Reply to: As a contractor, how do you answer this criticism?

[vwdan]

Be careful. You're so sharp you could cut yourself


Your company can of course provide eg sick pay and holiday pay out of taxed income.

How do you fathom? You're talking retained profit which is essentially not possible under an IR35 type regime.

If you worked for Accenture then your sick pay and holiday pay attract PAYE and NIC. If your IR35 is 10% higher than a permie's salary then you could use that 10% to fund 10% holiday pay roughly speaking.

Sure, but only out of your personal income - the same as any permie could. Are you saying permies who earn more shouldn't be entitled to employment rights? Because they could just save some money instead of moaning about things like redundancy. You also mentioned things like medical benefits - again, not possible under IR35. Again, that's just "paying for things with your salary"

It gets more complicated when you factor in tax years. So if you worked as a permie you could have no sick pay for 2 years and then have two years' worth. It would only be taxed as normal pay whereas as a contractor the 'fund' you built up in the first year would have been taxed potentially at higher rate as you'd not used it. So there is a slight hit for contractors but it's nothing like your "It's against God's Will and the Laws of Physics" to provide benefits out of taxed day rate.

It's not against Gods will - it just makes absolutely no sense. If you're forced to pay personal tax on something, then that's your remuneration. It's not a "fund", it's not "retained profit" - it's just your salary.

You have to stop expecting the State to solve all your problems. You have to stand on your own two feet.

Aaaand we're back to square one where you act like an absolute fool because you can't help yourself. Nobody is expecting subsidies or state assistance - in fact, that's kind of the point isn't it. Unless you think all companies should be taxed on turnover?

Why am I able to go and do the same job for a consultancy and they get relief on my expenses, but I can't do exactly the same work through my own company?

I don't think you really understand IR35 and it's effects to be honest. Are you even a Ltd Co contractor, or are you just dense?

Edit: P.S. You also didn't answer my second post.

[Cirrus]

"Subsidised by HMRC" which...I took to mean tax relief.

Be careful. You're so sharp you could cut yourself

Well, the opposite to running a Ltd Co and claiming tax relief is to operate inside IR35 and pay PAYE tax on the lot - at which point, your company can not provide any of the benefits you mentioned.

Your company can of course provide eg sick pay and holiday pay out of taxed income. If you worked for Accenture then your sick pay and holiday pay attract PAYE and NIC. If your IR35 is 10% higher than a permie's salary then you could use that 10% to fund 10% holiday pay roughly speaking. It gets more complicated when you factor in tax years. So if you worked as a permie you could have no sick pay for 2 years and then have two years' worth. It would only be taxed as normal pay whereas as a contractor the 'fund' you built up in the first year would have been taxed potentially at higher rate as you'd not used it. So there is a slight hit for contractors but it's nothing like your "It's against God's Will and the Laws of Physics" to provide benefits out of taxed day rate.

IR35 is not good but applying some kind of religious dogma is not really going to persuade the man on the Clapham Omnibus.

The simple bottom line of IR35 is you need to charge a lot more or accept a lower standard of living. You have to stop expecting the State to solve all your problems. You have to stand on your own two feet.

[vwdan]

I didn't comment because it was so muddled. However since you insist:

I had said people like the OP described - tax minimisers - get benefits baked into their fees. You however start on about people on IR35 deals whose pay is subject to PAYE. Well we weren't talking about them, were we?

Keep up!

No you didn't, you said you were surprised contractors believe they should be "Subsidised by HMRC" which, while a nonsense statement in itself I took to mean tax relief. Well, the opposite to running a Ltd Co and claiming tax relief is to operate inside IR35 and pay PAYE tax on the lot - at which point, your company can not provide any of the benefits you mentioned.

Not to mention that the whole thread has come about due to the current proposed IR35 changes and interest in how contractors operate; most Ltd Co contractors were more than happy with the status quo (excluding IR35)

[fool]

As I said 10 or so years ago, there's an easy enough answer:

Tax divis as income.
Allow proprietary directors to use self employed NIC class.

They could:

• Collapse NIC and Employers NIC into income tax. The diversion serves no purpose other than to trick people into believing headline rates are lower than what they are.
• Nil rate Corp tax.
• Dividend taxed as Income.
• Spouses should be able to share Income tax brackets (A flat rate would negate the need for this, but jealously based politics necessitate "progressive taxes" that the rich avoids).
• Drop Entrepreneurs relief.

That leaves the only advantages of running an Ltd:

• limited liability
• expenses, but the 2 year rule and the fact often need to use our own kit doesn't really make that seem outrageous
• Deferring Income; but people with zero employment rights likely need this.

They are unlikely to do this though, as many MPs themselves wrap their income into an Ltd to avoid tax.

[cojak]

Yup, this.

I have just been offered £650 for an inside contract. Not everyone will have a rough time.

[TwoWolves]

In plenty of forums, Facebook, social media etc, I always see the following phrase and I wondered what everyone else thought about it and how you answered it.

"People who avoid paying fair amounts of tax by creating a company, employing themselves on minimum wage and paying themselves a large dividend lose their right to an opinion on what happens to the NHS, as they aren't fairly contributing towards it. Even if what they do is legal, morally it's completely wrong."

By the way, I'm a contractor and sick of being attacked and would like to know what to say back

Stop wasting your time on social media and spend your time improving your skill-set so you can get new contracts and earn more money.

Man-up.

[Cirrus]

Critical Thinking C--. Must try harder

You also forgot to respond to my other post - perhaps you could review it.

I didn't comment because it was so muddled. However since you insist:

I had said people like the OP described - tax minimisers - get benefits baked into their fees. You however start on about people on IR35 deals whose pay is subject to PAYE. Well we weren't talking about them, were we?

Keep up!

[Old Greg]

In plenty of forums, Facebook, social media etc, I always see the following phrase and I wondered what everyone else thought about it and how you answered it.

"People who avoid paying fair amounts of tax by creating a company, employing themselves on minimum wage and paying themselves a large dividend lose their right to an opinion on what happens to the NHS, as they aren't fairly contributing towards it. Even if what they do is legal, morally it's completely wrong."

By the way, I'm a contractor and sick of being attacked and would like to know what to say back

Another slam dunk response is that for many contractors, a large dividend is a myth. For many of us, we are forced into debt, denominated in a fast depreciating foreign currency, to a Dutch Antilles film production holding trust.

[DeludedKitten]

In plenty of forums, Facebook, social media etc, I always see the following phrase and I wondered what everyone else thought about it and how you answered it.

"People who avoid paying fair amounts of tax by creating a company, employing themselves on minimum wage and paying themselves a large dividend lose their right to an opinion on what happens to the NHS, as they aren't fairly contributing towards it. Even if what they do is legal, morally it's completely wrong."

By the way, I'm a contractor and sick of being attacked and would like to know what to say back

I answer it by highlighting the different levels of tax that are paid by employees and the self-employed.

For example:

On the first £8424 an employee and contractor pay the same tax - no income tax, corporation tax, NI
On £8424 - £11850 the contractor pays more than the employee (employee pays £411, contractor £650)
On £11851 to £13850 - the contractor pays £20 less than an employee (in exchange for no rights, pension, sick leave, holiday etc etc)
On £13851 to £46350 - at the top end of that band, the contractor pays £2263 less tax / NI than the employee does. I spend more than that in accountancy and insurance a year
On £46351 to £46384 - the contractor saves £2
On £46384 to £100000 - for every £10000 an employee earns in that band, the employee pays £332 less than the contractor
Over £115000, contractors pay more

In short - a contractor earning £50k pays more tax than an employee earning £40k (contractor pays £10841 in tax, employee pays £9419 - a massive £1400 saving)

(I did the figures some time ago and the bands may be slightly out, but the principle is the same. Employee rates used:

From    To      Income Tax    Employees NI     Marginal Rate
0       8424    0%            0%               0%
8425    11850   0%            12%              12%
11851   13850   20%           12%              32%
13851   46350   20%           12%              32%
46351   46384   40%           12%              52%
46385   150000  40%           2%               42%

Contractor tax rates used:

From    To      Corp Tax  Dividends  Marginal Rate
0       8424    0%        0%         0%
8425    11850   19%       0%         19%
11851   13850   19%       0%         19%
13851   46350   19%       7.5%       25.1%
46351   46384   19%       32.5%      45.3%
46385   150000  19%       32.5%      45.3%

[Whorty]

Haha, all you've posted in this thread is absolute nonsense. You also forgot to respond to my other post - perhaps you could review it.

Anyway, I've just (literally) had an e-mail from a colleague of a client asking when I'm available for a few days to do some consultancy for them. Tell me in simple words (I doubt you know any others) how that's different from me calling my builder and asking him when he's free to pop round and look at something?

'consultancy' is very different though to what most contractors do; sit in the same desk, day in , day out, doing the same job for the same company over a 6+ month period. Many don't even work on projects, they're just brought in as temporary employees that the company don't want to put through their HR department.

I'm not saying contractors are wrong to offer this option to companies, but to all intents and purposes many contractors are just disguised employees.

As for the OP, why get drawn into a debate with these people. They are jealous that they can't ask for a larger 'salary' and prefer the safety net of a perm role. That's their problem to deal with. Let them vent if they so wish, it's not going to change anything.

[vwdan]

Now, that's not true is it? You go on Jobserve or LinkedIn or your network and find a job someone else has created.

Haha, all you've posted in this thread is absolute nonsense. You also forgot to respond to my other post - perhaps you could review it.

Anyway, I've just (literally) had an e-mail from a colleague of a client asking when I'm available for a few days to do some consultancy for them. Tell me in simple words (I doubt you know any others) how that's different from me calling my builder and asking him when he's free to pop round and look at something?

[rogerfederer]

Many contractors on CUK have made it very clear that anyone who avoids tax is scum. And have no sympathy with the many suicides HMRC have caused - 7 for LC alone.

Of course now they are starting to realise they are tax avoiders themselves and there is nothing wrong with it.

They only way is to take down HMRC. And that is underway. Will you support that? Or will you just do the standard contractor whine and b1tch?

I think this might be a nonsense assertion, my dear BrilloPad.

Most contractors seem to have been ok with dividends + salary; in fact I myself am ok with the dividend tax and understand the need for it. The IR35 changes and the reactionary nature response by banks I don't agree with and it seems unnecessary given the dividend tax.

I've seen your name quite a lot posting in the HMRC Enquiries sub-forum; I suggest that tax evasion and those contractors with complex schemes are evading tax and have everything coming to them although I don't agree with the retrospective methods of HMRC I do simultaneously believe that they were clearly outwith the law and constitute tax evasion. HMRC could've chased in a kinder manner.

People ending their lives - let's call it what it is, killing themselves, is sad and unnecessary. However given the rates of depression in the country and suicide rate among men I'm not sure this can be entirely be held as the sole responsibility of HMRC and/or their response to the loan charge. It strikes of people being ignorant and careless regarding money - I include you and anybody else in this if you/they went down the LC route yourself - as you made your bed and now you must lie in it. You purposefully use complex tax arrangements and saving that money extra you made as a very high earner for the inevitable rainy day. I don't like HMRC's response to the LC but by the same token we learn as teenagers how to handle money and as adults you/they chose to make certain decisions that were and are clearly tax evasion. People have been posting here for year after year of the clear dodgy nature of them. Naivety or ignorance is no excuse for such mistakes or "the scheme marketeer recommended the scheme and I just went along with it". As with our yearly accounts it's our responsibility as directors to keep on top of anything related to our Limited Companies.

I remind you that I am at the forefront of mentioning Amazon, Starbucks, Amazon, Boots (etc) as utilising tax evasion measures to minimise their tax in the UK to such a ridiculous extent that it's high time they had back-tax calculated and forced to pay it. If they leave the market, tough luck for them. Would we miss the bland coffee really? I doubt it too.

The offshore Panama Papers and the rest are posted online now, so it's possible to search for contractors' Limited Companies who were using offshore schemes purely to vastly reduce their tax bill through highly complex schemes.

For example: search for company secretary "Westco Nominees" Ltd - plenty of contractors seem connected that judging by companieshouse.gov.uk searches to show PSC-style Limited Companies.

Jounralist coordinated website for all well known past leaks of offshore financial information:

ICIJ Offshore Leaks Database

What I find amazing is that the same address of "Westco Nominees Ltd" is now used by "Nominee Solutions ltd" and the same Limited Company Contractors are still using these schemes.

It's absolutely insane when you consider that it's obvious what they are up to. From research all I can find online is pages concerning convoluted loan schemes that are still in existence. That's insane.

Company Check | Free Company & Director Information & Reports is your friend if you do not believe people are still using these schemes and have been for over 12 years. I think it's a sad state of affairs that people are still using them and, overall, giving the rest of us a bad name.

[Lance]

In plenty of forums, Facebook, social media etc, I always see the following phrase and I wondered what everyone else thought about it and how you answered it.

"People who avoid paying fair amounts of tax by creating a company, employing themselves on minimum wage and paying themselves a large dividend lose their right to an opinion on what happens to the NHS, as they aren't fairly contributing towards it. Even if what they do is legal, morally it's completely wrong."

By the way, I'm a contractor and sick of being attacked and would like to know what to say back

Tell them you don't do this. Tell them you pay all your money as PAYE.
Who cares if it's true or not they'll never find out.

Or. Tell the to piss off an mind their own business. They're just jealous as they don't have the balls to go on their own.

Or agree with them. Shrug your shoulders and explain the benefits of an insurance based health care system and why the NHS is appalingly bad.

[Cirrus]

Open the Pill Bottle Labelled Reality

We create jobs for ourselves as directors.

Now, that's not true is it? You go on Jobserve or LinkedIn or your network and find a job someone else has created.

[GJABS]

If and when contractors start to create jobs for other citizens,

We create jobs for ourselves as directors. And some of us go on to form consultancies and are able to hire others.

I agree, though, that we are not what you would call classic entrepreneurs, though we do have some things in common with them.