Reply to: BBC article on micro-Ltds

[MPwannadecentincome]

These IR35 ramblings are just sooooooooo long and boring

oi! are you stealing my sig

[oilboil]

Could you take your IR35 witterings to another thread

It's becoming a standard response to any post now...

At least NLUK was brief with his stock "what did your accountant say" responses. These IR35 ramblings are just sooooooooo long and boring

[d000hg]

Could you take your IR35 witterings to another thread

[jamed]

As someone on LinkedIn said the new criteria for IR35 determinations should be:

I got help from a government scheme: Inside
I didn't get help from a government scheme: Outside

(before anyone lays into the legalities of it I fully appreciate they were being flippant but I understand the sentiment behind it).

I think this would be fine. If the government could guarantee us we could continue working outside of IR35 in the future then I certainly wouldn't furlough myself now.

But realistically the government will pass the IR35 amendment, even more so now as they're going to be needing even more tax revenue after all these grants, so I definitely will take any grants I am legally entitled too.

[elsergiovolador]

Are they, because they are exactly my current real world example having taken many months of this year. How about you try to stop thinking that everyone is like you

In that case do you think you should pay as much tax as employee, given you don't get the same benefits?

[d000hg]

Your final para is the balancing part of the equation.

Self-employed do not get sick pay or holiday pay or pension contributions either.

[d000hg]

Why don't you compare real life values? For example 70k salary versus 70k revenue (minus accounting, insurance, office, equipment and other costs)?

Such comparisons like yours are unhelpful and give people wrong image.

You think everyone running a Ltd has gross profit/billing of £70k?!

Speaking of real life, you might like to visit the real world...

[DSF70]

I think you are focussing on the wrong part here, Limited Companies do still get an advantage through DIV instead of PAYE

To make calcs easier I've assumed you paid a base salary of £12,500 and a DIVI of £2k already (the tax free DIVIDEND)

So you wanted to disperse 20K of money to your employee (you) then there is a difference

PAYE

Income Tax 20% - £4,000
Employee NI 12% - £2,400
Employer NI 13.8% - £2,760

Total to GOV = £9,160

DIVIDEND ROUTE

Corp Tax 19% - £3,800
Dividend Tax 7.5% - £1,500

Total to GOV £5,300

NOW - If you were to argue that due to lack of sick pay, holiday pay, pension contributions and other benefits that the difference wasn't that great I'd agree, but on a pure TAX TAKE discussion there is a massive difference that gives contractors a big boost in raw take home cash (but no holiday/sick/benefits etc - so quickly eroded)

Your final para is the balancing part of the equation.

[oilboil]

Why don't you compare real life values? For example 70k salary versus 70k revenue (minus accounting, insurance, office, equipment and other costs)?

Such comparisons like yours are unhelpful and give people wrong image.

Are they, because they are exactly my current real world example having taken many months of this year. How about you try to stop thinking that everyone is like you

[elsergiovolador]

NOW - If you were to argue that due to lack of sick pay, holiday pay, pension contributions and other benefits that the difference wasn't that great I'd agree, but on a pure TAX TAKE discussion there is a massive difference that gives contractors a big boost in raw take home cash (but no holiday/sick/benefits etc - so quickly eroded)

Why don't you compare real life values? For example 70k salary versus 70k revenue (minus accounting, insurance, office, equipment and other costs)?

Such comparisons like yours are unhelpful and give people wrong image.

[d000hg]

Are you sure self-employed people pay double-NI? The comparison between SE and Ltd-divi is surely the more relevant one... also it would be useful to run it at low-ish income (say £25k gross), medium (50k?) and high (100k).

If I get time I'll run it but SE isn't an area I ever used.

[oilboil]

Except you forgot to mention that dividends come from profits, which have corporation tax applied to them, currently at 19%, before then having dividend tax applied at 7.5% (lower rate)

I think you are focussing on the wrong part here, Limited Companies do still get an advantage through DIV instead of PAYE

To make calcs easier I've assumed you paid a base salary of £12,500 and a DIVI of £2k already (the tax free DIVIDEND)

So you wanted to disperse 20K of money to your employee (you) then there is a difference

PAYE

Income Tax 20% - £4,000
Employee NI 12% - £2,400
Employer NI 13.8% - £2,760

Total to GOV = £9,160

DIVIDEND ROUTE

Corp Tax 19% - £3,800
Dividend Tax 7.5% - £1,500

Total to GOV £5,300

NOW - If you were to argue that due to lack of sick pay, holiday pay, pension contributions and other benefits that the difference wasn't that great I'd agree, but on a pure TAX TAKE discussion there is a massive difference that gives contractors a big boost in raw take home cash (but no holiday/sick/benefits etc - so quickly eroded)

[Paralytic]

Except you forgot to mention that dividends come from profits, which have corporation tax applied to them, currently at 19%, before then having dividend tax applied at 7.5% (lower rate)

It has, yes, but that's the company's money, not the directors. And any portion paid out as salary does not attract CT.

The contractors I know also don't pay themselves 30k to be @ 7.5% after corp tax, but much more, therefore their tax bills are substantial.

In that case, the 3 year Dividend Charge would be less, if not zero.

I still think expecting to be taxed a a shareholder but get benefits as an employee is not right.

[elsergiovolador]

Except you forgot to mention that dividends come from profits, which have corporation tax applied to them, currently at 19%, before then having dividend tax applied at 7.5% (lower rate)

The contractors I know also don't pay themselves 30k to be @ 7.5% after corp tax, but much more, therefore their tax bills are substantial.

If they believe contractors pay not enough tax, then there should be a better way to do it - for example increase the dividend tax, so it will match PAYE plus employers NI by pound

Improve PAYE so it is as easy to get a salary as dividend.

Lastly, merge income tax with NI.

I already listed three better ideas. Me detective mind tells me, the tax is not the reason IR35 is pushed through.

This is the same thing as talking about children safety when implementing censorship.

[oliverson]

People who have paid themselves dividends have benefited from hugely preferential tax treatment on a significant part of their income. Perhaps the treasury could allow such people to benefit from the scheme if they agree to (in future) back-pay tax at the equivalent level of an employee for all dividends paid in the last 3 years.

So, if you received, say, £30K dividends each year, for which you paid 7.5% tax, you can claim up to £2,500 per month now, based on your average income including dividends (capped, as per the employed/self-employed), but agree to owe the equivalent tax as if those dividends had been taken as salary.

So, you'd owe the tax man 12.5% on those dividends (assuming a simple case). It would not have to be paid now, but due over the next 3 years from 2021. It could be called the Dividend Charge.

Except you forgot to mention that dividends come from profits, which have corporation tax applied to them, currently at 19%, before then having dividend tax applied at 7.5% (lower rate)