation tax or anything else. There will also be an actual loss as any company has costs for running (bank charges, accounting etc). I would assume that a contractor would be looking at taking some of that money as dividends rather than wages.

Far better to pay the individual directly. Then the individual will also be able to claim pensions contributions and certain benefits, although the individual will be classified as a 'worker' rather than as a full 'employee'.

[m0n1k3r]

It's the owners/shareholders that get divis.

Of course, but they are being very vague and have not defined clearly (or at all) what they mean by 'their own limited company'. If they are any sane and aligned with other pieces of legislation then they base it solely on percentage of votes, but that is not a guarantee.

[seeourbee]

They should pay the individual directly. If it is paid to the company, the company would have to either pay corporation tax before paying a dividend, or deduct income taxes and national insurance contributions before paying out, so there would be dual taxation.

In the technical notes examples there's talk of a credit against Income tax AND dividend tax. If that's true I can't see why one Earth they are pursuing this course of taxation AT ALL.

https://www.gov.uk/government/upload...FINAL_V3_0.pdf
Page 6:

"Example 1 – Central Government – rules apply
Grace works through her own PSC and is appointed as a senior analyst at the Ministry
when the post holder leaves. She is a locum appointed to a project for 5 months while the
job is advertised. Human Resources uses HMRC’s online tool to see that Grace is
working in the same way as an employee and the new off-payroll tax rules apply. Payroll
are informed and tax and NICs are deducted from payments made to Grace’s PSC. The
Ministry pays the secondary NICs and accounts for the tax and NICs liabilities under RTI.
Grace’s PSC invoices the Ministry monthly for £2400, which includes £400 VAT. The
Ministry treats £2000 as Grace’s earnings and deducts £223 tax and £159 employee NICs,
which it pays to HMRC via RTI with £183 employer NICs. The Ministry pays Grace’s
company £1618.*
Because Grace has paid income tax on income going into the PSC, she receives a credit
against employment and dividend income drawn out of her PSC so she does not pay tax
twice. The corporation tax liabilities of Grace’s PSC will remain unchanged by the
measure. "

[seeourbee]

Far better to pay the individual directly. Then the individual will also be able to claim pensions contributions and certain benefits, although the individual will be classified as a 'worker' rather than as a full 'employee'.

Hence it won't happen, and why they are opening up a massive can of worm where one gets taxed as an employee but do not have employee rights. It is NEVER going happen where a contractor, where everyone in the organisation knows you are a contractor, gets paid a contractors day rate for a sick day ! The only solution to that is to drop the day rate right down to pro-rated salaries - which means 'bye bye' to their flexible workforce.

Never. Going. To. Happen.

[jamesbrown]

If that's true I can't see why one Earth they are pursuing this course of taxation AT ALL.

Eh? You seem to be misunderstanding quite a bit of this. There's absolutely no need to define a PSC or distinguish between consultancies or agencies or anything else. A placement will be deemed inside or outside under the new rules, upfront, and it will be propagated contractually up the chain so that your direct client (agent or third party) will be responsible for calculating and making the deemed payment. However, unlike the usual approach, this deemed payment will go to YourCo rather than you. You and YourCo will then receive an equivalent tax relief to reduce the CT to zero, along with any tax on payments to you (as salary or dividends). The net effect is that you can retain the use of a Ltd company, but the effective tax rate will be akin to the IR35 deemed payment, so there will be no retained profit and a high rate of tax. There are some question marks over the details though, such as the operation of the 5% for administrative expenses and pension payments.

All of this is precisely in keeping with the principle outlined in the IR35 Discussion, namely to increase the frequency with which employment taxes are being paid, without increasing the number of employees.

[seeourbee]

No need to be so condescending.

"A placement will be deemed inside or outside under the new rules, " - still gets back to my big Consultancy question.

The PAYE tax element gets set off against CT and/or Personal Income tax or Dividend tax. So they lose out on CT. That's my point. Robbing Peter to pay Paul. It doesn't make sense apart from the fact that CT < HRT. Seems an complicated way of doing a simple job. And being entirely unfair at the same time.

[jamesbrown]

No need to be so condescending.

"A placement will be deemed inside or outside under the new rules, " - still gets back to my big Consultancy question.

The PAYE tax element gets set off against CT and/or Personal Income tax or Dividend tax. So they lose out on CT. That's my point. Robbing Peter to pay Paul. It doesn't make sense apart from the fact that CT < HRT. Seems an complicated way of doing a simple job. And being entirely unfair at the same time.

I'm only being condescending because an explanation has been offered several times. The gov't doesn't care what buckets the tax take falls into, they only care about the total tax take (without creating employment rights), and this will be roughly equivalent to the IR35 deemed payment. It isn't entirely clear how the employer's NI will be handled or some of the other details, but it's all coming from the same pot (client budget). The reason they need to take this convoluted approach is to maintain the arms-length relationship whereby the tax situation is equivalent to employment, but the employment rights are absent, as described in the IR35 Discussion Document. They want to have their cake and eat it. Depending on how aggressive they want to be with the rules, they will either increase the tax take or have competent people around to deliver their projects. That's the real Peter/Paul analogy.

[m0n1k3r]

In the technical notes examples there's talk of a credit against Income tax AND dividend tax. If that's true I can't see why one Earth they are pursuing this course of taxation AT ALL.

https://www.gov.uk/government/upload...FINAL_V3_0.pdf

Because Grace has paid income tax on income going into the PSC, she receives a credit
against employment and dividend income drawn out of her PSC so she does not pay tax
twice. The corporation tax liabilities of Grace’s PSC will remain unchanged by the
measure. "

As you can see there is still corporation taxes to be paid by the company. The taxes already deducted are only offset against her personal tax liabilities, not those of the company.

[mudskipper]

As you can see there is still corporation taxes to be paid by the company. The taxes already deducted are only offset against her personal tax liabilities, not those of the company.

She's expected to take the money paid as salary, for which she will get the credit. So it won't be profit, and therefore not liable to corp tax.

[barrydidit]

She's expected to take the money paid as salary, for which she will get the credit. So it won't be profit, and therefore not liable to corp tax.

That's what I thought. But then Grace's company would run at a loss. Which may be dereliction of fiduciary duty as a director?