Reply to: OTS recommended changes to IR35

[SueEllen]

So could this mean a boom for umbrella companies?

People who are use to calculating their own expenses and doing a bit of tax work will continue to work that way, there as those who haven't probably won't start. And that includes people crossing the perm to freelancer divide who have had to do SA or complete other tax forms.

I know from people in other countries a lot of them use a book keeper rather than an accountant. So it would be the accountants who specialise in small businesses who would lose out.

[Jog On]

So could this mean a boom for umbrella companies?

[VectraMan]

There are too many problems involved in getting rid of Employers' NI. The man in the street is too stupid to realise that he pays it already, and if you say everybody gets an effective rise in gross pay to offset the NI being moved to be part of income tax, that creates all sorts of problems about comparisons of salary (imagine all the changes to pay grades, minimum wage legislation, student loan thresholds, union contracts...). It'll never happen.

A new tax rate on dividends that makes it the same as paying NI would be far simpler and very simple to implement. Better yet if you could opt out of CT and PAYE, and just pay the one "small Ltd. company owner" tax. This would still be better than IR35 as you'd only pay tax on the amount you earned; you'd still be able to let profits accumulate in the company.

[swamp]

I'd be happy if they merged all 3, PAYE + employers/employees NI. Why should employers be taxed for employing someone?? Really it's just a disguised way of taking more tax off the employee. I do my own accounts/payroll and all 3 taxes are effectively treated as one tax by the government already. You pay the three taxes as a single bank transfer to a single account.

Everyone with a brain would agree with you, but there are many without one who would be flapping their arms about if they removed Employers' NI. There are many thick people out there. I think HMG should rename it and gradually reduce it, but they should draw attention to Employers' NI so people know their pay cheque is being skimmed before it even gets to them.

[krytonsheep]

I'd be happy if they merged all 3, PAYE + employers/employees NI. Why should employers be taxed for employing someone?? Really it's just a disguised way of taking more tax off the employee. I do my own accounts/payroll and all 3 taxes are effectively treated as one tax by the government already. You pay the three taxes as a single bank transfer to a single account.

[malvolio]

PCG will survive. There are plenty of things to stuff up freelance contractors even if IR35 becomes a vague memory, and we will still need representation within HMG.

[swamp]

The devil will of course be in the details. It always was going to be like that.

Merging the two taxes will go some way to fixing the tax system. IR35 was a bodge to fix a bodge, and it and probably many other badly thought out tax rules could be swept aside if they finally tackle the true underlying problem. For this they are to be congratulated.

However at the end of the day us contractors will pay more tax, of that I am sure. The (small) silver lining is that our limited company accounts may eventually become much simpler for one-man-bands. I suspect many contractors will ditch traditional accountants, preferring instead to fill their accounts online themselves. This may happen for personal tax too.

So we'll claw back £1200 a year for accountancy and £200(ish) for IR35 insurance, and then get clobbered for another £5000 or so in extra taxes. We'll survive. SJD, QDOS, PCG etc. may not.

[TykeMerc]

If they merge NI and Income Tax I wonder how will the various classes of NI be handled? It will be interesting to see how they sort this all out.

While IR35 has been a gigantic cockup and a major pain in the rear I'm concerned that what will follow will make a significant hole in my earnings as a contractor, I will review the implications and work out if it's still viable to stay with the risks of contracting.

[Bagpuss]

And I think that's why many (including myself) thought that option 1 would be discarded - it will be put in the "too difficult" file.

If (and I repeat, IF), these reports are to be believed, then it appears that George is not going to shy away from the politically difficult decisions. Kudos to him if he decides to do that, even though financially I might prefer if he didn't.

I think on Wednesday, the best we'll get is a hint as to which option is preferred.

If Labour were doing this you would be playing hell. It seems to me there is nothing to celebrate in paying more tax. What is the old saying.. be careful what you wish for...

[centurian]

They'll leave Employers' NI alone and maybe rebrand it Payroll Tax or something.

That's what I reckon as well - which means we can still avoid employers NI (as it currently is now) by paying dividends.

This will probably take the sting out of the tail of the tax avoidance argument as well. What I really begrudge about IR35 is not the fact that I have to pay NI - but that I have to pay it twice.

[swamp]

It's in all the papers today. It seems they have leaked it to gauge the reaction, but it looks like they are serious about it. Unfortunately most people are too thick to realise this is a good idea. Expect lots of hysterical rants if any groups are even slightly worse off, apart from contractors, who everyone dislikes.

It would be easy to implement if they phase it in over a couple of years. They'll leave Employers' NI alone and maybe rebrand it Payroll Tax or something.

[centurian]

And I think that's why many (including myself) thought that option 1 would be discarded - it will be put in the "too difficult" file.

If (and I repeat, IF), these reports are to be believed, then it appears that George is not going to shy away from the politically difficult decisions. Kudos to him if he decides to do that, even though financially I might prefer if he didn't.

I think on Wednesday, the best we'll get is a hint as to which option is preferred.

[Waldorf]

Why not - it effectively ceased to be an "insurance" decades ago. It's basically just an income tax now in all but name, but only applies to certain types of income. It makes perfect sense to just expand it to other income types - the natural conclusion of which is just to combine it with income tax.

To be revenue neutral, the full rate wouldn't need to be added, because the idea is it would be more inclusive, covering more people. The 12% NI could be removed - and covered by an 8-10% increase in income tax.

The fact we'd prefer it not to happen for our own financial reasons, doesn't mean it isn't a sensible change.

Also don't underestimate the public perception on this. Rightly or wrongly, the general public at large have a major beef with tax avoidance right now and if this is seen as killing most schemes stone dead, you may find it has far more support than you might think.

The key issue in selling it will be what to do with pensioners. This can be covered by a large increase in the personal allowance for pensioners, meaning the "average" pensioner will pay no more in tax.

Of course, that will raise the question "why should a pensioner pay less tax than a worker earning the same amount of money". But if people suddenly start noticing how much tax the government is (and always has been) taking from them, is that a bad thing.

I don't disagree with anything you have said - but to do this politically will be hard, especially with the other tasks the coalition is trying to achieve, not least reducing the deficit.

I suppose a side effect of doing this will be to discourage paying dividends and so this may be good for growth, with companies investing for the future?

We will see on Wednesday, or perhaps we won't

[centurian]

I wouldn't have thought that the full NIC rate would/could be added to the tax on dividends

Why not - it effectively ceased to be an "insurance" decades ago. It's basically just an income tax now in all but name, but only applies to certain types of income. It makes perfect sense to just expand it to other income types - the natural conclusion of which is just to combine it with income tax.

To be revenue neutral, the full rate wouldn't need to be added, because the idea is it would be more inclusive, covering more people. The 12% NI could be removed - and covered by an 8-10% increase in income tax.

The fact we'd prefer it not to happen for our own financial reasons, doesn't mean it isn't a sensible change.

Also don't underestimate the public perception on this. Rightly or wrongly, the general public at large have a major beef with tax avoidance right now and if this is seen as killing most schemes stone dead, you may find it has far more support than you might think.

The key issue in selling it will be what to do with pensioners. This can be covered by a large increase in the personal allowance for pensioners, meaning the "average" pensioner will pay no more in tax.

Of course, that will raise the question "why should a pensioner pay less tax than a worker earning the same amount of money". But if people suddenly start noticing how much tax the government is (and always has been) taking from them, is that a bad thing.

[Waldorf]

I noticed this on the front page of The Sunday Times this morning, but have not read it yet.

I wouldn't have thought that the full NIC rate would/could be added to the tax on dividends, generally NIC was only a tax on earnings, however even if the full rate is not added, it does leave the door open for a future labour government to raise more tax from increasing this tax. The general public will be fooled as they were when the dividend tax credit was removed from the pension funds.