Reply to: Tory Brexit DOOM™: Tax in a changing world of work

[WordIsBond]

Or they could stop branding being a tax deductible expense and make google, amazon, starbucks etc pay their fair share.

Branding is a tax deductible expense?

Then what about tattoos? Or does HMRC only respect the pain aspect of being branded?

(Since corporation tax is a microscopic portion of the tax any large employer pays, this whole thing about branding is blown way out of proportion.)

[BrilloPad]

Or they could stop branding being a tax deductible expense and make google, amazon, starbucks etc pay their fair share.

[VectraMan]

Didn't you notice that among all that ivory tower drivel there wasn't a hint of consideration for the many benefits employees enjoy compared with contractors, such as training, pensions, holiday pay, maternity rights, extra job security, redundancy pay, etc etc?

Are you able to keep a straight face when you say that? I don't think I could.

Tax breaks on foundling companies, maybe yes. Tax loopholes exploited by extremely high earning contractors... no. If you leave your permie job to earn more as a contractor than you did before, you really don't need a helping hand. If you quit your job to work 16 hours a day getting your business off the ground, that is another story and that's one issue... there's not a real delineation between the two. Hence all this PSC bodging.

Seems to me you can link the amount of tax relief allowed on dividends to investment. Somebody who invests £1m has taken a real risk and might lose that £1m, so probably the tax break is justified to encourage entrepreneurship. The typical contractor has invested £0, and as much as I'm sure the OwlHoots will say they are taking a real risk in not finding work, the reality is that's a risk every permie faces too. If the allowable dividend was a multiple of the original investment then we wouldn't need all the complicated rules around PSCs.

Maybe that does hurt the software-entrepreneur who maybe gives up work to use the time to develop something. But you could make some kind of calculation for that too, based on an allowable rate. But even if not, the idea that the entrepreneur is only motivated by his tax avoidance possibilities is ridiculous: he's obviously looking to earn a lot more and so the risk is worth taking even if he doesn't get the tax break.

[WordIsBond]

Tax breaks on foundling companies, maybe yes. Tax loopholes exploited by extremely high earning contractors... no. If you leave your permie job to earn more as a contractor than you did before, you really don't need a helping hand. If you quit your job to work 16 hours a day getting your business off the ground, that is another story and that's one issue... there's not a real delineation between the two. Hence all this PSC bodging.

There are problems with this line of argument.

1. It's extremely difficult, in fact, probably impossible, to write legislation distinguishing between the two classes you mention.
2. There's changeover between the two classes. In my own contracts, I may look like the PSC you are talking about, but I also have employees, and sometimes revenue from my own contracts pays part of their salary (other times I do very well off of them). I'm building something bigger than just a PSC, a consultancy. (HMRC's online tool doesn't even take that into consideration, BTW.) Other guys on this forum have at least talked about hiring, or about developing a product.
3. There's an economic benefit to having a flexible workforce of highly skilled contractors. It's an extremely valuable resource for industry and something that helps encourage companies to locate here. It's not a case of contractors needing a helping hand, it's a case of whether or not we want to encourage contracting, or do we want to actually push contractors into the safety of permiedom and destroy or marginalise our flexible workforce.
4. There's a societal benefit as well in not having everyone tied down to a big employer.
5. It's a spurious argument to say that taxation should be based on whether someone "needs" a tax break. Sure, contractors shouldn't "need" a tax break. Neither should savers. But savers get tax breaks because the government wants to encourage savings. Makes sense to me.
6. It's also a spurious argument to say that a tax break is suspect just because some who benefit from it don't need it. Child benefit is universal, even though many who receive it don't need it. So is the personal allowance, the dividend allowance, and a lot of other things. If it is good to encourage entrepreneurship, and doing so benefits society and the economy, but a few contractors who don't need it benefit as well, that's hardly a bad thing.

We could debate, as I said, how much government encouragement there should be. But the argument that government encouragement of entrepreneurship (including contracting) is appropriate and beneficial is rock-solid, at least until we decide to try to adopt a completely neutral tax system that doesn't try to encourage anything. But that would be stupid.

[vetran]

You'll understand when you earn your first million...

most successful businessmen find the second million easier. So AssSnob's hubby tells me.

[AtW]

And for the record I'm not endorsing tax rises for contractors. Just equality of taxation on earnings. "I earn X, I have Y deductibles, I pay Z% tax on the profits".

Equality would be flat rate tax, then it's fair - like in Germany for dividends.

[d000hg]

And for the record I'm not endorsing tax rises for contractors. Just equality of taxation on earnings. "I earn X, I have Y deductibles, I pay Z% tax on the profits".

[d000hg]

Entrepreneurship is both economically and societally advantageous. It's well within the tradition of British tax law to give it tax breaks. If you want to argue the tax breaks have been too large, that's a conversation we could have. But it would be extremely short-sighted, in my view, to eliminate the tax benefits currently given to entrepreneurship.

Tax breaks on foundling companies, maybe yes. Tax loopholes exploited by extremely high earning contractors... no. If you leave your permie job to earn more as a contractor than you did before, you really don't need a helping hand. If you quit your job to work 16 hours a day getting your business off the ground, that is another story and that's one issue... there's not a real delineation between the two. Hence all this PSC bodging.

[d000hg]

You really are a perseverative imbecile sometimes, well actually usually!

Didn't you notice that among all that ivory tower drivel there wasn't a hint of consideration for the many benefits employees enjoy compared with contractors, such as training, pensions, holiday pay, maternity rights, extra job security, redundancy pay, etc etc?

And you're an entitled unpleasant ignorant arse. Those things you list are all part and parcel of eschewing traditional employment. There's absolutely NO reason you should pay less tax because you don't get sick pay, what a ludicrous idea. Your lack of sick pay, holidays, job security, etc is countered by the higher rate you receive when you are working. And let's not forget all those benefits like being in charge of your own career, freedom from annual reviews, everyone spouts on about.

(pensions is perhaps the one point I agree with you on but that's more a salary increase by another name)

Contracting offers the ability to get well paid for being good at something, unchained from corporate bureaucracy and politics. The idea you should get a tax break for earning more than your permie colleagues is just laughable. Take a trip to the real world and try convincing someone in the pub how you need a little help on your tax bill because it's so large when you earn £90k.

[WordIsBond]

This sums up my view nicely:The reward from contracting, entrepreneurship in general should be higher rates, more freedom, etc, not a tax-benefit on what you do earn. Supply and demand drives contract rates.

1. Pensions get tax breaks because they are advantageous societally or economically, so government encourages pension savings.
2. Interest savings and ISA investments get tax breaks because they are advantageous societally and economically.
3. Marriage gets tax breaks (at least on inheritance tax) because it is deemed to be advantageous.
4. Hybrid cars get tax breaks.
5. Employing people gets tax breaks (employment allowance).

And on, and on, and on. If something is advantageous to the economy and/or to society, we have a long tradition of using advantageous taxation handling to encourage it.

Entrepreneurship is both economically and societally advantageous. It's well within the tradition of British tax law to give it tax breaks. If you want to argue the tax breaks have been too large, that's a conversation we could have. But it would be extremely short-sighted, in my view, to eliminate the tax benefits currently given to entrepreneurship.

[AtW]

What is wrong with any of that?

You'll understand when you earn your first million...

[AtW]

That went well.

It was rolled back for only 2 reasons:

1) Directly breaking manifesto promise
2) May already planned to call General Election in a month

Now they don't even want to promise avoiding increase in direct taxation, nevermind shafting people sideways with higher dividend tax.

[tomtomagain]

This sums up my view nicely:The reward from contracting, entrepreneurship in general should be higher rates, more freedom, etc, not a tax-benefit on what you do earn. Supply and demand drives contract rates.

I disagree.

Giving tax benefits to early stage companies is very important.

For my own case I managed to get a break. It was a relatively small amount of £12k but I was able to use that to part-fund an extra full time job. A job that did not exist before I created it.

In my view, the purpose of a "Company" is to allow a group of people to create a product/service that adds value to society. It was never designed to be a mechanism for a single individual to sell his/her skills ( usually to one client at a time ).

It's not the contractors fault but the fact that "The System" does not recognise Freelancers properly. Freelancers should be given some help ( via a lower tax rate ) to recognise the fact that they have foregone employment protections such as paid holidays and sickness, notice periods and that they are taking a risk ( albeit a lower risk than someone who has re-mortgaged their house to fund an early stage start up ).

If you want a dynamic, functioning economy that creates well-paid jobs you have to reward risk properly. Otherwise why would any of us bother? Just get a stress-free permie job in a local government and clock-watch for 40 years until you collect your final salary pension.

[jamesbrown]

Vociferous losers - get ready to be bent over by Tory Brexit!

DOOMED!

Er, minor point 'n all, but this is the IFS. They've been saying this for ages. They were also strongly in favour of the changes to Class 4 NI, which was a tiny, weeny, step along the road. That went well.

In the long run, I broadly agree with your prescription of doom, but none of this is happening overnight.

[OwlHoot]

What is wrong with any of that? Equal treatment for all income makes sense, if a proper overhaul that could figure out NI without an employer could be constructed (bin employers' NI?) ....

You really are a perseverative imbecile sometimes, well actually usually!

Didn't you notice that among all that ivory tower drivel there wasn't a hint of consideration for the many benefits employees enjoy compared with contractors, such as training, pensions, holiday pay, maternity rights, extra job security, redundancy pay, etc etc?