Reply to: Corporation tax and Dividends

[Paralytic]

The entire premise of the OPs argument is flawed. By defining a narrow range of operating criteria, which he incorrectly assumes is representative of your average contractor, he then proceeds to link to content that confirms his hypothesis.

Let me present a counter-hypothesis. This website would not have the longevity and success it has experienced, if not for the fact that contracting is more rewarding (both financially and in terms of lifestyle choices and flexibility) than permanent employment.

This.

Anyone who is contracting and not earning more/having a better quality of life than an employee doing an equivalent job is doing something wrong.

[lecyclist]

The entire premise of the OPs argument is flawed. By defining a narrow range of operating criteria, which he incorrectly assumes is representative of your average contractor, he then proceeds to link to content that confirms his hypothesis.

Let me present a counter-hypothesis. This website would not have the longevity and success it has experienced, if not for the fact that contracting is more rewarding (both financially and in terms of lifestyle choices and flexibility) than permanent employment.

[NowPermOutsideUK]

Lavish means childcare live in nanny’s shopping at selfridges private schools and many holidays a year

100k is middle of middle class affording you one of the above at most

Finally there are so many fiddles available as contractor not as perm. The first page talked about er which means living on Credit cards and withdrawing the lump sum after a few years. I can think of many more examples

In London many went contracting for the money only and were probably disguised perms

[jamesbrown]

Difference between incomes and expenditures... Being an IT contractor and having expenses of more than 100k a year is ridiculous and foolish and excessive. Don't get so stuck on word lavish. What word would you prefer?

Middle class

I appreciate that it's all a matter of perspective. My perspective is that 100k after tax is a perfectly fine income (statistically, it compares very well with an average income), but it hardly supports a luxurious lifestyle.

A three-bed terrace in a half-decent part of London is, what, a million quid? As a worthless data point, my mate just sold his dingy terrace in Newham for 750k

If you want luxury housing in London, that 100k will go literally nowhere and housing is, afterall, the major expense for most people.

[jayn200]

I don’t think you understand the word lavish. It means opulent, luxurious, rich. On 100k in London, you’re miles away from that lifestyle. I dare say it’s just inside the top 5% of London incomes, certainly not top 1% nationally.

Difference between incomes and expenditures... Being an IT contractor and having expenses of more than 100k a year is ridiculous and foolish and excessive. Don't get so stuck on word lavish. What word would you prefer?

[jamesbrown]

I don't.. that was the point. Show me the non lavish life that costs 8k a month.

I don’t think you understand the word lavish. It means opulent, luxurious, rich. On 100k in London, you’re miles away from that lifestyle. I dare say it’s just inside the top 5% of London incomes, certainly not top 1% nationally.

[jayn200]

You think a 2-bed flat is lavish?

I don't.. that was the point. Show me the non lavish life that costs 8k a month.

[webbym]

"In truth, comparing the tax take from a contractor and an employee earning the same amount creates an inaccurate representation, because contractors typically charge considerably more than employees are paid. "

Also, that higher pay is to sacrifice below advantages which only permies get and are harder to quantify for comparison than readily available tax numbers.

1. Promotion and pay rises linked to company performance.
2. Redundancy pay and inherent job protection during lean times, even if that means extra redundancy payout.
3. Discounted share and option plans, potentially worth a lot.
4. Higher coverage for life, critical illness etc based on salary levels.
5. 'No work, no pay' rules whereby contractor can be shown the door immediately.

Sick pay and Holiday pay amounts are nowhere near compared to these.

IR35 changes now tilt the balance in favour of permiedom.

[jamesbrown]

It's over 8k a month.

How much do you think central London is? You can get a nice 2 bed flat for 3k a month. That leaves 5k if you don't drive where is that money going? To spend 200 a day is an extremely excessive lifestyle.

You think a 2-bed flat is lavish?

[jayn200]

I don’t think you can describe 100k as supporting a lavish lifestyle in London, fullstop, unless we have a very different understanding of lavish.

It's over 8k a month.

How much do you think central London is? You can get a nice 2 bed flat for 3k a month. That leaves 5k if you don't drive where is that money going? To spend 200 a day is an extremely excessive lifestyle.

[unixman]

A little surprised that some people are angered by the article and seek to contradict it with passion alone. The belief we live in tax Shangri-la is well embedded, perhaps due to memories of early 90's London yuppie contractors avoiding tax (which was true at the time. People left my company to go contracting in London and were indeed avoiding mountains of tax, and didn't mind telling you so).

Personally I didn't become a contractor (in 2006) with the aim of avoiding tax, and was not aware of any substantial (legal) tax advantages. Nor have I bothered with tiny things like buying a webcam on expenses. No, I was attracted by the rate, experience and life style, and the fact that permy career paths weren't great for engineers. Guessing most contractors are the same. As it panned out I achieved the independent life style, but not earned more than I would in permy land, all told.

If anyone doubts the situation, please call and advise how tax can be saved. You'll get 30% of the margin per annum (all at my discretion).

[NotAllThere]

The main reason for dividends for me was avoiding employers NI, income levelling and sharing of tax allowance with my wife. If I could have kept income levelling and lost the other two, I would not have objected to IR35. It was the insistence that the full fee (less 5%) was subject to NI that I found unwarranted.

For the last fifteen years in another tax jurisdiction, I've been able to income level. And been very glad of it during the lean years. It's that income levelling that compensates for neither sick nor holiday pay.

[jamesbrown]

Yeah i guess if they have big family and a couple cars might not be that lavish. I am just think about myself living in central London with no vehicle and just my wife. But yeah i guess depends on individual circumstances.

I don’t think you can describe 100k as supporting a lavish lifestyle in London, fullstop, unless we have a very different understanding of lavish.

[jayn200]

I'm solo. I have only gone into the higher bracket a few times, and never for investment I hasten to add (I just know people who have).

Quite a sweeping statement to claim that two people wanting to take home more than £47k each is a lavish lifestyle.

Yeah i guess if they have big family and a couple cars might not be that lavish. I am just think about myself living in central London with no vehicle and just my wife. But yeah i guess depends on individual circumstances.

[unixman]

"In truth, comparing the tax take from a contractor and an employee earning the same amount creates an inaccurate representation, because contractors typically charge considerably more than employees are paid. "

And it fails to consider that a contractor gets paid a LOT more than an equivalent permie.