As a contractor, how do you answer this criticism?

[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.

[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!

[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.

[cojak]

Yup, this.

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

[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.

[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)

[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]

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.