As a contractor, how do you answer this criticism?

[djm]

In plenty of forums, Facebook, social media etc, I always see the following phrase and I wondered what everyone else thought about it and how you answered it.

"People who avoid paying fair amounts of tax by creating a company, employing themselves on minimum wage and paying themselves a large dividend lose their right to an opinion on what happens to the NHS, as they aren't fairly contributing towards it. Even if what they do is legal, morally it's completely wrong."

By the way, I'm a contractor and sick of being attacked and would like to know what to say back

[Zigenare]

In plenty of forums, Facebook, social media etc, I always see the following phrase and I wondered what everyone else thought about it and how you answered it.

"People who avoid paying fair amounts of tax by creating a company, employing themselves on minimum wage and paying themselves a large dividend lose their right to an opinion on what happens to the NHS, as they aren't fairly contributing towards it. Even if what they do is legal, morally it's completely wrong."

Do you know why, historically, IT Freelancers had to set up their own Limited Companies?

[djm]

No I don't, why?

[Amanensia]

I tend to reply that if I took a permanent role, the total tax paid via PAYE/ERNI would be very significantly lower than the total tax I actually pay via CT, dividend tax and PAYE. So I'm better off as I'm paid more as a contractor; the government is better off as they get a significantly higher total tax take; and the client is effectively paying the difference to get access to skilled, flexible resources.

On top of that I'm generating further economic activity for accountants, hotels and so on. And as I work in FS all the VAT on my invoices effectively goes straight to the government too, as FS companies in general can't reclaim it.

[Zigenare]

No I don't, why?

Because it was the only way that the agencies would deal with us. The Ltd Co was there to absolve the agency from any liability regarding taxation incurred by the contracting entity.

Once a company had been set up then the various methods of remuneration available to directors of a company were then available to us lesser mortals - dividends on shares, re-investment of profits, reimbursement of expenses, Mitigation of Tax Liability etc.

[Zigenare]

By the way, I'm a contractor and sick of being attacked and would like to know what to say back

Why say anything? Simply light a fat cigar using a £50 note from one of the huge wads that you carry and shrug your shoulders.

[edison]

Do you know why, historically, IT Freelancers had to set up their own Limited Companies?

Because it was the only way that the agencies would deal with us. The Ltd Co was their to absolve the agency from any liability regarding taxation incurred by the contracting entity.

Once a company had been set up then the various methods of remuneration available to directors of a company were then available to us lesser mortals - dividends on shares, re-investment of profits, reimbursement of expenses, Mitigation of Tax Liability etc.

It would be interesting if any analysis has ever been done on what the effects would be on contractor incomes and tax raised if the standard model was for contractors to engage directly with the end client.

I guess the OP's question comes back to the heart of the definition of contracting and being in a genuine B2B relationship with the end client company. If Dave's IT Consulting Ltd is genuinely a 'business' then there is a diffrent argument as to whether companies pay their fair share of tax versus individuals for example.

If a large proportion of contractor's companies are really disguised employee 'permietractors' then I think people who argue that it is immoral may have a point. I had plenty of friends who in the golden days of pre-IR35 worked as permies and carried on doing exactly the same role as a contractor for multiple times the equivalent perm rate.

At the end of the day, tax avoidance is very different from evasion and one can trot out the argument used by all big companies especially the tech giants, that they pay all their taxes in compliance with local tax laws and regulations. The onus is on governments and regulators to address any tax loopholes.

[eek]

Because it was the only way that the agencies would deal with us. The Ltd Co was their to absolve the agency from any liability regarding taxation incurred by the contracting entity.

Once a company had been set up then the various methods of remuneration available to directors of a company were then available to us lesser mortals - dividends on shares, re-investment of profits, reimbursement of expenses, Mitigation of Tax Liability etc.

Not quite true.

It's down to the Agency Act 1977 (from memory) which was created to stop agencies only "employing" people on a self employed basis. That reduced the options an agency could use to one of either putting people on the payroll or employment via a limited company. At the time corporate tax rates were high so there was very little difference between the payment methods - that only changed later as corporate tax rates were lowered.

Umbrella companies arrived a lot later.

But in all cases the actual reason is the same - no one can trust agencies as they have a (global) habit of pulling fast tricks.

[BrilloPad]

Many contractors on CUK have made it very clear that anyone who avoids tax is scum. And have no sympathy with the many suicides HMRC have caused - 7 for LC alone.

Of course now they are starting to realise they are tax avoiders themselves and there is nothing wrong with it.

They only way is to take down HMRC. And that is underway. Will you support that? Or will you just do the standard contractor whine and b1tch?

[Zigenare]

Many contractors on CUK have made it very clear that anyone who avoids tax is scum. And have no sympathy with the many suicides HMRC have caused - 7 for LC alone.

Of course now they are starting to realise they are tax avoiders themselves and there is nothing wrong with it.

They only way is to take down HMRC. And that is underway. Will you support that? Or will you just do the standard contractor whine and b1tch?

Hear Hear!!!