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BoredBloke
25th January 2007, 10:57
This has just been put on Shout99

Tax man eyes dividend payments Recently Published
by Susie Hughes at 09:54 25/01/07 (News on Business)
The tax man could be gearing up to take a more offensive stance against dividend payments, with owner managed businesses in the firing line, according to a firm of specialist accountants and business advisers.
DTE claims HM Revenue wants to use the employment securities legislation to levy PAYE tax and national insurance contributions on dividends, traditionally used by owner managers as a tax-efficient way of taking cash out of their businesses.

AdvertisementMervyn MacDonald, head of tax at DTE said: “This is one further step further down the slippery slope that may ultimately lead to all withdrawals from companies being subject to PAYE tax and national insurance.”
He fears the latest HMRC move is part of a broader tax assault on shareholding directors of owner managed companies.

Mr MacDonald said: “The principal benefit of this sort of dividend payment is that it does not attract national insurance contributions. However, in December 2006 HMRC published further guidance to its inspectors which I believe could radically alter the situation.

“The guidance repeats the desire of Treasury ministers to charge PAYE tax and national insurance on ‘the employment reward – the passing of value to an employee in return for the employee’s labour’.”

He claims that HMRC will chase PAYE tax and national insurance where it believes:


special purpose companies are used to disguise cash bonuses as dividends;

a series of low-value shares are issued to employers who receive a small amount via the pay that is topped up with a dividend;

‘composite companies’ are trying to circumvent the IR35 regulations that stop self-employed workers from paying less tax where HMRC believes they are really ‘hidden employees’.
Mr MacDonald said: “The guidance makes no reference to owner managed companies, with just one class of shares paying low salaries and high dividends. However, HMRC’s references to ‘contrived arrangements’, ‘arrangements that are used mainly to disguise cash bonuses’, ‘dividends as benefits’, and ‘thinly disguised general earnings’ lead me to conclude that the low salary/high dividend strategy will soon become an ‘unacceptable arrangement’, potentially subject to attack by HMRC on the grounds that is it in place mainly to generate a PAYE tax and national insurance saving.

“This is ominous news for the owner managed business sector, which is already struggling under a heavy burden of tax red tape and compliance issues.”

================================================== ===

So it looks like they are targeting everybody who takes a low salary and high dividend. The EDS's of this world must love our money grabbing revenue.

The Lone Gunman
25th January 2007, 11:05
As I said years ago on Shout99. It is OK for some lazy rich twat to buy shares in a company, do **** all work and rake in the benefits. Investing in your own talent and working your arse off is not OK.And I thought labour were supposed to champion the worker.
Means of production and all that.

BoredBloke
25th January 2007, 11:06
No doubt that radsoft character will be on there applauding it soon enough!

BoredBloke
25th January 2007, 11:06
No doubt that radsoft character will be on there applauding it soon enough!

BoredBloke
25th January 2007, 11:12
no a slow pc over here....slow pc over here..over here...here...ere...re..e

expat
25th January 2007, 11:21
As I said years ago on Shout99. It is OK for some lazy rich twat to buy shares in a company, do **** all work and rake in the benefits. Investing in your own talent and working your arse off is not OK.And I thought labour were supposed to champion the worker.
Means of production and all that.Look, when you work hard and get rewarded for it, that is admirable and I personally don't believe that your earned income should be taxed more than unearned income.

But let us be precise: if we say that you are "investing in your own talent" we are speaking figuratively here. You are not really investing, as in investing capital (= money that a business needs).

As for buying shares in a company, you are free to do that. then you will be investing, and you will reap the dividend - free of NICs.

You could buy EDS shares if you want: $13.02 each, last dividend $0.825. Then you would be investing, and raking in the benefits. It is open to all.

Warning: this does not constitute financial advice.

Troll
25th January 2007, 11:23
I wonder if this is a IR Plan B should the 660 appeal fail

The Lone Gunman
25th January 2007, 11:34
Look, when you work hard and get rewarded for it, that is admirable and I personally don't believe that your earned income should be taxed more than unearned income.

But let us be precise: if we say that you are "investing in your own talent" we are speaking figuratively here. You are not really investing, as in investing capital (= money that a business needs).

As for buying shares in a company, you are free to do that. then you will be investing, and you will reap the dividend - free of NICs.

You could buy EDS shares if you want: $13.02 each, last dividend $0.825. Then you would be investing, and raking in the benefits. It is open to all.

Warning: this does not constitute financial advice.Do I realy have to go through this again?

If I made pies I could pay myself minimum wage and take profits.
If my customers came to me I could do the same.
Because I am tied by the business I am in I am bared from doing the same.

My favoured example.
3 guys all working for the same "client". 1 is an employee. 1 is a contractor and 1 is placed by EDS.
For the sake of argument thay all take 25K in salary.
EDS get paid 100K. The contractors Ltd gets paid 100K so we can assume that the work is worth 100K.
The shareholders of the client can benefit from the 75K profit produced by the employee.
The shareholders of EDS can benefit from the 75K profit produced by their guy.
The shareholders of the contractors Ltd are not allowed to benefit from the profit the contractor produces.

BoredBloke
25th January 2007, 11:34
The thing is that the scope is increasing all the time. IR35 was us. Section 660 was all husband and wife companies (including us usually). This is every owner manager company. This will be huge/when if they get it through. This will effectively tax to death every little company in the UK and remove any financial benefit of using a ltd company. Why would anybody setup for themselves if all income taken from the company was subjected to tax, NI and employers NI. Yet the big players in our industry would be uneffected by any of this (again)

From the IR perspective this is the best thing possible as it means that the tax due is the tax on the turnover minus the expenses where tax is PAYE, NI and Employers NI. A nice simple calculation.

malvolio
25th January 2007, 11:40
Yet the big players in our industry would be uneffected by any of this (again)

This is the whole crux of the matter. Look at who is advising HMRC on such policies, and note who they work for... Yet more corruption of the body politic by business interests.

Spacecadet
25th January 2007, 11:48
might as well go back to using a fecking brolly

except for all the other little bits not connected to the main contract that i need to invoice for.

Buffoon
25th January 2007, 11:55
...let's face it hardly any contractors are ambitious to do this...Well, actually .....

It's too late for me. Short of nuLieBore being sent to the gallows and compensation for the damage that they have done, I'm off out of here this year for good.

The Lone Gunman
25th January 2007, 11:57
Well said Denny. I am inclined to agree.

If this legislation gets any worse I am pulling out of IT or I am upping sticks and moving abroad. I am not going to become an employee in this business in the UK.

I wish we could get enough contractors together for us to all take a week off to attend a seminar on contracting.
If we all pissed off for a week then maybe someone would notice just how vital we are.

expat
25th January 2007, 12:01
Do I realy have to go through this again?No, you don't have to. I know all this. I have used exactly the same example myself (with Accenture instead of EDS as it happens), to make the points that it makes.

It contains some good points but the question of the difference between investing and working is not one of them. The "profit" of the contractor's Ltd Co is not profit on invested capital. That is the crucial point about what I am trying to say.

You seem to think that, because I am arguing with you, I am saying that you should be taxed more than share investors. I am not saying that, because I do not believe that. I am simply saying that they are different things.

BlasterBates
25th January 2007, 12:07
The answer to this I think is this:

Two contractors set up two independent companies. Both hold shares in the other. That means your dividends are paid to you by a company where you don't work.

Requires a lot of trust though, and that both parties are earning roughly the same, but legally they couldn't touch you because either party is not legally obliged to pay dividends if they don't want to.

expat
25th January 2007, 12:09
It's only a matter of time before contracting becomes unsustainable as a career option.
....
My answer is simple and would put an end to all this uncertainty and nonsense. Allow contractors who genuinely operate as owner managed businesses exempt from IR35 but who clearly don't intend to grow their business (let's face it hardly any contractors are ambitious to do this) to freelance as owner managed businesses just like any other sole trader.I agree with you completely on the latter point. when I was contracting in France that was exactly what it was like. The French taxman is not known for throwing money away, but the French tax system's strong reach meant that they had no need to make these distorting non-factual assumptions: they could let you be self-employed because they'd get their tax anyway.

Likewise in the UK: just let us be self-employed, and IR35 would wither.


However I don't agree with your first point. Contracting will remain sustainable, you may just make less net money than you were accustomed to thinking that you would. that won't stop me: I'm a contractor because I don't want to be an employee, not as a way of escaping paying social contributions.

expat
25th January 2007, 12:10
The answer to this I think is this:

Two contractors set up two independent companies. Both hold shares in the other. That means your dividends are paid to you by a company where you don't work.

Requires a lot of trust though, and that both parties are earning roughly the same, but legally they couldn't touch you because either party is not legally obliged to pay dividends if they don't want to.Hmm, do you really think that HMRC and the courts never look through transparent arrangements to see the reality behind?

Couldn't touch you? If you believe that....

BlasterBates
25th January 2007, 12:15
Hmm, do you really think that HMRC and the courts never look through transparent arrangements to see the reality behind?

Couldn't touch you? If you believe that....

Why not, HM Tax so far have failed to get contractors for IR35 in spite of seeing through the transparent arrangements behind one man Ltd companies.

expat
25th January 2007, 12:16
I see your point on invested capital as the bona fide reason for rewarding by divi payments. However, the type of business we are in doesn't require invested capital except the time and effort and training we put in to make ourselves marketable to end-clients who want our services on a no MOO basis. Also, we need to consider that EBs insist that we use a limited co structure and that clients insist on using EBs to hire contractors.

That alone is reason enough to justify paying out divis and salary all the time the situation remains the way that it is.I'm not trying to have the last word (honest!) but it's all part of not being allowed to be self-employed. If we were, then clients and EBs would be ok with that.

I'm quite sympathetic to the idea that it's all Hector's fault for screwing us up in the first place. Let us be self-employed, and slap the NIC tax on all income or on none.

BoredBloke
25th January 2007, 12:19
"the type of business we are in doesn't require invested capital except the time and effort and training we put in to make ourselves marketable to end-clients who want our services on a no MOO basis."

Surely that is the investment. If I want to learn something I have to sit down and plough through it - I do this on my time, when I could actually be working. So If I book onto a cource for a week, I give up my fees for that week. This is a loss to my company and what I would argue is the investment, plus the cost of the course etc. It is hard to quantify how long it takes to get some information into your head. If we didn't invext in our skills we would see our incomes drop in the process. Just how many Windows 3.1 or Novell 3.11 support people are there out there these days?

meridian
25th January 2007, 12:31
My answer is simple and would put an end to all this uncertainty and nonsense. Allow contractors who genuinely operate as owner managed businesses exempt from IR35 but who clearly don't intend to grow their business (let's face it hardly any contractors are ambitious to do this) to freelance as owner managed businesses just like any other sole trader. I've never been comfortable with the idea of one man bands having a limited - it's unnatural and unlike any other business in the real world. Having a limited is only suitable for building a business based on reputation.

I disagree with this - you appear to be looking at the contractor/ltd argument from a solely IT point of view, and not for the first time imo.

There are many reasons why a one man band contractor would decide to operate as a limited company, "limited" being the main one (and I'm not just thinking of IT contractors). My parents have operated the family business as a limited for more years than I care to remember, in the 'real world', and they're drainage contractors.

Ivor1
25th January 2007, 12:51
And if this change goes through what are they going to waste this extra £ on, all this extra money and what has improved nothing apart from MP expenses and Salaries.

They are continually moving the goal posts for contractors in an unfair manor. All labour have done for me is,

1. Make me feel like a criminal and hold a cloud of uncertainty over my life.

2. Make me feel like Im risking my life everyday comming to work on the tube.

Im really questioning contracting now, I want to knee el gordo in the balls, hard, a couple of times, then ...

Troll
25th January 2007, 12:54
Im really questioning contracting now, I want to knee el gordo in the balls, hard, a couple of times, then ...Suprisingly tame - most here want his head on a spike alongside Blair's by traitors gate

meridian
25th January 2007, 13:16
Drainage contractors that depend on maintaining a good reputation to stay in business?
To stay in business? Nope. To make business far easier than having a bad reputation? Absolutely. But that's not the reason they chose to go limited. It's your opinion, remember, that having a limited is only suitable for building a business based on reputation. Other contractors see different uses for the ltd vehicle.


Ask any Ansell (or Gretal) commercial lawyer if its worth suing for slander should some uppity middle manager terminate us early sullying our 'reputation'. Most would say no - in fact all, I would say. Mainly due to cost which would be prohibative. The other reason is because the judges couldn't really put a price on what we have lost and would conceivably conclude that we are merely suffering from a wounded ego and loss of fees not reputation. That's the issue with reputation.
How does this square with the (excellent) advice provided to zamzummim? The point of suing for slander or threatening to do so isn't usually to win damages, but to recover the reputation and therefore to go to the next contract with a clean slate.

shoes
25th January 2007, 13:51
Does anyone have any suggestions of countries to emmigrate to where :

1, tax rules are not changing every 5 mins
2, you can get a decent wedge take home with IT contracting relative to cost of living
3, you're unlikely to encounter hostility from the locals due to being a foreigner 'coming over here taking our jobs'
4, english speaking, at least in the work environment

?

Troll
25th January 2007, 13:54
Does anyone have any suggestions of countries to emmigrate to where :

1, tax rules are not changing every 5 mins
2, you can get a decent wedge take home with IT contracting relative to cost of living
3, you're unlikely to encounter hostility from the locals due to being a foreigner 'coming over here taking our jobs'
4, english speaking, at least in the work environment

?
If we knew- we would already be there by now

snaw
25th January 2007, 13:58
US

1, tax rules are not changing every 5 mins - check
2, you can get a decent wedge take home with IT contracting relative to cost of living - pretty much nope (COntracting that is, permie not that much better either)
3, you're unlikely to encounter hostility from the locals due to being a foreigner 'coming over here taking our jobs' - nope
4, english speaking, at least in the work environment - check

Australia

1, tax rules are not changing every 5 mins - check (As far as I remember)
2, you can get a decent wedge take home with IT contracting relative to cost of living - sort of, but you get taxed shitloads more and earn a fraction of what you get here.
3, you're unlikely to encounter hostility from the locals due to being a foreigner 'coming over here taking our jobs' - check
4, english speaking, at least in the work environment - check

Holland

1, tax rules are not changing every 5 mins - nope
2, you can get a decent wedge take home with IT contracting relative to cost of living - nope
3, you're unlikely to encounter hostility from the locals due to being a foreigner 'coming over here taking our jobs' - nope
4, english speaking, at least in the work environment - mostly, check.

From what I've seen.

BTW This, if it happens, is complete bollox. WTF does is that GB fecker always out to get us?

BoredBloke
25th January 2007, 13:58
I've just written to my Labour MP asking for him to tell me how this sits with Browns encouraging enterprise comments. www.writetothem.com

It might be handy for others to do this, especially those in a tory seat or a marginal seat!

andy
25th January 2007, 13:59
Does anyone have any suggestions of countries to emmigrate to where :

1, tax rules are not changing every 5 mins
2, you can get a decent wedge take home with IT contracting relative to cost of living
3, you're unlikely to encounter hostility from the locals due to being a foreigner 'coming over here taking our jobs'
4, english speaking, at least in the work environment

?
good ol' USA ??

Bagpuss
25th January 2007, 14:07
Thanks to the microsoft case that's no longer true

snaw
25th January 2007, 14:25
good ol' USA ??

Probably in a nutshell, no. Contract market is almost non existant, and certainly not if you've no visa and there's definitely hostility towards workers on visa's. And you'll probably get paid more here than you would there (Well if I compare London vs NYC).

Then there's medical insurance ... Don't get me wrong, loved living there but personally I think a lot of people who whinge here would be in for a massive reality check if they tried living in a few different countries. GB is still a tw@t though.

malvolio
25th January 2007, 14:30
Oi! Denny!!


I think we should all get together with a petition and write to the PGC demanding that they take our views on board and that without our views being represented their lobbying efforts are not truly indicative of what contractors want.

At the moment the PGC tend to make their own agenda and they listen to EB trade associations (who don't represent Contractors interests). They are more than happy to keep everyone happy.

Why not join and post your opinions directly (and, incidentally, find out what they are really doing rather than just guessing). FWIW, they do not listen to EBs in any shape or form when setting policy: in fact the people that run the PCG are trying to work out how to take EBs out of the loop altogether, or at least emascualte them so they don't screw up a perfectly good working realtionship.

Snag is, 90% of the contractors only see them as an insurance company, and a different 90% won't join on principle. They can hardly represent people who don't join, can they?

The PCG does have a voice within HMG and it is listened to. If you want to influence it, get in there and start influencing...

And just out of interest, you are not saying anything I and others haven't been saying to them for the last few years.

BoredBloke
25th January 2007, 14:33
The thing is, I wouldn't mind the tax so much if

1 - I could predict it - because the rules change on a day to day basis this is not the case.

2 - didn't feel like I was being singled out for special treatment. In the case of IR35, some IR drone decides that you have to pay more tax than anybody else. That doesn't seem fair to me.

3 - you didn't see vast sums of my money being given to druggies in prison becuase the state would not allow them to have their illegal drugs - and a million and 1 other money wasting schemes.

BoredBloke
25th January 2007, 14:36
"The PCG does have a voice within HMG and it is listened to. If you want to influence it, get in there and start influencing..."

So has IR 35 gone then? What is their line on this story? What would you class as their biggest success to date and have their been any recent successes?

Lucifer Box
25th January 2007, 14:37
"The PCG does have a voice within HMG and it is listened to. If you want to influence it, get in there and start influencing..."

So has IR 35 gone then? What is their line on this story? What would you class as their biggest success to date and have their been any recent successes?
I would have thought the s660 appeal so far.

malvolio
25th January 2007, 17:40
Correct me if I'm wrong.

OK, you're wrong. On every point, come to that.

They do not represent EBs, never have, never will. EBs have no influence on policy. OTOH, as one example, 400 Hays contractors are outside IR35 because of changes that PCG persuaded their board to make to certain banking contracts. Want to try that kind of influence unaided?

It is arguable now that the opt out is a bad thing. At the time, it was a very good thing and if, as I suspect, the opt-out can be used to walk around S134c, it remains a good thing. Nobody can force you to use it anyway - do nothing at all and you are opted in, so what's the problem?

The site is free, membership of the PCG costs £200-ish, and for that you get around £400 of commercial iinsurances at normal rates plus about another £500 worth of added value services that may be useful. One reason for that is that the bulk discount gets the price own and bundling it keeps us out of the grasp of the FSA, who would impose a huge and expensive regulatory burden for no real benefit.

Nobody censors anything, nobody deletes posts (even less than they do here), moderation is only about protecting the site from libel suits or accusations of things like racism. (For example, we had a bit of grief when lobbying against uncontrolled immigration of IT staff at fourpence an hour (another success everyone forgets about) when some MP-led Civil Servant used one of the posts as evidence that we were a racist organisation. Sadly he did so in a series of meetings led by Gurdial Rai on behalf of the PCG, who, being a Sikh himself, was easily able to face down that particular point. Since then, though, we've been a bit sensitive about such things). But if you don't visit, you won't know that, you can only rely on rumours from people who have got it wrong who are hardly the best referees.

Feel free to challenge any or all, but the reality is they are a well-respected group these days and their real work is nothing at all like you portray it. By all means start up a second lobbying group if you want, and once you get to around 15k members and have spent five years getting inside the establishment, you can take over...

xoggoth
25th January 2007, 18:45
Re malvolio's post, that sort of smear seems to be typical of this government. I recall at a PCG meeting in Brighton some years ago that some threats by one unbalanced sort against Dim Prawn (no it wasn't me!) were used against the PCG as a whole. Of course if minorities cause problems the same government will immediately say they are an unrepresentative minority.

The government are scum. Have I said that before?

malvolio
25th January 2007, 19:20
Incidentally....


http://www.pcg.org.uk/cms/index.php?option=com_content&task=view&id=2092&Itemid=594
Do join in... :)