Freelance Limited Company (FLC) offering from IPSE

[WordIsBond]

My gran (who has never done a days paid work since marrying in 1942) is going to be hit by the dividend tax. She has nothing to do with IR35... The dividend tax is an increase in tax, it hits us but has nowt to do with us bar allowing us to reduce the figures mentioned in the T&S consultation and the IR35 discussion documents..

Yeah, well if we reduce those figures to nil we can kill the ugly stepchild.

I proposed increasing the divi allowance for pensioners. Starting next year, your gran will have presumably £16K of dividends tax free, then pay 7.5% after that. I proposed making it 21K tax free for pensioners, then 10% after that. Your gran's breakeven point would be at £31K -- under my proposal, she'd be better off than she will be next year if she makes less than that, a little worse off if she makes more than that in dividends. If she makes more than £31K in dividends she's probably going to be ok. If she makes $40K in dividends, she'd be £225 worse off under my proposal.

But really, I'd be fine with pushing the over 65s dividend allowance to £15K rather than £5K. That means pensioners only get hit by my proposal if they have over £45K in dividends. Any pensioner who is basic rate would be better off with that than with what Osborne did.

[LisaContractorUmbrella]

Right, my understanding of it is that it would put SDC at the centre (sole test) of whether you were inside or out, with the client potentially responsible for making that call, with the prospect of being stuck with the costs if they misrepresent the situation as 'outside' when not. The risks involved in so doing and the difficulty of proving a negative could make them risk averse, particularly when there is a presumption of SDC as with agencies. So is the point then that the deterrent effect would help reduce such 'direct' scenarios driven by the client? Or am I missing something?

Yep that's pretty much it but we reckon that the deterrent effect is likely to ensure that pretty much everyone will end up inside

[LisaContractorUmbrella]

But builders / roofers / electricians might want to operate through Ltd Co rather than sole trader for liability reasons. Or mechanics. Sure, they aren't likely to be on that low of an hourly rate. But I'm sure there are those on low rates where liability could be a concern, they just aren't coming to mind right now. I like the goal of the blanket prohibition but it seems certain to hit someone you aren't intending to hit.

Any changes are likely to hit a few people that shouldn't be hit but the proposed changes are going to hit loads of people who shouldn't be hit - it's sort of damage limitation

[Zero Liability]

Dividend taxation is everything to do with IR35. IR35 is intended to protect the Exchequer and level the taxation playing field between employees and non-employees doing the same work. The only reason that is even something they care about is because dividend taxation is low.

Dividend taxation is just another way to do what IR35 was supposed to do. It's IR35 by the back door, whether they intended it that way or not. The fact that it was a good old-fashioned tax grab doesn't change the fact that it already did a lot to level the taxation playing field, and grabbed half of the money that IR35 was supposed to be grabbing. And if you increase it a little more, you'd finish the job, render IR35 moot and make it feasible to kill Gordon Brown's monstrosity completely, and make everyone's life (ours, HMRC) easier.

It is true though that it affects a much broader swathe of the population, which no doubt makes simply increasing it politically unpalatable for a government that claims to be pro business/pro investor. So you would need a way to isolate any increase to a minority most are clueless about and therefore which the govt has little issue looting. Obviously it's easy enough for those operating via an agency, which is probably the bulk of contractors. In the end it'd be a reinvention of the measure without the benefit of the client bearing any liability. I think they could isolate potential Fri-Mon scenarios that are direct but same thing again.

Yep that's pretty much it but we reckon that the deterrent effect is likely to ensure that pretty much everyone will end up inside

Yeah, it's a very sloppy approach to it.

[WordIsBond]

It is true though that it affects a much broader swathe of the population, which no doubt makes simply increasing it politically unpalatable for a government that claims to be pro business/pro investor. So you would need a way to isolate any increase to a minority most are clueless about and therefore which the govt has little issue looting. Obviously it's easy enough for those operating via an agency, which is probably the bulk of contractors. In the end it'd be a reinvention of the measure without the benefit of the client bearing any liability. I think they could isolate potential Fri-Mon scenarios that are direct but same thing again.

True. Well, they already singled out one-man bands on employment allowance. So, here's an alternative. Instead of increasing dividend tax, they could slap a dividend surcharge of 2.5% on any dividends paid by a one-man band company "since they are using dividends rather than salary to avoid tax."

That would be worse than a higher dividend tax because it would presumably start with the first pound of dividends. But it would give them money and level the playing field even more, and again, I think most would say if they did that and killed IR35, it's not a horrible trade-off. Everyone could quit paying for contract reviews and wouldn't have to panic if a client asked us to go to a training session or a party.

[eek]

True. Well, they already singled out one-man bands on employment allowance. So, here's an alternative. Instead of increasing dividend tax, they could slap a dividend surcharge of 2.5% on any dividends paid by a one-man band company "since they are using dividends rather than salary to avoid tax."

That would be worse than a higher dividend tax because it would presumably start with the first pound of dividends. But it would give them money and level the playing field even more, and again, I think most would say if they did that and killed IR35, it's not a horrible trade-off. Everyone could quit paying for contract reviews and wouldn't have to panic if a client asked us to go to a training session or a party.

But that hits my 1 man band company which sells software services running on servers as well as the 1 man band company that sits providing Time and Materials development resources to a large Blue Chip consultancy...

Edit to say I'm not intended to play Mr No its not a good idea. I just want to show the flaw in the plan. But at least its a sane(ish) plan rather than IPSEs...

[WordIsBond]

But that hits my 1 man band company which sells software services running on servers as well as the 1 man band company that sits providing Time and Materials development resources to a large Blue Chip consultancy...

Edit to say I'm not intended to play Mr No its not a good idea. I just want to show the flaw in the plan. But at least its a sane(ish) plan rather than IPSEs...

Good response. I see the flaws, too.

In addition to which it doesn't affect me, even though I'm basically doing the same as many people here, but also hire out my kids. So I'm not a one-man band, and would be exempt, which is hardly fair. I think I SHOULD get the employment allowance (I've hired them and am paying them a salary, after all). But is it really equitable to hit you more on dividends than they hit me, just because I've hired my kids and have them working for clients? Not really.

But ZL was talking about specifically targeting contractors, and to do that, you have to have SOME definition of what makes a contractor who has that bullseye painted on his chest.

[Zero Liability]

Yeah, largely because if you don't target contractors specifically, there is no way the alternative would have any currency with the government, which is concerned with addressing the actions of a
tiny population. It makes sense that they'd rather go with the rest of the contracting population as collateral, rather than the larger and perhaps more politically important group comprising all those who draw dividends above the relevant thresholds.

They're both measures disproportionate to what they're attempting to achieve, IMO, and I think their proposal is better from the POV that it puts liability onto the engager. Both would be damaging to the bulk of contractors who'd end up as collateral.

[sapexpert]

Please answer!

“HMRC’s first consultation getting just three responses from contractors has wrongly led tax officials to believe that SDC’s impact on contractors will be minimal," said Smith. "Fill out this form to help put the Revenue right."

Industry body AUCAE has now sprung into action, by asking contractors to fill in a form asking how ‘SDC’ will affect them, so HMRC can see the true impact its proposal will have.

'Contractors, set HMRC straight on SDC's impact' :: Contractor UK

[eek]

“HMRC’s first consultation getting just three responses from contractors has wrongly led tax officials to believe that SDC’s impact on contractors will be minimal," said Smith. "Fill out this form to help put the Revenue right."

Industry body AUCAE has now sprung into action, by asking contractors to fill in a form asking how ‘SDC’ will affect them, so HMRC can see the true impact its proposal will have.

'Contractors, set HMRC straight on SDC's impact' :: Contractor UK

Don't worry about it. IPSE says that that conversation never occurred....