House of Lords review & IR35, PCG

[v8gaz]

Watch the whole thing here.

If you can bear it

Player

[Zero Liability]

That is one view. Another view is that hard work should be rewarded. I know how I'd feel if I was paying PAYE, as inconvenient as that might be for us

How much the client is willing to pay = how much it is worth. All that matters to them is the total cost of the contractor/employee and how much they bring in. How the package is sliced up is a matter of tastes and, in some cases, historical standards that have been codified into law.

Views on how much tax is 'fair' just translate to who HMRC can most easily target with the highest returns and least amount of effort. Little more.

I would be happier if the government just satisfied itself with a flat tax and stopped trying to pretend it knows what particular types of work "should" be rewarded, or what a 'fair' tax would be and put individuals they consider too poor to tax on a negative income tax of some sort, rather than all this convoluted nonsense they now resort to. How much money, time and effort is spent trying to navigate the labyrinths they have created?

[Wanderer]

Chris Bryce of PCG says that "Just like any other businesses, there are clear commercial reasons for freelancers to use limited companies."

One reason he carefully sidesteps is that a typical "highly skilled, highly paid" contractor can bill £100k/year and net £57,681 Umbrella, £72,247 LTD or £81,573 income splitting with a non working spouse. That's a 40% increase in net pay by using a LTD company. Ref

So how about we stop pussyfooting around and call it what it is:

The government are offering a huge tax break to freelance contractors.

If you ask us lot then the turkeys voting for christmas will say hell yes contractors deserve a tax break. If they make contractors pay IR35 caught levels of tax then it will decimate the freelancing industry with it's highly skilled flexible workforce. A huge percentage of contractors wouldn't have a strong enough genuine business and would just revert to the comfort of permiedom shelving any ambitions of expanding into a business. Their skills won't be lost but the drive to be highly mobile and flexible will be lost and that is a net loss to the economy.

Of course, fewer freelancers is good news for the big consultancy companies because they will mop up all the work that the freelance contractors used to take by undercutting them. And these big consultancies are potentially big party donors too. Hmmm.

On the flip side, if you abolish IR35 completely then there could be a big rush of people to incorporate so they take advantage of the tax savings. As we see on the forum there are lots of contractors who are happy to just use an Umbrella because they want a quiet life without the threat of IR35 hanging over them.

[yasockie]

The tax credit on dividends is to recognise that CT has already been paid, so it works out about the same. So why not simplify it all and get rid of CT for very small companies and have owner/directors pay full income tax?

This is an excellent observation, however the right solution is to abolish corporation tax in my view and make the government smaller.
Essentially any tax on company profits, means that this money is not reinvested back into the economy through the company itself but through government instead, which is inevitably far less efficient.
Of course a company is not likely to invest that money into hospitals and roads, but there are specific taxes for that, so I think we should increase those, if needed, rather than doing this Robin Hood redistribution - taking the money from 'rich' SME Ltds whose directors work and commute all days and giving it it to the 'poor' ASBOs with large flat screen TVs (according to Jamie Olivier)

[d000hg]

That would change normal dividends received on shares traded publicly and a massive cut in income on people who invest in the stock markets.

Don't be daft. It could be applied to PSC directors only or some such thing.

[VectraMan]

If you ask us lot then the turkeys voting for christmas will say hell yes contractors deserve a tax break. If they make contractors pay IR35 caught levels of tax then it will decimate the freelancing industry with it's highly skilled flexible workforce. A huge percentage of contractors wouldn't have a strong enough genuine business and would just revert to the comfort of permiedom shelving any ambitions of expanding into a business. Their skills won't be lost but the drive to be highly mobile and flexible will be lost and that is a net loss to the economy.

I'm not sure that's true. Certainly take home pay would sway the balance for some people, but for many they can still earn substantially more as a contractor, and still have the other advantages we keep hearing about such as variation, more flexibility etc. For me it's the higher rates that justify the risk of contracting, not the tax avoidance element, and the argument that "we shouldn't have to pay NI because we take more risk" is a ludicrous one. And let's be honest, 99.9% of contractors have done nothing that could be called entrepreneurial in setting up their business, and 99.9% will never expand their business into anything else.

[Maslins]

One reason he carefully sidesteps is that a typical "highly skilled, highly paid" contractor can bill £100k/year and net £57,681 Umbrella, £72,247 LTD or £81,573 income splitting with a non working spouse. That's a 40% increase in net pay by using a LTD company. Ref

So how about we stop pussyfooting around and call it what it is:

The government are offering a huge tax break to freelance contractors.

Agreed. The government keeps reducing CT, whilst at the same time increasing NICs. The tax benefits of contracting (with high divi low salary) have therefore increased significantly over the last decade or so.

It baffles me how they think that something like IR35 is the way to "fix" this...why not just reduce the ridiculous tax discrepancy in the first place.

On the flip side, if you abolish IR35 completely then there could be a big rush of people to incorporate so they take advantage of the tax savings. As we see on the forum there are lots of contractors who are happy to just use an Umbrella because they want a quiet life without the threat of IR35 hanging over them.

Also agreed. Seems to me the basic summary of the recent high level discussions re IR35 is that "It's crap legislation which doesn't really work on any level other than as a deterrent as it scares people".

Scrap/greatly reduce NICs and you'll largely do away with most of the tax breaks of contracting...so it'll then be more down to whether the client/individual are happy to accept the increased flexibility of contracting along with the reduced security.

[DirtyDog]

Of course a company is not likely to invest that money into hospitals and roads, but there are specific taxes for that, so I think we should increase those

There's a specific tax used to build hospitals and roads? And their names are?

[Jog On]

Interesting read:

HMRC Failing To Pursue Big Business, MPs Warn

Margaret Hodge MP, said: "HMRC has not clearly demonstrated that it is on the side of the majority of taxpayers who pay their taxes in full."

She said: "HMRC holds back from using the full range of sanctions at its disposal.

"It pursues tax owed by the smaller businesses, but seems to lose its nerve when it comes to mounting prosecutions against multinational corporations."

I wish they'd just make it clear what's legal and what isn't. All these scare tactics and language and posturing just hurts their credibility IMO.

If I am outside + PCG + contract + working conditions etc then I will pay myself outside. Am I legally entitled to do this - Yes/No?

If Yes then I will pay myself outside. If No I won't.

Until I see them going after the big businesses and spending tax revenue effectively then I'll pay myself as efficiently as possible.

And do they really want to kill off contracting? How will this effect the running of government? I remember on my last (government) gig they pulled the "After 6 months you must declare yourself inside IR35 or go elsewhere" card.

So all contractors affected turned around and said "OK See ya!" to which they did a complete U-turn and told us we could ignore the 6 month thing and please could we stay and carry on delivering the project

Grow a pair please.

[Zero Liability]

So is the cow going to get rid of IR35?

I'm not sure that's true. Certainly take home pay would sway the balance for some people, but for many they can still earn substantially more as a contractor, and still have the other advantages we keep hearing about such as variation, more flexibility etc. For me it's the higher rates that justify the risk of contracting, not the tax avoidance element, and the argument that "we shouldn't have to pay NI because we take more risk" is a ludicrous one. And let's be honest, 99.9% of contractors have done nothing that could be called entrepreneurial in setting up their business, and 99.9% will never expand their business into anything else.

Which raises the question as to why anyone should pay NIC, as another poster here mentioned. We sacrifice employment rights and take on a higher level of risk than most permies, irrespective of how 'entrepreneurial' contractors in general are. I certainly see no reason why one route of avoiding the atrocious NIC should be closed. Though like I said, I am not in the business of deciding when it is 'fair' to tax more, the truth of the matter is this stuff is outcome-based and all HMRC and the government care about is what will bring them in the most money, and little else. 'Fairness' is what they sell to get this garbage accepted.

If we must be taxed, at least it can remain isolated to things the government purports only it can provide, and be done through a greatly simplified framework.