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webberg
19th July 2015, 11:28
I'm in the process of preparing a calculator of the likely effect on contractors of the last Budget this month.

As a result I've read in some detail the 1,000 odd pages of the materials released. I'd like to share a few thoughts on those as below.

The point of this post however is to urge, encourage, push, cajole and DEMAND that whenever the opportunity presents itself, you should comment (protest) on whatever media is suitable, against the weasel words used to "justify" some of these measures.

Inaction = acceptance.

1. Table 1.5 of the the Red Book, says that "Discretionary consolidation [what on earth does that mean?] is calculated as the sum of receipts from avoidance and tax planning..."

First we had a deliberate confusion between evasion and avoidance, then aggressive avoidance, then abusive avoidance and now "tax planning". The mission creep here is inevitable but dangerous.

2. Tax lock - "watch my lips, no increase in income tax, etc" Broken within a few weeks. The tax on dividend income is described as a new tax, not an extension of income tax. Similarly the bank levy tax of 8%. Do you think that banks will not pass this on to customers?

3. Para 2.12 - the target of £5bn A YEAR in additional receipts, includes "tax planning, avoidance and compliance". Not so much mission creep as gallop.

4. IR35 "non compliance" costs £400m a year. No validation of that number and no justification and no acknowledgement that client engagers are no more keen on this than contractors.

5. The dividend tax (not of course and increase in income tax) will raise £7bn by 2019/20. It also contributes to the expected £2bn "saved" by discouraging "Tax motivated incorporation" TMI.

6. The TMI announcements worry me a lot. It's taking away a basic freedom to operate as you choose and instead be pushed into what HMG chooses (at no doubt increased cost). This MUST, MUST, MUST be resisted.

7. The expected take from "enhanced compliance" is £700m (to 2019/20). Tackling the "hidden economy", i.e. all those cash in hand businesses, smuggling, non declaration etc is put at £860m. Given the margin of error here, those figures are probably pretty much the same. The Government is therefore spending your money to collect more money from you and allowing the cheats, criminals and deliberate evaders to be subject to no more investigation than you are. Unbelievable.

8. GAAR. Is to have a penalty applied. Mission creep.

9. HMRC will have the ability to access online payment accounts such as Paypal. Hopefully this will be resisted.

10. Unfunded EFRBS will be attacked, again.

One of the penalties for refusing to participate in politics is that you end up being governed by your inferiors.
Plato

Iliketax
19th July 2015, 18:58
I'm in the process of preparing a calculator of the likely effect on contractors of the last Budget this month.

As a result I've read in some detail the 1,000 odd pages of the materials released. I'd like to share a few thoughts on those as below.

The point of this post however is to urge, encourage, push, cajole and DEMAND that whenever the opportunity presents itself, you should comment (protest) on whatever media is suitable, against the weasel words used to "justify" some of these measures.

Inaction = acceptance.

1. Table 1.5 of the the Red Book, says that "Discretionary consolidation [what on earth does that mean?] is calculated as the sum of receipts from avoidance and tax planning..."

First we had a deliberate confusion between evasion and avoidance, then aggressive avoidance, then abusive avoidance and now "tax planning". The mission creep here is inevitable but dangerous.

2. Tax lock - "watch my lips, no increase in income tax, etc" Broken within a few weeks. The tax on dividend income is described as a new tax, not an extension of income tax. Similarly the bank levy tax of 8%. Do you think that banks will not pass this on to customers?

3. Para 2.12 - the target of £5bn A YEAR in additional receipts, includes "tax planning, avoidance and compliance". Not so much mission creep as gallop.

4. IR35 "non compliance" costs £400m a year. No validation of that number and no justification and no acknowledgement that client engagers are no more keen on this than contractors.

5. The dividend tax (not of course and increase in income tax) will raise £7bn by 2019/20. It also contributes to the expected £2bn "saved" by discouraging "Tax motivated incorporation" TMI.

6. The TMI announcements worry me a lot. It's taking away a basic freedom to operate as you choose and instead be pushed into what HMG chooses (at no doubt increased cost). This MUST, MUST, MUST be resisted.

7. The expected take from "enhanced compliance" is £700m (to 2019/20). Tackling the "hidden economy", i.e. all those cash in hand businesses, smuggling, non declaration etc is put at £860m. Given the margin of error here, those figures are probably pretty much the same. The Government is therefore spending your money to collect more money from you and allowing the cheats, criminals and deliberate evaders to be subject to no more investigation than you are. Unbelievable.

8. GAAR. Is to have a penalty applied. Mission creep.

9. HMRC will have the ability to access online payment accounts such as Paypal. Hopefully this will be resisted.

10. Unfunded EFRBS will be attacked, again.

One of the penalties for refusing to participate in politics is that you end up being governed by your inferiors.
Plato

I think you are protesting too much. Taking an example. Unfunded pensions are not being "attacked, again". They haven't been attacked yet. They are not being attacked now. Their tax treatment has not changed for a very long time. There is an informal consultation about how much revenue may be lost (or gained). This is not new. It was clearly said that the government will continue to monitor them. That's what they are doing. And personally I doubt anything will change. But if I am wrong, then I am wrong.

As for GAAR penalties, why not? I've come across a situation that was so, so contrived and abusive and would be very likely to be within the scope of GAAR. But they basically said "so what".

TMI - "It's taking away a basic freedom to operate as you choose". It's not taking any choice away. Nothing makes it harder to incorporate or pay a dividend. It's just saying that the first £5k of dividends is tax-free and the next bit is taxed at 7.5% more than it currently is. You might choose not to incorporate because it gives worse tax treatment than being a partner in an LLP. But that is not taking away a freedom.

IR35 - "No validation of that number and no justification". You mean there is the same validation and justification as in all the other numbers published. The Budget docs never say how the yield estimates are calculated. As far as I am aware, HMRC have never published yield estimates and won't even give them to House of Lords' committees. Just because there are not ten pages of evidence and behavioural analysis published does not mean that the £430m has not been looked at the yield properly. We all know that £430m is an estimated number and no one pretends that it is correct to three significant figures. But I suspect that there will be of the right order of magnitude.

"tax planning, avoidance and compliance". Why is making sure that individuals and businesses get their compliance right "mission creep"? I thought that had always been one of HMRC's core missions. Looking at the numbers, it seems like HMRC is doing quite well on that with, for example, the super rich. Do you really think that is wrong?

On the other hand, the tax lock is just pure bo!!ocks.

StrengthInNumbers
19th July 2015, 21:14
Dont know how to get more active. We tried everything but contractors would not even get up to go and see their MPs.
MPs also had a clear path of action. They write a template letter to Gauke and Gauke replies with a template letter.
All in all if you can't beat them, be them. To me this government is saying we will tax any success. So I am changing what I will do. Work for 4-5 months a year and rest of the year holiday. After first £43000 next year, every limited company will be giving away 52.5% in taxes. Why on earth will I do that? Government wants me not to work, so I will not. If me holidaying and relaxing at home is better for economy it is definitely better for me.
May be joining politics in that 6 months a year time. [emoji3]

DotasScandal
19th July 2015, 21:41
Dont know how to get more active. We tried everything but contractors would not even get up to go and see their MPs.
MPs also had a clear path of action. They write a template letter to Gauke and Gauke replies with a template letter.
All in all if you can't beat them, be them. To me this government is saying we will tax any success. So I am changing what I will do. Work for 4-5 months a year and rest of the year holiday. After first £43000 next year, every limited company will be giving away 52.5% in taxes. Why on earth will I do that? Government wants me not to work, so I will not. If me holidaying and relaxing at home is better for economy it is definitely better for me.
May be joining politics in that 6 months a year time. [emoji3]

StrengthInNumbers, I hear you - I have myself lowered my level of commercial activity drastically , partially in response to this whole APN charade. This is until I move out of the UK and under friendlier skies....
However, I think there is A LOT left to be done. This time it's not an attack just on EBT guys, it's an attack on all freelancers.
Have we done all we could do to spread the word to ALL of them?
I doubt so.

StrengthInNumbers
19th July 2015, 22:13
Spread the word to ALL of them????
U cannot help those who can't help themselves.
Basically I don't know what to do to motivate people. Give me shout and I will be next to u to do whatever is required.

cojak
19th July 2015, 22:30
Like this, you mean?

I read the document again this weekend, taking a little more time on it. And the thing that struck me about it all is that we've already lost the argument, as far as the government is concerned, and if we want to have any hope to win it then the argument has to be re-framed.

Right now, the government clearly sees this in HMRC's terms. Those terms say that incorporation of freelancers is a negative for the government, because it means loss of revenue. It is bad for us to be independent, it is bad for us to be employees of our own companies rather than employees of our clients, because that model means less tax revenue. So there will always be this tug of war where they are trying to drag more of us back into the clutches of the tax model that maximises tax revenue.

That's a losing argument for us, because money talks. So they will constantly be doing things to drag us back into that model.

It seems to me that we need to make the case for why it is beneficial to the economy for us to have our own business, and to be incorporated, and to be accepted as businesses in our own right. This consultation document reads as if that isn't accepted as beneficial by government at all.

The document says IR35 must be failing because there is a whole industry that has grown up around beating IR35, and as contractor numbers increase, contractors operating under IR35 haven't increased. Maybe that means people are using that anti-IR35 industry to cheat. But maybe it means people are using it to structure their businesses to stay outside IR35. And maybe it means industry is choosing to work with contractors because they find it useful to have skilled and flexible workers available on a temporary basis, and so are willing to structure contracts and working relationships to accommodate contractors wishing to stay outside IR35. Maybe it isn't cheating. Maybe IR35 has changed behaviour....

But even if they accept that, it won't change anything, because they aren't getting the revenue they want. So they will just go after us in another way (like travel expenses?).

We need to not only make the case for flexibility, we also need to make the case for being limited companies, for being separate businesses. We need to make the case that the flexible workforce can't exist if we aren't protected from liability, so we have to form limited companies. We need to make the case that the flexible workforce has variable income, so having a limited company allows us to smooth out personal compensation between good years and bad years, and if we can't do that we'll have to push up costs to industry. We need to make the case to our client industries, to big business, that if we're the target of government, it is going to cost them, in increased fees but even more in the loss of parts of their available pool of skilled workers, and get them on board with arguing our case to government.

Right now, we're just a cash cow that isn't being milked, as far as government is concerned. The dividend tax, the expenses, the whole tone of this document, makes that clear. We need to make the case that our current model is needed, or they'll keep hitting it until it dies. We may fight off one thing, or another, but they'll just keep coming at us. We have to find a way to change the discussion.

DotasScandal
19th July 2015, 22:41
The first (and possibly most difficult) thing is to get into contractors' brains that we must become a WE if we want to have any voice and control over our destiny as professionals... Feels like trying to empty the ocean with a teaspoon sometimes ;)

cojak
19th July 2015, 23:08
It might work if you look to the future rather than the past.

DotasScandal
19th July 2015, 23:36
It might work if you look to the future rather than the past.

If only they'd let us move on...

LisaContractorUmbrella
20th July 2015, 06:43
Feel free to vent your spleen here Budget 2015 : AUCAE launch survey urging contractors and recruiters to have their voice heard. - All Umbrella Companies Are Equal (http://www.allumbrellacompaniesareequal.com/aucae-surveys.html) All responses will be anonymised (f that's a word) and then sent to HMRC and no 11

DonkeyRhubarb
20th July 2015, 07:39
Realistically, protesting is a waste of time. Been there, done that, got the t-shirt.

If the Government has decided to do something, then 99.99% of the time it will get its way.

mulberryblue
20th July 2015, 07:57
After first £43000 next year, every limited company will be giving away 52.5% in taxes. [emoji3]

Can you explain this statement please :smile

chubacabra
20th July 2015, 08:17
Can you explain this statement please :smile

I assume 20% corp tax and 32.5% tax on higher rate dividends

MicrosoftBob
20th July 2015, 08:32
The first (and possibly most difficult) thing is to get into contractors' brains that we must become a WE if we want to have any voice and control over our destiny as professionals... Feels like trying to empty the ocean with a teaspoon sometimes ;)

If only there was some sort of contractors union to fight our cause :igmc:

eek
20th July 2015, 08:40
I assume 20% corp tax and 32.5% tax on higher rate dividends

Isn't that wrong.

You pocket 80% * 67.5% so 54% of the amount and pay 46% tax. Previously you pocketed 80%* .75% or 60% of the company's income. So it's worse but not horrendously so

mudskipper
20th July 2015, 09:21
If only there was some sort of contractors union to fight our cause :igmc:

Wasted an opportunity to post your MGM code. Slacker.

dangerouswhensober
20th July 2015, 10:27
Isn't that wrong.

You pocket 80% * 67.5% so 54% of the amount and pay 46% tax. Previously you pocketed 80%* .75% or 60% of the company's income. So it's worse but not horrendously so





Yes - I'd agree - worse, but not horrendously so.

There's a table showing the decrease in dividend income under the new proposals here:
How much will the April 2016 dividend tax changes cost you?

Here's my rough calculation:

Assume £400 per day for 230 (*) working days:

2015/16 2016/17
Gross Income = £92,000 £92,000
Salary (tax free) -£10,600 -£11,000
======= =======
Corp gross available: £81,400 £81,000
Corp tax @20 % -£16,280 -£16,200
======= =======
Net dividend: £65,120 £64,800
Personal tax on dividend -£ 9,128 -£11,435
======= =======
Dividend after all tax: £55,992 £53,365
Plus tax-free salary +£10,600 +£11,000
======= =======
Total income £66,592 £64,365
Total Income per month ~£ 5,550 ~£ 5,365

(365 days in year - 104 weekends - 8 bank holidays - 20 days vacation - 3 sickies = 230 working days)

Note: This is a "back-of-an-envelope" calculation - ignores company and personal NI contributions.

Tass1968
20th July 2015, 11:20
Like this, you mean?

Absolutely - but the issue is finding a way to disseminate the 'new' message. There are some glaringly obvious statistics that tell us that the wrong message is being played to galleries. I've sent emails to both the Telegraph and Times and to HMRC pointing out these statistics, but all without reply.

For example, total government tax take as a percentage of GDP has been between 34 and 36% for 40 years. Total personal taxes takes as a percentage of overall national income averages around 42% over the last 340 years. The current figures are 36% and 41.5% respectively. So there is no tax gap, there is only an overspend (and look no further than the ringfencing of pensions and health spend to see the real problem).

Also, and I'm sure this is familiar to every contractor, but compare a contractor on a £400pw rate, with a permie on a £55K pa salary (this is generally a like for like comparison). You find that the tax take is about £300-£400 difference. So, do HMRC really believe that every contractor moving from contract to permie will take the contractor rate with them? Because by making contracting financially untenable, that's the only way this will increase tax take.

DotasScandal
20th July 2015, 12:45
If only there was some sort of contractors union to fight our cause :igmc:

BIG GROUP's your champion. You're very welome to join (read THIS (https://www.linkedin.com/pulse/summer-budget-2015-what-next-contractors-graham-webber-cta?trk=hp-feed-article-title-share)).

The problem (and the reason it all got that far) is the contractor mentality, which is largely an "all against all" one, and permeated with the constant insistence on "doing one's own thing" instead of unionizing (whatever the form). This will be the contractor's downfall IMO.

webberg
20th July 2015, 15:59
The post from "dangerous" is pretty much correct.

There should be a recognition of the fact that from April next, many expenses currently tax free (i.e. they go from client to ltd co to you without a charge), mainly travel and subsistence, are likely to become taxable.

My own calculations indicate that (if certain assumptions are correct), the take home from an efficiently structured ltd co will fall by around 3% to 4% in 16/17.

I do have a calculator which is relatively detailed and pending some checks on my Excel skills (rusty) and some basics, I'm pondering the best route to release it.

There was also a mention above of tax motivated incorporation and dividends. I think the poster was suggesting that these were the same. Quite possibly. However the Red Book discusses changes to dividend tax (not an increase in income tax which ruled out in the Tory manifesto) and TMI as separate issues.

My fear is that either individuals will not be able to use a limited company to sell their services in certain situations (IR35?) or that it will not be possible to leave funds in a ltd company (where CT has been paid) and withdraw it later paying CGT perhaps (subject to ER) and no NIC.

i hope I'm wrong and poster above is correct.