If not IR35, then what?

[JohntheBike]

And I can tell you that compared to farmers, contractors are beginners in the tax avoidance world.

interesting, but even then, they are not regarded as tax avoiders.

[JohntheBike]

Surely the whole point of using a limited Company - and one that I've been saying for a long time - is that it allows you to even out an uneven income stream for times when you are not working? You don't need another layer of complexity in the tax landscape, merely accept that I left money in the company so that when I had a largely enforced 14 month break I could still pay the mortgage and feed the family. the major failing of IR35 is that it destroys that ability.

It's not tax avoidance, it's prudent fiscal planning.

the whole point of using a limited Company

is a result of the requirements of clients to save employment costs.

[TwoWolves]

Surely the whole point of using a limited Company - and one that I've been saying for a long time - is that it allows you to even out an uneven income stream for times when you are not working? You don't need another layer of complexity in the tax landscape, merely accept that I left money in the company so that when I had a largely enforced 14 month break I could still pay the mortgage and feed the family. the major failing of IR35 is that it destroys that ability.

It's not tax avoidance, it's prudent fiscal planning.

Working inside IR35 completely destroys the ability to save, particularly if you support a family. I've worked through the dot-com bust and the financial crisis of 2008, without the ability to save more I would have gone bust. Come the next recession the government is going to have a massive bill on it's hands, one that was totally avoidable.

[webberg]

It's a good idea. If you took away ER/MVL but offered "averaging" to contractors, it would certainly help with the bench time issues.

It still leaves the question, how do you distinguish between contractors who use averaging and other companies for which you want to offer ER/MVL? I suppose you could only offer ER if someone had X full-time employees over Y years, or something like that. The kind of entrepreneurship that you really want to encourage with ER is the kind that results in employment.

I think I'd be tempted by a measurement of available cash vs invested profits.

Those companies which are within the scope of ER would be where they may have made profits but who are cash poor because they have ploughed them back in the form of more people, kit, advertising etc.

PSC's tend not to do that, instead sitting on cash piles.

It's really the undistributed cash that I would seek to identify and add to income, average over [5] years and apply tax to.

In my view a lot of the claimed "advantage" from contracting via a PSC comes in the form of the PSC retaining money.

As we have discussed, expenses are no longer a significant feature in the equation. Instead we have an employees tax and NIC vs CT + div tax + very little NIC. That equation shows an edge to contracting until the accumulated cash is distributed.

[webberg]

interesting, but even then, they are not regarded as tax avoiders.

Not a view shared by HMRC units dealing with this sector.

But you are correct.

MPs/HMRC will score no PR points for slagging off farmers.

[webberg]

Working inside IR35 completely destroys the ability to save, particularly if you support a family. I've worked through the dot-com bust and the financial crisis of 2008, without the ability to save more I would have gone bust. Come the next recession the government is going to have a massive bill on it's hands, one that was totally avoidable.

Really?

I suspect that many thousands of employees manage to support a family and save.

I would go further and say that given that the ratio of employee to self employed/contractor in the UK is perhaps 6:1, the gross savings in the UK are mainly from the employed sector.

Granted this is a dangerous statistic as we know that 1% of the population generates a hugely disproportionate amount of tax so perhaps savings are the same? I don't know.

[malvolio]

is a result of the requirements of clients to save employment costs.

Rubbish. Ignore your particular world view for a moment and listen to what I'm saying. It's not about the client-side or the exploitative employers. You want to neutralise IR35, then we need to understand the best route to doing so. No more, no less. And personal taxation is not it.

[malvolio]

Really?

I suspect that many thousands of employees manage to support a family and save.

I would go further and say that given that the ratio of employee to self employed/contractor in the UK is perhaps 6:1, the gross savings in the UK are mainly from the employed sector.

Granted this is a dangerous statistic as we know that 1% of the population generates a hugely disproportionate amount of tax so perhaps savings are the same? I don't know.

It's difficult to save a large percentage of your income. On the bench I would take the bare minimum salary to pay the bills for the duration, with a balance sufficient to keep that up for a year. Most middle earners do not have that kind of leeway in their income.

Also, on an earlier point, expenses are not income and never have been, if done properly. What IR35 has done is penalise some companies for having working expenses. It all comes back to a failure to understand that some people are perfectly legitimately, not employees.

[drmouse]

As I've posted elsewhere, I think the way to "fix" things is a fundamental change to income tax. Quite simply, get rid of NI (which is really just a stealth income tax) and bundle it into income tax, then tax everything the same (with a credit for corp tax already paid on dividends).

It would be a political minefield to do so, though: People would start to realise that, even on basic rate, they are paying around 45% tax on their earnings if they couldn't hide it in NI...

[Jolie]

Surely the whole point of using a limited Company - and one that I've been saying for a long time - is that it allows you to even out an uneven income stream for times when you are not working? You don't need another layer of complexity in the tax landscape, merely accept that I left money in the company so that when I had a largely enforced 14 month break I could still pay the mortgage and feed the family. the major failing of IR35 is that it destroys that ability.

It's not tax avoidance, it's prudent fiscal planning.

Agreed, but for many of us it goes deeper than just prudent financial planning.

Most muggles live on the false belief that their job will be there tomorrow, and with "the job for life" now a thing of the past, many rely too heavily on their single source of income until it's too late. I decided to go it alone and start my company after being made redundant for the 4th time, I wanted to be in control of my career and my future.

Running a limited company opens doors, especially if you take it seriously, have a good business plan, get shared office space and "network" with other businesses, something you can't do when tied as a permie.

Some pimps (used to) prefer you had your own LtdCo and some wouldn't allow working through (some) brollies, and in cases like my current gig, it was a deal breaker.

IR35 is going to destroy more than just contracting, the knock-on effect is going to felt widely throughout the business world. We are already hearing of accountants struggling, but it's also going to hit those providing office space, banking, training providers, networkers and insurance companies.