Would they not just get this right? PAYE vs LTD Co.
Discussion
The answer is a flat rate tax.
It should be irrelevant where that money comes from. Pension / Employment / Dividends / Interest / Gifts / Capital Gain / Inheritance etc.
Everyone is on the same tax code.
Scrap NI. Scrap Tax credits.
Dividends could have a tax credit equal to the rate of corporation tax to avoid double taxation.
Say tax free allowance of 10k, next 20k at 35%, the rest at 45%. Or whatever it needs to be to be revenue neutral to the current scheme.
Then you pay the same tax regardless of PAYE / Dividend mix.
When we stop spending money on pointless things and balance the books then the rates can come down.
Oh, and we can then get rid of an army of civil servants / tax advisers / accountants etc who all benefit from the impossible to comprehend system we have and who add no real value to our economy.
But of course that won't happen as it's clearly a mad policy.
It should be irrelevant where that money comes from. Pension / Employment / Dividends / Interest / Gifts / Capital Gain / Inheritance etc.
Everyone is on the same tax code.
Scrap NI. Scrap Tax credits.
Dividends could have a tax credit equal to the rate of corporation tax to avoid double taxation.
Say tax free allowance of 10k, next 20k at 35%, the rest at 45%. Or whatever it needs to be to be revenue neutral to the current scheme.
Then you pay the same tax regardless of PAYE / Dividend mix.
When we stop spending money on pointless things and balance the books then the rates can come down.
Oh, and we can then get rid of an army of civil servants / tax advisers / accountants etc who all benefit from the impossible to comprehend system we have and who add no real value to our economy.
But of course that won't happen as it's clearly a mad policy.
Eric Mc said:
The easy one first.
The higher Income Tax rate for dividends is 32.5% (mot 40%)
If you are a 50% tax payer, then the top dividend rate becomes 42.5%.
Well, if dividends are paid intead of salary then you've got to add corp tax (assume 20%) to those figures but take off the 10% dividend tax credit.The higher Income Tax rate for dividends is 32.5% (mot 40%)
If you are a 50% tax payer, then the top dividend rate becomes 42.5%.
So the higher rate is effectively 42.5% and the top rate 52.5%.
slippery said:
Eric Mc said:
The easy one first.
The higher Income Tax rate for dividends is 32.5% (mot 40%)
If you are a 50% tax payer, then the top dividend rate becomes 42.5%.
Regarding IR35, if HMRC decides that IR35 rules SHOULD have applied, they will recalculate all the Income Tax< Corporation Tax and NI liabilities arising under the IR35 rules and then deduct from that Corpotration Tax, PAYE and NI already paid - and ask for the difference - with interest.
I have heard of amounts of £90,000 being collected in this way.
£90k! Doesn't exactly make people wnt to leave to much money in their Ltd Co account if they are really just a single contractor, because I'm sure HMRC would only chase the money hard if they knew the company could pay. The higher Income Tax rate for dividends is 32.5% (mot 40%)
If you are a 50% tax payer, then the top dividend rate becomes 42.5%.
Regarding IR35, if HMRC decides that IR35 rules SHOULD have applied, they will recalculate all the Income Tax< Corporation Tax and NI liabilities arising under the IR35 rules and then deduct from that Corpotration Tax, PAYE and NI already paid - and ask for the difference - with interest.
I have heard of amounts of £90,000 being collected in this way.
STURBO said:
The answer is a flat rate tax.
It should be irrelevant where that money comes from. Pension / Employment / Dividends / Interest / Gifts / Capital Gain / Inheritance etc.
Everyone is on the same tax code.
Scrap NI. Scrap Tax credits.
Dividends could have a tax credit equal to the rate of corporation tax to avoid double taxation.
Say tax free allowance of 10k, next 20k at 35%, the rest at 45%. Or whatever it needs to be to be revenue neutral to the current scheme.
Then you pay the same tax regardless of PAYE / Dividend mix.
When we stop spending money on pointless things and balance the books then the rates can come down.
Oh, and we can then get rid of an army of civil servants / tax advisers / accountants etc who all benefit from the impossible to comprehend system we have and who add no real value to our economy.
But of course that won't happen as it's clearly a mad policy.
Bonkers It should be irrelevant where that money comes from. Pension / Employment / Dividends / Interest / Gifts / Capital Gain / Inheritance etc.
Everyone is on the same tax code.
Scrap NI. Scrap Tax credits.
Dividends could have a tax credit equal to the rate of corporation tax to avoid double taxation.
Say tax free allowance of 10k, next 20k at 35%, the rest at 45%. Or whatever it needs to be to be revenue neutral to the current scheme.
Then you pay the same tax regardless of PAYE / Dividend mix.
When we stop spending money on pointless things and balance the books then the rates can come down.
Oh, and we can then get rid of an army of civil servants / tax advisers / accountants etc who all benefit from the impossible to comprehend system we have and who add no real value to our economy.
But of course that won't happen as it's clearly a mad policy.
slippery said:
Eric Mc said:
The easy one first.
The higher Income Tax rate for dividends is 32.5% (mot 40%)
If you are a 50% tax payer, then the top dividend rate becomes 42.5%.
Regarding IR35, if HMRC decides that IR35 rules SHOULD have applied, they will recalculate all the Income Tax< Corporation Tax and NI liabilities arising under the IR35 rules and then deduct from that Corpotration Tax, PAYE and NI already paid - and ask for the difference - with interest.
I have heard of amounts of £90,000 being collected in this way.
£90k! Doesn't exactly make people wnt to leave to much money in their Ltd Co account if they are really just a single contractor, because I'm sure HMRC would only chase the money hard if they knew the company could pay. The higher Income Tax rate for dividends is 32.5% (mot 40%)
If you are a 50% tax payer, then the top dividend rate becomes 42.5%.
Regarding IR35, if HMRC decides that IR35 rules SHOULD have applied, they will recalculate all the Income Tax< Corporation Tax and NI liabilities arising under the IR35 rules and then deduct from that Corpotration Tax, PAYE and NI already paid - and ask for the difference - with interest.
I have heard of amounts of £90,000 being collected in this way.
Eric Mc said:
slippery said:
Eric Mc said:
The easy one first.
The higher Income Tax rate for dividends is 32.5% (mot 40%)
If you are a 50% tax payer, then the top dividend rate becomes 42.5%.
Regarding IR35, if HMRC decides that IR35 rules SHOULD have applied, they will recalculate all the Income Tax< Corporation Tax and NI liabilities arising under the IR35 rules and then deduct from that Corpotration Tax, PAYE and NI already paid - and ask for the difference - with interest.
I have heard of amounts of £90,000 being collected in this way.
£90k! Doesn't exactly make people wnt to leave to much money in their Ltd Co account if they are really just a single contractor, because I'm sure HMRC would only chase the money hard if they knew the company could pay. The higher Income Tax rate for dividends is 32.5% (mot 40%)
If you are a 50% tax payer, then the top dividend rate becomes 42.5%.
Regarding IR35, if HMRC decides that IR35 rules SHOULD have applied, they will recalculate all the Income Tax< Corporation Tax and NI liabilities arising under the IR35 rules and then deduct from that Corpotration Tax, PAYE and NI already paid - and ask for the difference - with interest.
I have heard of amounts of £90,000 being collected in this way.
Deliberate withdrawal of company funds to avoid payment of legitimate taxation is none of those things.
HMRC make very bad enemies. Long memories and very big pockets.
I would never advise such actions. Does anyone want that much hassle?
Eric Mc is spot on as usual. The Revenue will want their money.
Edited by Steffan on Tuesday 13th March 23:09
Steffan said:
Eric Mc said:
slippery said:
Eric Mc said:
The easy one first.
The higher Income Tax rate for dividends is 32.5% (mot 40%)
If you are a 50% tax payer, then the top dividend rate becomes 42.5%.
Regarding IR35, if HMRC decides that IR35 rules SHOULD have applied, they will recalculate all the Income Tax< Corporation Tax and NI liabilities arising under the IR35 rules and then deduct from that Corpotration Tax, PAYE and NI already paid - and ask for the difference - with interest.
I have heard of amounts of £90,000 being collected in this way.
£90k! Doesn't exactly make people wnt to leave to much money in their Ltd Co account if they are really just a single contractor, because I'm sure HMRC would only chase the money hard if they knew the company could pay. The higher Income Tax rate for dividends is 32.5% (mot 40%)
If you are a 50% tax payer, then the top dividend rate becomes 42.5%.
Regarding IR35, if HMRC decides that IR35 rules SHOULD have applied, they will recalculate all the Income Tax< Corporation Tax and NI liabilities arising under the IR35 rules and then deduct from that Corpotration Tax, PAYE and NI already paid - and ask for the difference - with interest.
I have heard of amounts of £90,000 being collected in this way.
Deliberate withdrawal of company funds to avoid payment of legitimate taxation is none of those things.
HMRC make very bad enemies. Long memories and very big pockets.
I would never advise such actions. Does anyone want that much hassle?
Du1point8 said:
pilchardthecat said:
They don't enforce the IR35 rules.
It's very easy to run a Ltd company, pay yourself £5k/year PAYE and take everything else as dividends at corp tax rate.
Are you not forgetting that is only up to £43k os so.It's very easy to run a Ltd company, pay yourself £5k/year PAYE and take everything else as dividends at corp tax rate.
Then its 10%, 20%, 30% and so on, that gets charged on the dividends.
Also you have to sort out your own insurance (liability and public), dental, bupa, your own pension.
why do some people think its just pay little wage and then take everything else as dividends... Its not and never has been!!
45 quid a month for Professional Indemnity Insurance, 200 quid a year IET membership, £8K a year pension, £13K a year business expences, including Accountants fees, Companies House Registration, B&B, travel, computing and printing and safety specs, and safety boots, and tools, and a worry that this contract might be the last for a while. Being halfway through a 12 month contract and being told : "You (and all the other agency contractors) finish on Christmas Eve in one weeks time" because the contract actually says they can give you 1 weeks notice.
Travelling 120 miles every f
king Monday morning, because the only place that wants your skills is erm 120 miles away, Not getting holiday pay, or sick pay, and if they ask you to do something that's a bit old fashioned or technologically 1998, that means your skills are getting outdated, which means you've got to spend your free time keeping fresh. And the stress every 6 or 9 months about contract renewal, or the 4 weeks stress whilst you spend every hour of every day looking for the next contract. Understanding Tax, and VAT and PAYE and NIC and making sure you don't loose your numerous HMRC on line passwords.
I may be that I pay less tax on my turnover than a permy pays on his salary, and it's true that at every contract I've had, I've had to turn down offers of a full time job, because I can't afford it, but it pisses me off when people think it's all easy.
Rant over.
On the positive side I need the stress to get out of bed. Knowing that if I don't perform every day, will have my contract terminated, is the sort of motivation I need, and when I was a permy I just coasted along.
As Eric MC has commented the lot of a self employed man is NOT an easy one.
All professionals are aware of the stress, risk, insecurity and excessive workload that self employment brings.
It is no surprise to anyone that knows the downside of business that self employed individuals find it hard.
Nor is it any surprise that the welfare economy has grown like topsy.
That is just the way life is in the UK today.
All professionals are aware of the stress, risk, insecurity and excessive workload that self employment brings.
It is no surprise to anyone that knows the downside of business that self employed individuals find it hard.
Nor is it any surprise that the welfare economy has grown like topsy.
That is just the way life is in the UK today.
New POD said:
Du1point8 said:
pilchardthecat said:
They don't enforce the IR35 rules.
It's very easy to run a Ltd company, pay yourself £5k/year PAYE and take everything else as dividends at corp tax rate.
Are you not forgetting that is only up to £43k os so.It's very easy to run a Ltd company, pay yourself £5k/year PAYE and take everything else as dividends at corp tax rate.
Then its 10%, 20%, 30% and so on, that gets charged on the dividends.
Also you have to sort out your own insurance (liability and public), dental, bupa, your own pension.
why do some people think its just pay little wage and then take everything else as dividends... Its not and never has been!!
45 quid a month for Professional Indemnity Insurance, 200 quid a year IET membership, £8K a year pension, £13K a year business expences, including Accountants fees, Companies House Registration, B&B, travel, computing and printing and safety specs, and safety boots, and tools, and a worry that this contract might be the last for a while. Being halfway through a 12 month contract and being told : "You (and all the other agency contractors) finish on Christmas Eve in one weeks time" because the contract actually says they can give you 1 weeks notice.
Travelling 120 miles every f
king Monday morning, because the only place that wants your skills is erm 120 miles away, Not getting holiday pay, or sick pay, and if they ask you to do something that's a bit old fashioned or technologically 1998, that means your skills are getting outdated, which means you've got to spend your free time keeping fresh. And the stress every 6 or 9 months about contract renewal, or the 4 weeks stress whilst you spend every hour of every day looking for the next contract. Understanding Tax, and VAT and PAYE and NIC and making sure you don't loose your numerous HMRC on line passwords.
I may be that I pay less tax on my turnover than a permy pays on his salary, and it's true that at every contract I've had, I've had to turn down offers of a full time job, because I can't afford it, but it pisses me off when people think it's all easy.
Rant over.
On the positive side I need the stress to get out of bed. Knowing that if I don't perform every day, will have my contract terminated, is the sort of motivation I need, and when I was a permy I just coasted along.
Du1point8 said:
Now you re getting into the realms of those that say they could do it over those that have, not forgetting that contractors have motivation to go forward rather than sit around like SOME permies that are secure doing the same 9-5 stuff and not progressing their career.
In my case it was a combination of being made redundant from a job that I hated, combined with no permanent jobs for people with my skills within travelling distance, combined with enough contract jobs paying enough to pay the extra travelling cost, combined with an irrational fear of loosing my house (which was never likely to happen as the equity I own is about 99.98% A couple of points that should perhaps be clarified:
BR taxpayer:
PAYE: £10,000 income £2,000 tax
DIVS: £10,000 dividend, needs £12,500 profit, meaning £2,500 tax (assumes 20% CT; it used to be 21% until recently). 10% tax credit cancels out any further tax due.
HR taxpayer:
PAYE: additional £10,000 income above BR income levels, but below 100k income, tax £4,000
DIVS: additional £10,000 dividend above BR income levels but below 100k income, profit required £12,500 (assuming company falls into the small company rate), meaning £2,500 tax (assuming again 20% CT) AND the taxpayer must pay an additional tax of 32.5% less the 10% tax credit (it works out to 25% of the net income). Actual calculation is:
dividend=10,000.
10% credit = 1,111.11.
gross dividend: 11,111.11
tax@32.5% = 3611.11
net tax due on dividend = 2500 (3611.11-1111.11)
total tax paid: £5,000 (2,500+2,500)
- ) The "tax" paid (eg Corporation Tax vs Income Tax), taking National Insurance out of the equation for now, is more in the case of dividends. The reasons for this are that 1) the dividends must be paid out of post tax profits, whereas income tax is calculated as a percentage of the income and 2) the rates are actually higher (see below).
- ) The actual rates of tax paid are 20% (was 21%), then 42.5%, then 52.5%. That is for each of the tax bands: basic, higher and the new higher rate.
- ) The main saving to a UK tax resident, as someone else has mentioned earlier, is the National Insurance, and mostly the employers NI at that. This is the reason why those with their own companies should take a salary of up to the personal allowance and/or just enough to ensure a state pension, if they so wish (I am not conversant with the current amount of income needed to secure full state pension).
- ) Non UK tax residents will benefit from the dividend structure, IF they live in a low/zero tax jurisdiction themselves.
BR taxpayer:
PAYE: £10,000 income £2,000 tax
DIVS: £10,000 dividend, needs £12,500 profit, meaning £2,500 tax (assumes 20% CT; it used to be 21% until recently). 10% tax credit cancels out any further tax due.
HR taxpayer:
PAYE: additional £10,000 income above BR income levels, but below 100k income, tax £4,000
DIVS: additional £10,000 dividend above BR income levels but below 100k income, profit required £12,500 (assuming company falls into the small company rate), meaning £2,500 tax (assuming again 20% CT) AND the taxpayer must pay an additional tax of 32.5% less the 10% tax credit (it works out to 25% of the net income). Actual calculation is:
dividend=10,000.
10% credit = 1,111.11.
gross dividend: 11,111.11
tax@32.5% = 3611.11
net tax due on dividend = 2500 (3611.11-1111.11)
total tax paid: £5,000 (2,500+2,500)
Eric Mc said:
slippery said:
Eric Mc said:
The easy one first.
The higher Income Tax rate for dividends is 32.5% (mot 40%)
If you are a 50% tax payer, then the top dividend rate becomes 42.5%.
Regarding IR35, if HMRC decides that IR35 rules SHOULD have applied, they will recalculate all the Income Tax< Corporation Tax and NI liabilities arising under the IR35 rules and then deduct from that Corpotration Tax, PAYE and NI already paid - and ask for the difference - with interest.
I have heard of amounts of £90,000 being collected in this way.
£90k! Doesn't exactly make people wnt to leave to much money in their Ltd Co account if they are really just a single contractor, because I'm sure HMRC would only chase the money hard if they knew the company could pay. The higher Income Tax rate for dividends is 32.5% (mot 40%)
If you are a 50% tax payer, then the top dividend rate becomes 42.5%.
Regarding IR35, if HMRC decides that IR35 rules SHOULD have applied, they will recalculate all the Income Tax< Corporation Tax and NI liabilities arising under the IR35 rules and then deduct from that Corpotration Tax, PAYE and NI already paid - and ask for the difference - with interest.
I have heard of amounts of £90,000 being collected in this way.
Du1point8 said:
No... my father came up on their radar as he is basically a company man for a big oil company, out of the country for XX months, etc... they tried him one year and lost and owed him money, then what do you know?? They did it again the next year and lost and they owed him money... this went on for 5 years and each time HMRC worked out that they owed him money over on the amount of tax he paid... he is now left alone!! but for 5 years they made his life difficult every single year due to him popping up on their radar once.
Is your father STUPID. If it seems that HMRC owes him money every year he should be contactingB THEM and claiming it back rathetrr than waiting for them to contact him. I would guess that at least half my clients received tax refunds from Self Assesment for 2010/11 - rather than having liabilities (mainly due to falling business profits).Eric Mc said:
Du1point8 said:
No... my father came up on their radar as he is basically a company man for a big oil company, out of the country for XX months, etc... they tried him one year and lost and owed him money, then what do you know?? They did it again the next year and lost and they owed him money... this went on for 5 years and each time HMRC worked out that they owed him money over on the amount of tax he paid... he is now left alone!! but for 5 years they made his life difficult every single year due to him popping up on their radar once.
Is your father STUPID. If it seems that HMRC owes him money every year he should be contactingB THEM and claiming it back rathetrr than waiting for them to contact him. I would guess that at least half my clients received tax refunds from Self Assesment for 2010/11 - rather than having liabilities (mainly due to falling business profits).
IR35 is partly why I quit IT contracting over 10 years ago and went on to write several software products and employed a bunch of people for years.
The problem with all this small Ltd Co. bashing is that it increases risk and reduces reward. Without my years as a contractor I would not have written the software products and employed the people I did. I would not have had the retained earnings springboard that contracting gave me. Also my contracts were usually short (say 3 months) and with different companies (although I did return a number of times to the same companies) so this idea that all contractors just work for the same company is not always the case.
I did hope that the new regime would revoke IR35 but alas they have done very little in terms of reform.
The problem with all this small Ltd Co. bashing is that it increases risk and reduces reward. Without my years as a contractor I would not have written the software products and employed the people I did. I would not have had the retained earnings springboard that contracting gave me. Also my contracts were usually short (say 3 months) and with different companies (although I did return a number of times to the same companies) so this idea that all contractors just work for the same company is not always the case.
I did hope that the new regime would revoke IR35 but alas they have done very little in terms of reform.
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