Reply to: Poll: How did the dividend tax reform of 2016 affect your day rate?

[Lockhouse]

My rate is about the same but I'm deliberately spending far less.

[davidbieder]

If the cost of living goes up, responsible employers if able will increase their employee's compensation to at least partially, if not fully, mitigate what their employees are facing. That's a business expense.

So yeah, I'd say the dividend tax is effectively a business expense. It reduces the disposable income of YourCo's employee(s)/office holder(s), and so means YourCo needs to increase their compensation if they aren't going to lose out. That's a business expense, as far as the real world is concerned, even if it isn't for tax purposes.

Basic economics. It's also why "tax the rich" never works. The "rich" own businesses and they'll increase prices to compensate themselves for their increased tax bill. So the consumer, the guy on the street who votes for "tax the rich," always pays for "tax the rich" eventually.

I agree with WordIsBond. In comparison to larger businesses, for a single contractor with his own limited the line between business expenses and all the different taxes (including income tax) kind of becomes irrelevant. What counts at the end of the day is the take-home on one end and the day rate on the other end. If my take home goes down due to increased expenses or tax reforms I would compensate that with a higher day rate. Why should I accept to take home less?

One could argue that all the past and upcoming tax increases will hit the regular tax payer in the end. If some of us are contracting for Costa for instance, and we are increasing our day rate (which we should for other reasons as well), the latte will become more expensive for John Doe, who is employed and always paid his income taxes to HMRC.

[Lost It]

Haven't even considered it yet. Different business though, building professional.

But I am being head hunted quite fiercely now, and I'm being offered some pretty juicy rates. So I'm wondering if:

A) My rates are too low.

B) I really am so good that I'm in demand. (Reputation counts for a lot).

c) Whether to just stick in a 15% rise...

[WordIsBond]

Why? The dividend tax is not a business expense. It is personal taxation and hence nothing to do with the day rate or hourely rate my Co charges.

My rate is set contract to contract taking into account any business expenses required to fulfil that contract. What and how my Co pays me has nothing to do with any contract my Co enters into. If I have bench time my Co still pays me regardless.

That's a bit myopic, I think.

If the cost of living goes up, responsible employers if able will increase their employee's compensation to at least partially, if not fully, mitigate what their employees are facing. That's a business expense.

So yeah, I'd say the dividend tax is effectively a business expense. It reduces the disposable income of YourCo's employee(s)/office holder(s), and so means YourCo needs to increase their compensation if they aren't going to lose out. That's a business expense, as far as the real world is concerned, even if it isn't for tax purposes.

Basic economics. It's also why "tax the rich" never works. The "rich" own businesses and they'll increase prices to compensate themselves for their increased tax bill. So the consumer, the guy on the street who votes for "tax the rich," always pays for "tax the rich" eventually.

If they increased the dividend tax to 50%, you'd say, "Hang that, whether it's a business expense or not, I'm increasing my rates or I'm stopping contracting." They only turned up the water temperature enough for the frogs not to notice and jump out of the water. Another increase and I'll probably pass on the whole thing. I don't have much clout with HMG, but some of my clients do, and they need to be saying, "Hey, this game you are playing, it's costing us money."

[WordIsBond]

I did indeed not think about that case. Thanks for pointing out.

Well, I didn't THINK that you had thought about it and intentionally left it off.

[Yorkie62]

That's all good stuff guys. Thank you. It's interesting to see how many different reasons there are for adjusting the day rate (or not).

Apart from other factors did you consider the dividend tax increase in your day rate adjustments?

Why? The dividend tax is not a business expense. It is personal taxation and hence nothing to do with the day rate or hourely rate my Co charges.

My rate is set contract to contract taking into account any business expenses required to fulfil that contract. What and how my Co pays me has nothing to do with any contract my Co enters into. If I have bench time my Co still pays me regardless.

[northernladuk]

Bit fixated aren't you?

[davidbieder]

That's all good stuff guys. Thank you. It's interesting to see how many different reasons there are for adjusting the day rate (or not).

Apart from other factors did you consider the dividend tax increase in your day rate adjustments?

[davidbieder]

Poll fail.

I increased my rates marginally, because I wasn't sure my clients would absorb the entire cost all at once. On average, I'm charging about 4% more, which after inflation is about a 2% real terms increase.

So, my answer would be that my day rate increased and my take home decreased, and you don't have an option for that on the poll. I'll probably up my rates by around 3% this year, another 1% in real terms, to grab back more of what I lost last year.

I did indeed not think about that case. Thanks for pointing out.

@All
Is there any way to add this option to the poll?

[TheCyclingProgrammer]

I've put my rate up a bit almost every year since I started my business and last year was no different.

Despite increase in personal tax, the removal of the tax credit and increased tax bands means I'm technically taking home more than before (as in, in my pocket after income tax, not what I leave in the company).

[WordIsBond]

So you we need some options that say 'I increased my day rate but I would have done this anyway'

Well, I would have probably only increased by 2%. (I use hourly rates rather than day rates, makes more sense with the way I work, but that's a side issue.)

To be specific, I was at £83.50 / hr, would have probably gone to £85, went to £86 with two existing clients and £87 with new ones. Probably go to £89 for everybody after April, probably would have been £87 if not for the dividend tax.

But it is still a cut in take-home after the dividend tax changes.

[PurpleGorilla]

My rate varies depending on role, location, client, and duration. But generally I look to charge as much as I can for each fresh piece of work.

[northernladuk]

Poll fail.

Indeed.

I increased my rates marginally, because I wasn't sure my clients would absorb the entire cost all at once. On average, I'm charging about 4% more, which after inflation is about a 2% real terms increase.

So you we need some options that say 'I increased my day rate but I would have done this anyway'

[radish2008]

I went for a 10% increase but ... I was on a low rate (ish), had the crazy additional furlough to factor in. Should be slightly worse off I think when FRS kicks in.

Now I feel sad :-(

[WordIsBond]

Poll fail.

I increased my rates marginally, because I wasn't sure my clients would absorb the entire cost all at once. On average, I'm charging about 4% more, which after inflation is about a 2% real terms increase.

So, my answer would be that my day rate increased and my take home decreased, and you don't have an option for that on the poll. I'll probably up my rates by around 3% this year, another 1% in real terms, to grab back more of what I lost last year.

The dividend allowance change is not enough to justify a change to my rates.

Brexit is creating some pain / fear for some of my clients, and lots of lovely currency volatility and need for hedging strategies and extra modeling and adjustments to existing models and all that stuff, all of which is creating opportunity/demand for me, so I could end up increasing my rates significantly in the next year. Or, I might just stop contracting entirely and develop some products to help these people out.

But for now, I'm in the "small increase in rates, small decrease in take home" category.