Reply to: Insider ir35 - is uk a tax hell now?

[Fraidycat]

So with todays NI increases it looks like a 2.5% increase for those caught by IR35?

1.25% employees NI and 1.25% employers NICs

As if inside IR35 contractors weren't taxed enough tax already.

We used to estimate around 55 or 54% take home, now its getting even closer to 50%.

I guess it now makes calculating take home pay easy, £800 a day inside IR35 expect to take home around £400 a day

Any more increases and inside IR35 contractors really are in tax hell: where effective overall tax rate >50%. (The marginal tax rate already is >50%).

[eek]

You know you are starting to sound like a bit of an arrogant a hole? Taking time off because you can't be bothered to earn it. Why not get off your lofty height and just give advice to normal people that have to work all year rather than tell us what you'd do because you can?

And even someone as up their own arse as you doesn't turn money down so I doubt you would anyway.

Well if you need to work all year and also earn £100,000+ a year cut your outgoings to sander levels.

But beyond that if you are caught by ir35 what advice can anyone actually give regarding tax beyond:-

1) pick a trustworthy umbrella
2) maximise your pension contributions

[northernladuk]

I just realised i forget to include NICs.

So its 14% employers NICs, 2% employee NICs and 60% income tax for inside IR35 salary between 100K and 120K.

Marginal 67.5% tax rate 32.5% take home.

Personally if I was coming towards the end of the tax year and i was close to entering that tax band (after putting 40K into my pension). I would just take the rest of the tax year off.

But i can see why some people would carry on as normal, 32.5% take home is still better than nothing!

You know you are starting to sound like a bit of an arrogant a hole? Taking time off because you can't be bothered to earn it. Why not get off your lofty height and just give advice to normal people that have to work all year rather than tell us what you'd do because you can?

And even someone as up their own arse as you doesn't turn money down so I doubt you would anyway.

[jayn200]

But this thread is about inside IR35 people who cant push tax through a corporation. We all know it doesn't apply for outside IR35.

Marginal tax rates become more noticeable when you do extra paid over time. Your main hours you can frame your tax as an average tax rate.

If you are earning at or above £150K as a contractor and client co offers you some overtime, the overtime will be taxed at 55%. You get to take home 45%, is it worth it?

Same for a perm guy earning just below 50K who gets child benefit for 3 kids. Is it worth doing extra overtime when they will get 'taxed' at 65% for salary between 50K and 60K. I wouldn't do any overtime for just 35% take home.

There is another marginal tax rate of 60%, for salary between 100K and 120K. This one will hit inside contractors who earn more normal rates. Is it worth doing any overtime if you deemed salary is 100K?

Yes but my particular response was directed at the higher tax rate in those other countries... I don't know the tax rules in all those countries but I know it well in one of them at least and waaaaay less people in that country are paying those top marginal rates compared to whats happening in UK with ir35 so it's not fair to compare them.

[Fraidycat]

I just realised i forget to include NICs.

So its 14% employers NICs, 2% employee NICs and 60% income tax for inside IR35 salary between 100K and 120K.

Marginal 67.5% tax rate 32.5% take home.

Personally if I was coming towards the end of the tax year and i was close to entering that tax band (after putting 40K into my pension). I would just take the rest of the tax year off.

But i can see why some people would carry on as normal, 32.5% take home is still better than nothing!

[northernladuk]

You could take Feb and March off if you are inside ir35. Paid into your pension already, and find you are at 100K deemed salary.
Is it worth working Feb and March for just 40% take home?

Forget the percentage. Focus on the money. That's what pays the bills. If it's 40% of a lot it's still a lot.

[Fraidycat]

Anyone sane hits a marginal tax rate and then takes the rest of the year off.

You could take Feb and March off if you are inside ir35. Paid into your pension already, and find you are at 100K deemed salary.
Is it worth working Feb and March for just 40% take home?

[eek]

But this thread is about inside IR35 people who cant push tax through a corporation. We all know it doesn't apply for outside IR35.

Marginal tax rates become more noticeable when you do extra paid over time. Your main hours you can frame your tax as an average tax rate.

If you are earning at or above £150K as a contractor and client co offers you some overtime, the overtime will be taxed at 55%. You get to take home 45%, is it worth it?

Same for a perm guy earning just below 50K who gets child benefit for 3 kids. Is it worth doing extra overtime when they will get 'taxed' at 65% for salary between 50K and 60K. I wouldn't do any overtime for just 35% take home.

There is another marginal tax rate of 60%, for salary between 100K and 120K

Anyone sane hits a marginal tax rate and then takes the rest of the year off.

[Fraidycat]

Suuuuuuuuuure but who pays top marginal tax rates? Very very few people... a couple high earning professionals who aren't able to push their tax through a corporation.

But this thread is about inside IR35 people who cant push tax through a corporation. We all know it doesn't apply for outside IR35.

Marginal tax rates become more noticeable when you do extra paid over time. Your main hours you can frame your tax as an average tax rate.

If you are earning at or above £150K as a contractor and client co offers you some overtime, the overtime will be taxed at 55%. You get to take home 45%, is it worth it?

Same for a perm guy earning just below 50K who gets child benefit for 3 kids. Is it worth doing extra overtime when they will get 'taxed' at 65% for salary between 50K and 60K. I wouldn't do any overtime for just 35% take home.

There is another marginal tax rate of 60%, for salary between 100K and 120K. This one will hit inside contractors who earn more normal rates. Is it worth doing any overtime if you deemed salary is 100K?

[jayn200]

Is a 45% or 50% top marginal tax rate really "complete hell"? Several OECD countries with broadly recognised as good, if not better, quality of life than the UK have a rate greater than 50% e.g. Japan, Denmark, France and Canada. Other similar countries with a top marginal rate of at least 45% include Germany, Netherlands, Australia and Sweden.

No one enjoys paying tax but to state that a 45-50% top marginal rate is compete hell is a bit of an exaggeration to say the least. The only major OECD countries with a top marginal rate of less than 45% are S. Korea, USA, Spain and Italy and they are only a few percentage points less.

Suuuuuuuuuure but who pays top marginal tax rates? Very very few people... a couple high earning professionals who aren't able to push their tax through a corporation. Majority of individuals earning those levels of returns are doing so through capital gains which are taxed at much lower rates or other using other tax legislation depending on what country you're referring to. It's really just a dumb middle income tax. It's just smoke and mirrors that give the illusion the rich are getting taxed at high rates when really no rich people are getting income via salaries anyway, it's just the hard working professionals who slaved away 10 years in school + another 10-20 years in their industry working 16 hour days to try to make something of themselves.

[jamesbrown]

What options exist to minimise tax these days? Pension contributions only up to 40K from what I know and thats the only fiddle left...

Its really sad to see these numbers when the days of 700 a day outside IR35 allowed you to build up massive ltd warchests

Eh? There are still plenty of contracts around that are outside of IR35.

[NowPermOutsideUK]

What options exist to minimise tax these days? Pension contributions only up to 40K from what I know and thats the only fiddle left...

Its really sad to see these numbers when the days of 700 a day outside IR35 allowed you to build up massive ltd warchests

[Fraidycat]

Is a 45% or 50% top marginal tax rate really "complete hell"? Several OECD countries with broadly recognised as good, if not better, quality of life than the UK have a rate greater than 50% e.g. Japan, Denmark, France and Canada. Other similar countries with a top marginal rate of at least 45% include Germany, Netherlands, Australia and Sweden.

No one enjoys paying tax but to state that a 45-50% top marginal rate is compete hell is a bit of an exaggeration to say the least. The only major OECD countries with a top marginal rate of less than 45% are S. Korea, USA, Spain and Italy and they are only a few percentage points less.

When you tax a minority portion of someones hard work they might grin and bear it, but taking a majority starts getting evil

So when i was referring to those kind of tax rates as hell, i meant for contractors caught by IR35 as we would have to pay 14% Employers NI before paying 45-50% income tax + 2% employee NICs. Inside ir35 contractors would be facing the highest tax rates compared to anyone in any OECD country.

Some contractors already pay 14% before another 45% + 2%. But those are mostly high paid inside ir35 contractors in the city (those on £800+ a day)

In Labour's last election manifesto they said they would lower the threshold for paying 45% income tax from the current 150K level down to 80K. This would have hit the majority of inside contractors and not just the highest paid ones in the city.

[edison]

Yeah, factor in lost child benefit it will be that.

It gets even worse for overtime pay.

After Employers NI some one on £700 a day will be on around 150K a year.

This means they will be at or very near the 45% income tax threshold.

So any over time pay will be taxed 45% income tax, 2% Employee NI, and 13% NI Employer.

That sounds like Tax hell to me.

But it would have been even more hellish under labour, Corybn wanted the 45% tax band to start at 80K and a new 50% tax band to start at 125K. My guess he would have jacked up employee and employer NI for high earners as well.

Is a 45% or 50% top marginal tax rate really "complete hell"? Several OECD countries with broadly recognised as good, if not better, quality of life than the UK have a rate greater than 50% e.g. Japan, Denmark, France and Canada. Other similar countries with a top marginal rate of at least 45% include Germany, Netherlands, Australia and Sweden.

No one enjoys paying tax but to state that a 45-50% top marginal rate is compete hell is a bit of an exaggeration to say the least. The only major OECD countries with a top marginal rate of less than 45% are S. Korea, USA, Spain and Italy and they are only a few percentage points less.

[malvolio]

Thats the kind of thinking that ends up with 90 to 99% tax bands. That we have had in the past. And some people would like to see again.

Which is not what I was saying. I was not saying we should disregard the taxation landscape and any potential future depredations HMG may come up with. We have someone complaining about the return on their income - which is still substantial by any normal measure - when the remedy lies in their own hands. Moaning about the legal deductions is pointless.