Labour pledge to halt IR35 Labour pledge to halt IR35 - Page 4
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  1. #31

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    Quote Originally Posted by DaveB View Post
    That will depend on the NI contributions. Right now we can effectively paying zero NI, employees or employers.

    If you pay a higher salary to reduce CT you will end up paying Employers NI at 13.8% and Employees at 12%, so an extra 26.8%. So you save 21% in CT and pay 26.8% in NI instead.

    Unless I've missed it they haven't announced an intention to apply NI to dividends, just income tax.

    It looks like sweet spot would still be low salary/high dividend, but keep the divi below the upper rate tax bracket if you can. Income splitting becomes even more attractive in this scenario as it allows you to use two lots of tax allowances to get the dividends out without going into the upper rate tax bracket.

    I'm sure the accountants will be poring over the proposals even as we speak, but until we get concrete details it's all speculation anyway.

    Lifting the higher rate tax threshold to £ 80k as Boris intended would even more attractive!

  2. #32

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    Quote Originally Posted by DaveB View Post
    That will depend on the NI contributions. Right now we can effectively paying zero NI, employees or employers.

    If you pay a higher salary to reduce CT you will end up paying Employers NI at 13.8% and Employees at 12%, so an extra 25.8%. So you save 21% in CT and pay 25.8% in NI instead.

    Unless I've missed it they haven't announced an intention to apply NI to dividends, just income tax.

    It looks like sweet spot would still be low salary/high dividend, but keep the divi below the upper rate tax bracket if you can. Income splitting becomes even more attractive in this scenario as it allows you to use two lots of tax allowances to get the dividends out without going into the upper rate tax bracket.

    I'm sure the accountants will be poring over the proposals even as we speak, but until we get concrete details it's all speculation anyway.
    Your calculation for the effective "tax rate" of NI isn't correct. Lets say, you pay a basic rate tax payer an extra £100. The £100 will be subject to a stoppage of £12 Employees NI (EeNI) leaving 88 net. In addition the employer pays 13.8% Employers NI (ErNI). Total outlay 113.8, total received by employee 88 (ignoring any tax). Therefore the effective "tax rate" of NI is 22.67% (being 1-88/113.8 expressed as a %). Once you deduct tax at the basic rate the employee receives 68 making the total PAYE tax rate 1-68/113.8 or 40.25%.


    The effective rates of PAYE under Labours proposals are as follows:
    1) Basic Rate (12.5-50k) @ 20%: 40.25%
    2) Higher rate (50-80K) @ 40%: 49.03%
    3) Additional rate (80-100K) @ 45% : 53.43%
    3) "Hidden rate" (100-125k) @ 67.5% : 73.20%
    4) Top rate (125K+) @ 50% : 57.82%

    EeNI is 12% for basic rate and 2% thereafter. ErNI is 13.8% on all bands

    The effective rates of dividend taxation under Labours proposal (taking 100 of profit which is taxed at Corporation Tax rate of 21% then the remainder subject to income tax) are as follow:
    1) Basic Rate (12.5-50k) @ 20%: 36.8% (being 100 taxed at 21%, remainder 79 which is taxed at 20%, leaving 63.2, a rate of 36.8%)
    2) Higher rate (50-80K) @ 40%: 52.60%
    3) Additional rate (80-100K) @ 45% : 56.55%
    3) "Hidden rate" (100-125k) @ 67.5% :74.33%
    4) Top rate (125K+) @ 50% : 60.5%

    Therefore, apart from a very small difference (36.8% vs 40.25%) in the basic rate band it is advantageous to pay a salary rather than dividends. Note the extremely high rates of effective tax between 100-125K due to the withdrawal of the personal allowance. In terms of income tax the effective rate is 67.5% (being 45p in the £1, plus 22.5p in the £1 due to loss of 50p of tax allowance per £1).

    Happy to be corrected if anyone thinks these calculations are wrong.
    Last edited by Nazaire99; 28th November 2019 at 03:45.

  3. #33

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    Quote Originally Posted by oliverson View Post
    True but it should get the Tories showing their hand.
    That could indeed be helpful.

  4. #34

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    Quote Originally Posted by ContractorOnAMotorbike View Post
    Unless the Tories pledge to delay or cancel IR35 they won't get my vote. I still don't get how people in this forum can vote for them after they have effectively stabbed us in the face while pretending to be the party of small business. Utter bulltulip!

    And yes I know Labour will increase taxes etc etc.
    I'll vote for them. It's not that they deserve my vote. It's that it's either going to be a Tory PM or Corbyn, and I'll never vote in a way to facilitate virulent anti-Semitism coming to power. It's a happy coincidence that I'll be better off under the Tories than under Labour, but if I were going to be worse off I'd still vote the same way.

  5. #35

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    Quote Originally Posted by meridian View Post
    Let me know when the “trickle-down” from Tory policies of the past decade start.
    When people can go to the shops and find food they can buy to give to that food bank opposite your house. When those people who frequent that food bank opposite your house start texting on their mobile phones, using decent public transport to get there, some of them maybe even drive cars to get there, go home to watch their telly, have a decent hospital to attend when they fall ill, and when they do find a job, get a salary their parents could only have dreamed of.

    In Venezuela, Soviet Russia, and Warsaw Pact countries, run on the principles Corbyn wants, those things were all rare, and non-existent among the less well off. They exist even among the less well off in our society because we've had policies that encourage companies and individuals to make money, which has expanded the tax base so there are high benefits. We've had policies that encouraged efficiency and development of products so that prices have been low enough that even those on benefits can afford a telly and a mobile phone, etc.

    Go to Venezuela for a few weeks, go around and talk to people (if you will even be free to and if they aren't afraid to talk to you), and then come back and talk to us about trickle-down.

  6. #36

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    Quote Originally Posted by Nazaire99 View Post
    Happy to be corrected if anyone thinks these calculations are wrong.
    Basic rate numbers look correct, haven't checked the others.

    Outside IR35 with the Labour tax rates has two scenarios where it is better. A) If you have a non-working spouse and pay dividends to both, it allows you to use both personal allowances, and keep more income in the basic rate band. This will probably be taken away before long, because Corbyn/McDonnell. B) If you have significant time on the bench, the ability to smooth income and use your personal allowance and basic rate band in a year when you don't work is valuable.

  7. #37

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    Has this idea from Labour been ditched/cancelled/withdrawn?
    I'm sure I've read somewhere that Esterson has deleted tweets which alluded to the idea.
    Clarity is everything

  8. #38

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    Quote Originally Posted by SteelyDan View Post
    Has this idea from Labour been ditched/cancelled/withdrawn?
    I'm sure I've read somewhere that Esterson has deleted tweets which alluded to the idea.
    Labour pledges to scrap IR35 rollout to business … and then backtracks

  9. #39

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    Thanks, yep, thought so.
    Clarity is everything

  10. #40

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    Quote Originally Posted by WordIsBond View Post

    In Venezuela, Soviet Russia, and Warsaw Pact countries, run on the principles Corbyn wants, those things were all rare, and non-existent among the less well off. They exist even among the less well off in our society because we've had policies that encourage companies and individuals to make money, which has expanded the tax base so there are high benefits. We've had policies that encouraged efficiency and development of products so that prices have been low enough that even those on benefits can afford a telly and a mobile phone, etc.

    Go to Venezuela for a few weeks, go around and talk to people (if you will even be free to and if they aren't afraid to talk to you), and then come back and talk to us about trickle-down.
    Well said. I visited Romania in 1979 when I was 10. What a miserable run down place it was, even in the resort we were staying. What was really striking was that the people were all so sullen, demoralised and miserable. The official exchange rate was 1/10th of the black market rate, but even then there was no point converting any money because there was literally nothing to buy anyway. Except in the tourist only "dollar shops" where for some reason they had wall to wall toblerone - you remember this sort of thing as a 10 year old. I even remember a kid my age begging me for chewing gum. It was pathetic. And this was in a "prosperous" resort town.


    I went to Russia very soon after the fall of communism. It is hard to put into words the state of decrepitude the whole country had fallen into. The state of the physical infrastructure was shocking. Buildings hadn't been maintained at all. For years. Roads - terrible. Flew on an internal flight. Was surprised the plane got off the ground - what a wreck. There was a reason the flight attendant came round selling bottles of vodka before takeoff. I had one. When something broke it was just dumped were it stopped working. Nothing was maintained and it was obvious mostly hadn't been. Ever.

    But that is was happens when you stifle initiative and rely on a utopian belief system where you give what you can and take what you need (unless you are an apparatchik, of course). A system where when everybody owns something, in effect nobody owns it and it is neglected.

    If Labour get in, I would hope we wouldn't sink to the depths of Venezuela, but once they are voted in you will never get them out. They will extend the franchise to non-UK citizens and invite many more in. They will lower the voting age to those who have no experience of the world (who they will indoctrinate). They will only follow recommendations of an "impartial" boundary commission (the boundaries heavily favour Labour due to population movements) - presumably in the same way they will make the EHRC currently investigating the Labour party over anti-semitism "more independent" (i.e emasculate it). This is all in their manifesto. God help us.
    Last edited by Nazaire99; 28th November 2019 at 12:40.

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