Reply to: Increasing clampdowns

[Old Greg]

You guys obviously know much more about this than me! But the intention of the government is clear with IR35 and if it has failed in part (it seems to act as a deterrent to some) then there will be something else to take its place. As divis are the mechanism we use, I reckon they will be the target. And if the result is to make the likes of us pay taxes at the rates that we would if we were employed, then I don't see it as a vote loser. If they're politically canny, they'll make it revenue neutral by introducing an eye-catching tax reduction elsewhere in the system.

[xoggoth]

Yeh. I have little doubt that sooner or later they will come after us for tax we should have paid on ISAs, soon followed by tax on extra money we would have earned if we had made a bit more effort.

[Euro-commuter]

I'm sure they've looked at other countries that have sorted this little one out.

That would be unusual for the UK. Even if you find out how other countries do it, that doesn't mean you dare implement it here.

France has a simple system: social contributions levied on all income. Salary, self-employed, dividends, savings, pensions: doesn't matter. You've got the income, you pay your social dues. Simple, and refreshingly clear of IR35-like complications. The French accept it because it falls evenly on everyone.

Now try levying these charges on savings, dividends, pensions etc in the UK, where they weren't levied before. Tumbril time!

[ittony]

Such as?

A job.

[Bluebird]

It's always seemed to me that IR35 isn't a very difficult thing to get right. It wouldn't be hard to write some clear definitions that would catch 95% of us, so perhaps IR35v2 is in the works.

But perhaps the increase in small business CT is a sign of things to come. Your typical "genuine" enterprise wouldn't expect to make a profit for a few years, so higher CT has no negative effect. Whereas the likes of us are essentially using the relatively low rate of CT as a way of avoiding tax. If they made CT for small business a similar amount to income tax/NI, there'd be no point doing anything other than paying it all as salary.

I suppose the other way things could go is they start taxing dividends in the same way as salary.

As most MPs have loads of share I doubt they'd do that....

[Sockpuppet]

Such as?

The love and security of working in a permie office.

[Ruprect]

It's always seemed to me that IR35 isn't a very difficult thing to get right. It wouldn't be hard to write some clear definitions that would catch 95% of us, so perhaps IR35v2 is in the works.

But perhaps the increase in small business CT is a sign of things to come. Your typical "genuine" enterprise wouldn't expect to make a profit for a few years, so higher CT has no negative effect. Whereas the likes of us are essentially using the relatively low rate of CT as a way of avoiding tax. If they made CT for small business a similar amount to income tax/NI, there'd be no point doing anything other than paying it all as salary.

I suppose the other way things could go is they start taxing dividends in the same way as salary.

This won't happen. For a start you're thinking that everyone with a small business is the same as an IT contractor. They're not. Also doing this there would be absolutely no incentive to start/run a business, and the UK becomes massively uncompetitive. I know Brown's a socialist, but even he recognises the economic implications of such decision, perhaps a little more than policy dreamed up whilst posting to an internet forum.
It is a massive vote loser also.

[Old Greg]

I hope NL aren't reading this thread looking for ideas.

I'm sure they've looked at other countries that have sorted this little one out.

[VectraMan]

But taxing dividends as income would hit the pension companies too - which would not be a popular move.

Taxing dividends at the same rate as income tax could easily ensure that Labour stay out of power for a long time...

Expect some overly complicated system defining different tax regimes for different types of companies and lots of arguments in court as to which your company really is.

But if they could define personal service companies specifically as having to pay full income tax and NI on dividends, then that would be an end to it, and it wouldn't be an unpopular move in the eyes of the general public, investors, or other small business.

I hope NL aren't reading this thread looking for ideas.

[Old Greg]

They need employee's (and employer's) NI to make tax look less than it is. It's amazing how many people think they only pay 22%/40% tax (or whatever it is these days I've lost track), because they only see the headline grabbing income tax rates.

Another reason for scrapping it (at least the employees' NI) - it won't make any difference to anyone's pay-packet. Alternatively they could apply the equivalent of employees' NI on top of the normal income tax rate on divis. The effect is the same.

[VectraMan]

If I were Brown, I'd scrap employees' NI and roll it into income tax.

They need employee's (and employer's) NI to make tax look less than it is. It's amazing how many people think they only pay 22%/40% tax (or whatever it is these days I've lost track), because they only see the headline grabbing income tax rates.

[Old Greg]

But taxing dividends as income would hit the pension companies too - which would not be a popular move.

Taxing dividends at the same rate as income tax could easily ensure that Labour stay out of power for a long time...

As I said, it needs some jiggling and I've no expertise in these matters (in case you didn't guess) so I'll try again. Income tax is something I pay personally so it shouldn't apply to pension companies. I mean that if I as a person get income from divis, it's taxted in the same way as salary.

[TheFaQQer]

Exactly. You get taxed less on unearned income but not earned income. If I were Brown, I'd scrap employees' NI and roll it into income tax. Then tax divis as earned income. And stop people takoing advantafe of tapered tax relief every couple of years. Would probably need a bit of jiggling to make it work.

But taxing dividends as income would hit the pension companies too - which would not be a popular move.

Taxing dividends at the same rate as income tax could easily ensure that Labour stay out of power for a long time...

[Old Greg]

I suppose the other way things could go is they start taxing dividends in the same way as salary.

Exactly. You get taxed less on unearned income but not earned income. If I were Brown, I'd scrap employees' NI and roll it into income tax. Then tax divis as earned income. And stop people takoing advantafe of tapered tax relief every couple of years. Would probably need a bit of jiggling to make it work.

[Chugnut]

sick pay, holidays, pension?

We also pay Employers NI & Corp Tax. I'm happy to take this hit for the right to be part of a flexible workforce and be my own boss. I don't expect any special treatment, but I think a bit of lattitude should be forthcoming.

Plus when I was an employee I was blissfully unaware of taxation and employment law since it just didn't affect me. I am now reasonably proficient in accountancy (to spot any mistakes made usually), and employment law for IR35, etc. I feel this is something I've had to do.