Will the dividend tax hike take the heat off IR35?

[AtW]

Oh, so presumably yet more secret EU tax harmonisation!

Corp tax should have been harmonised long time ago to provide level playing field, OR paid based on profits derived in each EU member based on their corp tax rate just like it happens with VAT for exports now.

[LondonManc]

I'd still be contracting.

£500-600/day after dividend tax > £50-60k pa PAYE

[TheFaQQer]

As it stands there is still a reasonably large financial incentive to ensuring your contracts are operating outside. As HMRC see the bounty from the divs >£5000 they will almost certainly start to ratchet up the tax % or decrease the £5K allowance. Even then if you have large T&S expenses there is benefit being outside.

I'm not convinced that there will be a decrease in the £5k threshold - the argument for it being there in the first place is that it provides the "hard working squeezed middle" to earn their dividend money legitimately without paying tax, whereas the "tax motivated PSC operator (onshore)" will be penalised. I wouldn't be surprised to see a higher threshold for certain sectors either, for example, the rich elderly who have shares outside an ISA or a pension plan.

If the tax rates rise significantly then there will be a push towards "equality" between being paid PAYE and being baid using the dividend route. I think it would be a brave chancellor who raises the rate significantly - because as soon as there is no incentive to plan the cashflow of the business, the risk of their being a bigger impact on the flexible economy rises (bearing in mind that the same number of people work in the public sector as those who are self-employed / contract / freelance / any other word to describe the way that we work). If contractors are going to end up being treated as employees for tax purposes, the nuclear option starts when those same contractors demand rights to compensate for that.

Give it 3 years. Anyone who has a single person ltd who gets work via agencies will be shafted. (IMVHO)

If the new tests for public sector "work" (and who knows what definition HMRC will put on that word!) when they are introduced, then there is every likelihood that the same tests will be rolled out to every contract in the same way. For a long time, OTS and the IR35 Forum have made it clear to government that their combined expert opinion is that changing the basis of assessment from the contractor to the client is a very bad thing and would impact the market significantly. HMRC / HMG are using this as a test to prove them all wrong - and if there is a measure of success then this will be extended.

The silver lining on that is that the CBI and big business have always argued against that change, so as well as other lobbying organisations, there will be a much louder message of disapproval should there be an attempt to roll it out.

The next few years are going to be a challenge for us all - but there have been some successes over the past year, and so we just need to keep arguing our corner.

[tomtomagain]

Dividend hike is just a start, it will go up in the future.

Germany's dividend tax got flat rate of 25%.

But how many Germans are directors of their own 1 man company's paying themselves in dividends?

That's the crux of the issue. While there were only a few thousands contractors using LTD companies ( mainly the well-off ) it was not an issue when hundreds of thousands of people started doing it, it becomes a problem.

[eek]

But how many Germans are directors of their own 1 man company's paying themselves in dividends?

That's the crux of the issue. While there were only a few thousands contractors using LTD companies ( mainly the well-off ) it was not an issue when hundreds of thousands of people started doing it, it becomes a problem.

I don't want to be drawn into any FLC discussion but Germany has sensible rules for freelance workers that the UK just doesn't have.

Remember that we have to work through an umbrella or limited company due to the law regarding agency workers dating back to the mid 1970s

[AtW]

But how many Germans are directors of their own 1 man company's paying themselves in dividends?

Don't know.

But I do know that Germans like setting up companies in UK because it's cheap and quick: Germany requires pretty high minimum capital which would put off most people.

[TheFaQQer]

Don't know.

But I do know that Germans like setting up companies in UK because it's cheap and quick: Germany requires pretty high minimum capital which would put off most people.

IIRC, the German level is about 50000EUR - which is why Germany has very low levels of tax-motivated incorporation.

[mudskipper]

IIRC, the German level is about 50000EUR - which is why Germany has very low levels of tax-motivated incorporation.

25K EUR I think.

[AtW]

IIRC, the German level is about 50000EUR - which is why Germany has very low levels of tax-motivated incorporation.

That's one way to do it, much better than shafting with much higher rate dividend tax: 25% flat in Germany and 38% in UK, and one can be sure that UK rate will go up, most likely to match income tax rates.

[m0n1k3r]

Dividend hike is just a start, it will go up in the future.

Germany's dividend tax got flat rate of 25%.

It is the same in most of Scandinavia.