UK should address workers forming companies to cut tax bill - Hammond

[AtW]

Sorry, I misread what you wrote, apparently. I thought you meant look-through. Nah, I can't see them doing that, because it doesn't achieve the forced distribution required, and hence money-boxing remains a "problem".

Forced distribution is not an issue, other than when people accumulated cash and then shut down company to claim 10% ER - that I can seen being more or less totally removed, perhaps only allowing if sale of business is done at arms length, then it will be qualifying for ER.

Their main issue is that NICs became second income tax and incorporation allows to avoid them, they don't want to be honest with people and tax directly full amount rather than splitting it and hiding employer NICs - even Tories don't want that to happen because they know that it would become pretty clear how tulip they are.

[jamesbrown]

Forced distribution is not an issue, other than when people accumulated cash and then shut down company to claim 10% ER - that I can seen being more or less totally removed, perhaps only allowing if sale of business is done at arms length, then it will be qualifying for ER.

Their main issue is that NICs became second income tax and incorporation allows to avoid them, they don't want to be honest with people and tax directly full amount rather than splitting it and hiding employer NICs - even Tories don't want that to happen because they know that it would become pretty clear how tulip they are.

It isn't the main issue, and moneyboxing is absolutely on the radar. See the recent consultations on capital distributions, notably here, which resulted in the recent changes to TiS. See Section 5 in particular. In the longer term, apportionment is a possibility, and it's more consistent with equalising a sole trader and limited company in terms of taxation. Remember the stated aim is to have a more similar tax treatment across employment and the various forms of self-employment. It's unlikely that they're going to hit sole traders with something equivalent to employer taxes, ergo they'll be looking at something like apportionment, if anything (but it would need to be simpler than the old rules). Something more akin to Ireland, for example, where they have a surcharge on the undistributed income of close companies.

[jamesbrown]

OK, as expected, the source is the Select committee. The exchange was initiated by Steve Baker and starts at 18:15:56.

Parliamentlive.tv - Treasury Committee

They start by talking at cross-purposes, but eventually get to the point.

[AtW]

It isn't the main issue, and moneyboxing is absolutely on the radar.

Most people who use Ltds to reduce taxes as compared to being permie don't moneybox - those who do just hope to claim ER at 10% and that will be nuked.

Labour will inevitably come to power and they will increase CGT, most likely align with income tax bands, so the only loophole will be for those who accumulate cash, leave the country to stop being tax resident (much harder than before) and finally pay dividends or distribute capital.

[jamesbrown]

Most people who use Ltds to reduce taxes as compared to being permie don't moneybox - those who do just hope to claim ER at 10% and that will be nuked.

Labour will inevitably come to power and they will increase CGT, most likely align with income tax bands, so the only loophole will be for those who accumulate cash, leave the country to stop being tax resident (much harder than before) and finally pay dividends or distribute capital.

They do, which is why it's regularly flagged in HMG consultations. Anyway, you can disagree about the reality, but the consultations reflect HMG thinking, which is what matters.

Labour in power? You'd get better odds on Hillary Clinton.

[Paddy]

Solution is simple:

1. Both NICs rolled into Income tax bands, so electorate knows true level of direct taxation.

2. Dividend tax at Income tax levels, but actual corp tax paid (at whatever rate it is) is used to deduct tax pound for pound (this isn't far off now).

3. This will never happen, but anyway - companies should be able to deduct from their corp tax bill full amount of income tax paid by those who are employed by them, pound for pound also.

This was proposed about 30 years ago but no government wanted to implement it.

NI is a tax as it not directly used for the purpose it is supposed to be for.

What is need is a flat rate tax on all earnings, the same rate for all employees and companies and dividends with no reductions for expenses; say 10%-15%. I would cut out a load of crap paperwork and reduce collection costs.

[AtW]

Anyway, you can disagree about the reality, but the consultations reflect HMG thinking, which is what matters.

I am not disagreeing with idea that HMRC might force accumulated profit to be paid out as dividends for PSC or close companies, or at least give a tax bill to that effect.

The tax system in this country is now totally fooked, way too many big changes with very little notice, after unexpected 25% inrease in dividend tax I would not be surprised with anything anymore.

Flat rate will never happen in this country because Govt is making so much from "high rate" taxpayers, ie - remaining middle classes + those who earn decent money and get taxed at effective rate of 60%.

[jamesbrown]

The tax system in this country is now totally fooked, way too many big changes with very little notice.

Aye, the OTS is now satire. It's like the Ministry of Silly Walks.

[NotAllThere]

...Their main issue is that NICs became second income tax and incorporation allows to avoid them, they don't want to be honest with people and tax directly full amount rather than splitting it and hiding employer NICs

Absolutely. In the original article, it's interesting to note that they talk about lowering income tax, but no mention of NI.

[SueEllen]

Absolutely. In the original article, it's interesting to note that they talk about lowering income tax, but no mention of NI.

Wasn't it Osbourne who agreed not to raise NI this parliament?