IR35 doesn't stop some of the 'faces' of the BBC from reducing their tax bill. Why should one person working for the same company be allowed to set up as a one man band, pay themselves a small 'sallary' on which they pay tax at the normal rate and then pay themselves the rest in dividends upon which they pay a much lower rate of tax.
Agree they shouldnt. One of the ridiculous situations we find ourselves in where footballers or electricans whichever end of the scale pay themselves 6k and then the rest in dividends so not at income tax levels.
Spot on Mr Bradders, PAYE comes out of company profits before corporate tax is deducted therefore reducing the companies tax bill. Divvies come out after corporate tax and therefore have already been taxed at corporate level. The issue is how much corporate tax there is to pay. It's certainly a lower rate than PAYE at 40%
My point was not that the previous situation was right, it was that IR35 backfired - in a failed attempt to get back the NI/Income tax, they introduced a system which in reality cost HMRC the corp tax as well.
That's just not true. Any income earned, whether its salary, directors salary, or dividends is still subject to the same tax rules. I'm company director and the way I take money is pretty standard. I take a monthly salary subject to one twelfth of my annual tax allowance so its tax free. After that its dividends. You are correct in that corp tax has already been applied at 20% so any dividends I take up to the 40% threshold have already been taxed once. Any dividends taken over the 40% threshold are taxed at 20% so no tax is lost to HMRC. Many small businesses take advantage of this situation though by making family members directors, usually their partner, thus splitting the dividend and allowing each one to take up to the 40% without incurring additional tax. There is an opportunity there though for directors to pay a reduced NI contribution as NI is only paid on salary and not dividends.
Well yes, but if you take dividends you must be a shareholder. If your shares increase in value, you do not pay income tax, nor corporation tax, nor NI on the increase in your wealth. So please enlighten us - what tax will you pay on the increase when you eventually sell the shares?
No mention of 40% tax here Gilps, so assume you dont earn more than 40k a year in 'dividends' ? And what about the 11% NI.... If every self employed person who earned what I earn took the tax and NI I take the country would be back in the black again. With cutbacks in pensions and sick shemes, being PAYE isnt that much of an advantage over SE now, and you could still offset any insurances before tax so no loss the, just means I'm not paying for peolpe to have their loo roll fixed
I'm a shareholder, and so is my wife, because we set the company up. We invested our own money in it, money which had already had tax paid on it. If the company, and thererby my shares or investment in it, increases in value because of the decisions I take, then any disposals of my shares will be subject to whatever tax laws are in place at the time. If I choose to sell them or pass them on to a relative then I assume capital gains tax or inheritance tax will apply.
If I earn over the 40% threshold then I end up paying 40%. There's no way around it. The dividend would have already had 20% taxation levied upon it as corporation tax, then I would pay a further 20% upon it. You are correct about NI. I pay the correct amount of NI on any salary. Dividends are not subject to NI. Any additional NI contributions I make are based upon what my accountant advises The thing to bear in mind here is that all of these taxation rules are well known, the treasury is fully aware of them and they are factored in to the budget. Whilst it is possible the change the rules to bring in extra revenue from those filthy rich fat cats running there own small businesses, the government need to be aware of the risks of deterring people from starting there own businesses. I had two companies employing 10 people and went bust due to the economy in early 2009. I had to sell possessions and borrow money to start all over again. I didn't have to. I could have gone on benefits. Instead I chose to take the risk. I now employ 6 people who all pay tax and NI rather than taking benefits, I pay tax on my profits, I act as revenue collector for HMRC for VAT and staff PAYE deductions, I pay employers NI contributions for the privilege of employing staff, and by manufacturing in this country I reduce the need to import from abroad. Some of our stuff even goes abroad. At the moment I don't earn much more than my top bloke and sometimes wonder why I bother. 14 million people in this country work for small to medium sized companies. That's two thirds of the work force. Be careful how much you hammer the small business owners.
Its a fine line for sure, those who have SME and employ peolpe especially take a risk which deserves the rewards if succesful. Really talking about those who are one one or two band enterprises, carpet fitters, share dealers, footballers (!) etc who employ themselves plus a mate and have family on 'the board' to minimise tax exposure. No different to Jimmy Carr in principle imho just a question of scale. The govt seemed to try and address by forcing into PAYE which was the comment I was addressing above Is it really acceptable that someone goes and buys a new ducati, sticks on the company register and doesnt pay tax on that portion of earnings?! Then add much larger purchases.... Still stand by my gut-instinct; tax that lot right and the coffers would be far fuller. Add into the pot all the foreign workers who pay no or little tax, and bring in those who escape tax by means of off shoring funds and we'd be a lot better off Sure the system would still swallow much of the dosh but how do you fix a red-tape culture which has no passed the point of no return?!
Is it really acceptable that someone goes and buys a new ducati, sticks on the company register and doesnt pay tax on that portion of earnings?! Then add much larger purchases.... Fantastic idea. Thank you
Bradders, you seem to think that whatever the government decides to take for people is right. Personally, I don't. The government wastes money on an industrial scale. I have been in the position where I can work harder and longer on an hourly basis, but I don't because the majority of the extra.income will be pissed away by lazy fuckers or by civil servants with no sense. We do need a 'fair' tax regime, but fair in that the government doesn't treat my money as theirs and fair as in everyone pays a set, minimum amount.
Not at all Jerry, I'm a fairly strong anti-govt type (current types) who thinks the system works to reward short termism rather than allow long term country interest, who also seeks on a daily basis to tighten its grip in the population to control our thoughts and actions and use inapproriate fear to stoke it. Arrest and charging of that idiot who tweeted the tom daley thing a good example...when did it become a crime to be an idiot?! But I do belive that we should all pay a fair share. Just because you can avoid it, doesnt mean you should. We all need the police, health, education, benefits system to some extent even if not direct to us individually. And the govt are the only ones who can make that happen....shame they are on the same take
In Luxury Fever, Frank posits the idea of a consumption tax instead of income tax. His thesis is that we are all over-consuming and it isn't making anyone happy. In his proposed system, you wouldn't pay any tax on income but only on what you spent. So you take fortune at year X-1, add income from year X, and then see at end of year X what was left as fortune. The difference is consumption. You'd obviously have thresholds for basic needs. Then if someone wanted a fuck-off motor, it would be pricey, but it would be their choice. You might say that this would limit growth (it would) but it would give people the freedom to decide how much tax they wanted to pay and would encourage savings for old age. The treadmill of production and consumption takes you about as far as an exercise bike. You could argue that having a better environment is of lasting benefit (as Frank does). An example: I don't have a swimming pool, and I don't want one much. But I, along with most people in Switzerland, have access to large quantities of open-air Olympic pools in landscaped grounds which cost a pittance to attend, and you can stay all day. Lausanne is about the size of Oxford. There are half a dozen such pools in Lausanne. Why would I want a poxy 10m one, in which I can't do any real swimming, with all the cost and upkeep headaches, when I can share a fantastic facility on an as-needed basis? It is a brilliant and superbly readable book. Frank points out that the things that really make people lastingly happy, like not living next to traffic noise, parks, and spending time with family and friends are not things that require constant funding, but which do require a shift in attitudes towards consumption.
The thing that really gets my goat about all of this is the level of corporation tax and how it is applied to small companies and large companies. Here's the facts: In April 2007 the small business rate was 20%, large business was 30% In April 2008 small business increased to 21%, large business decreased to 28% April 2009, no change April 2010, no change April 2011, small business lowered to 20%, large business lowered to 26% April 2012, small business no change, large business lowered to 24% April 2013 small business no change, large business lowered to 23% So, from April 1 next year, small business will be paying the same percentage in tax on their profits as they were 6 years ago, whilst large businesses - that's those with more than £1.5 profit before tax - will see their tax bill reduced from 30% to 23%. That equates to a 25% reduction in the amount of tax that big busines will pay to the revenue. In reality a 1% increase or reduction to small business is neither here nor there to me. It's only £500 on a 50k profit. Whilst I'm not going to turn it down, I'm hardly lilely to invest it back in the company or hire extra staff off the back of it, but at least it goes straight in to my pocket which is nice. On the other hand, who owns large businesses? Shareholders who are usually investors, that's who. By decreasing the amount of tax that large business pays, the government have really just given investors a larger payout on their dividends. Can we really afford to do that? We've increased VAT by 2 1/2% so that the working person has to pay more for their daily basics, yet we have given away billions of pounds to shareholders who don't really need it. Don't forget that profit after tax is handed over to shareholders, it doesn't make the company more profitable or give it more cash to invest in growth. Lower corporation tax just means more cash in the hand of shareholders. I don't know the figures, but just my conservative guesstimate is that big business must earn at least 100 billion pounds per year before tax. This may seem high but when you have individual companies like banks making 5bn then it's probably a low figure. That means that rather than collecting 30 billion pounds, the government have chosen to collect just 23. Why? Can we afford to do this? That's 7 billion pounds a year. The argument about making companies more attractive to invest in just doesn't stack up, as the investment happended when the shares were originally floated. Now it's just gambling on whether they'll go up or down. The company doesn't get to see any of the increase in stock value. The only people who will benefit in this reduction of corporation tax are shareholders and board directors of those companies. Isn't it rather odd that not one MP is shouting about just how unfair this is? I wonder why.
... and don't even get me started about the ridiculously low rates of tax applied to the profits from hedge funds and other such multibillion pound legalised gambling schemes.
I work for PE owned business, 2.1B turn over, 630m EBIT, accounting loss of 580m...not a penny of tax....with you on that Gilps
I guess it all depends upon the rates of tax levied and the total take, whether it is on income or consumption (spending) seems secondary surely. If the government taxes me less I have more money with which I can make choices and that includes saving for old age.
