HMRC looking to curb travel expenses for self employed?
Discussion
Dr Jekyll said:
I daresay you can, but I was initially responding to the accusation that any contractor who operates through a Ltd must be running a tax dodge.
Hmm. Well I know a few contractors. Pretty much all of them minimize their salary and maximize their income through dividends. Why wouldn't you avoid paying out loads in both employer and employee NI contributions if you can avoid it? If this isn't a tax dodge what is it? There are significant benefits to the individual from setting up as a LtdCo.
The article said:
Aside from finding it very hard to secure contract work if you set up as a sole trader, there are numerous benefits to contracting via your own limited company.
Most importantly, becoming a limited company shareholder is the most tax efficient way to contract, as you will usually draw down most of your income in the form or dividends, and not salary.
The article seems to be suggesting (and feel free to correct me) that Recruitment Agencies won't employ you because they might get lumbered with tax. The point I'm making is, it's NOT an option for the RA or the Client to decide whether the person is a Contractor or an Employee. The IR35 test decides that. So just because you're invoicing as a LtdCo doesn't protect you OR the RA from potential tax/NI liabilities.Most importantly, becoming a limited company shareholder is the most tax efficient way to contract, as you will usually draw down most of your income in the form or dividends, and not salary.
plasticpig said:
Hmm. Well I know a few contractors. Pretty much all of them minimize their salary and maximize their income through dividends. Why wouldn't you avoid paying out loads in both employer and employee NI contributions if you can avoid it? If this isn't a tax dodge what is it?
another factor in being a ltd company rather than a sole trader is liability, a sole trader is personally liable should anything go wrong, when incorporated the company is liable.I was a sole trader for a year and a half but went ltd after that. I have an office which I work from for around 2 days a week working for various clients, the rest I travel mainly to one clients office for 3 days s I claim the 45p per mile back from the company.
plasticpig said:
Hmm. Well I know a few contractors. Pretty much all of them minimize their salary and maximize their income through dividends. Why wouldn't you avoid paying out loads in both employer and employee NI contributions if you can avoid it? If this isn't a tax dodge what is it?
A tax dodge is not paying the tax or NI you are legally supposed to.If I apply for a contract and the recruitment agency says 'no chance unless you operate through a ltd' and I say 'oh bugger' and set up a Ltd company or use an umbrella that isn't a tax dodge, it's a necessary piece of paperwork to get the contract.
I don't know what the hell you would prefer me to do.
If I didn't use a Ltd I wouldn't get the contract, wouldn't have any income, therefore would pay no tax or NI at all.
Incidentally I use an umbrella company, don't receive any dividends and both employers and employees NI comes out of my daily rate.
plasticpig said:
Dr Jekyll said:
I daresay you can, but I was initially responding to the accusation that any contractor who operates through a Ltd must be running a tax dodge.
Hmm. Well I know a few contractors. Pretty much all of them minimize their salary and maximize their income through dividends. Why wouldn't you avoid paying out loads in both employer and employee NI contributions if you can avoid it? If this isn't a tax dodge what is it? I know people who use salary sacrifice to purchase childcare vouchers.
I know people who have purchased bikes via the government's cycle to work scheme.
All of these would seem to fall under the definition of "tax dodges" (if you define a "tax dodge" as making use of legal mechanisms to lower the amount of tax you pay).
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Dr Jekyll said:
A tax dodge is not paying the tax or NI you are legally supposed to.
If I apply for a contract and the recruitment agency says 'no chance unless you operate through a ltd' and I say 'oh bugger' and set up a Ltd company or use an umbrella that isn't a tax dodge, it's a necessary piece of paperwork to get the contract.
I don't know what the hell you would prefer me to do.
If I didn't use a Ltd I wouldn't get the contract, wouldn't have any income, therefore would pay no tax or NI at all.
Incidentally I use an umbrella company, don't receive any dividends and both employers and employees NI comes out of my daily rate.
I am not critisisng you. I am a director and my company minimises NI payments by paying most of the directors income by way of dividends. I take the term tax dodge to mean avoidance rather than evasion.If I apply for a contract and the recruitment agency says 'no chance unless you operate through a ltd' and I say 'oh bugger' and set up a Ltd company or use an umbrella that isn't a tax dodge, it's a necessary piece of paperwork to get the contract.
I don't know what the hell you would prefer me to do.
If I didn't use a Ltd I wouldn't get the contract, wouldn't have any income, therefore would pay no tax or NI at all.
Incidentally I use an umbrella company, don't receive any dividends and both employers and employees NI comes out of my daily rate.
plasticpig said:
I am not critisisng you. I am a director and my company minimises NI payments by paying most of the directors income by way of dividends. I take the term tax dodge to mean avoidance rather than evasion.
But the term "tax dodge" makes it sound seedy and underhand (more akin to evasion rather than avoidance).Tax avoidance is something everybody employs to some degree or another. Who voluntarily pays more tax than they should?
I don't know one person who turns round at the end of the year and sends a cheque to HMRC to make up for the tax relief they got on say their personal pension contributions, ISA etc.
chrispmartha said:
another factor in being a ltd company rather than a sole trader is liability, a sole trader is personally liable should anything go wrong, when incorporated the company is liable.
I was a sole trader for a year and a half but went ltd after that. I have an office which I work from for around 2 days a week working for various clients, the rest I travel mainly to one clients office for 3 days s I claim the 45p per mile back from the company.
Not strictly true. There are plenty of circumstances where the directors can be held personally liable. That's why many contractors have professional indemnity insurance. Hiding behind a Ltd company won't necessarily protect you from a gross negligence claim.I was a sole trader for a year and a half but went ltd after that. I have an office which I work from for around 2 days a week working for various clients, the rest I travel mainly to one clients office for 3 days s I claim the 45p per mile back from the company.
I'm not sure that most people understand the reality of freelancing.
You have no employment rights. Your next contract could be miles from home. You don't get paid if you are ill, you have no vicarious liability to fall back on if you make a mistake, your travel expenses, even when minimised by careful decision making, can be as much as some people earn.
For some life is a fine financial balance, and this might upset that balance to an extent where doing what they do is no longer worth doing.
You have no employment rights. Your next contract could be miles from home. You don't get paid if you are ill, you have no vicarious liability to fall back on if you make a mistake, your travel expenses, even when minimised by careful decision making, can be as much as some people earn.
For some life is a fine financial balance, and this might upset that balance to an extent where doing what they do is no longer worth doing.
plasticpig said:
chrispmartha said:
another factor in being a ltd company rather than a sole trader is liability, a sole trader is personally liable should anything go wrong, when incorporated the company is liable.
I was a sole trader for a year and a half but went ltd after that. I have an office which I work from for around 2 days a week working for various clients, the rest I travel mainly to one clients office for 3 days s I claim the 45p per mile back from the company.
Not strictly true. There are plenty of circumstances where the directors can be held personally liable. That's why many contractors have professional indemnity insurance. Hiding behind a Ltd company won't necessarily protect you from a gross negligence claim.I was a sole trader for a year and a half but went ltd after that. I have an office which I work from for around 2 days a week working for various clients, the rest I travel mainly to one clients office for 3 days s I claim the 45p per mile back from the company.
I hold Professional Indemnity Insurance to the tune of £2M. As far as I can tell if I made a big mistake it could cost a lot more than that. They can have my ltd company, as it cost me £33.50 to set up.
Gecko1978 said:
Rude-boy said:
Tuna said:
You mean as a permanent member of staff you can't claim travel expenses from your company and get a benefit from doing so? I thought you could.
Yes, contractors' rates are higher; certainly the risk/reward ratio suits different people, and for sure there are some particularly terrible contractors, just as there are some spectacularly bad permanent members of staff. The only thing I object to is when people (permanent or contract) concentrate solely on the money and do this weird value judgement that just because there is a difference in rates something is inherently unfair.
Personally I will absolutely decide if a contract some distance from home is 'worth it' based on some combination of the work involved, the people, the skill development, the inconvenience of travel and the rate. My point is purely that as someone who has worked hard to develop a valuable and relatively rare skillset, it benefits both my client and myself to be able to travel cost effectively.
The difference is that if I took a permanent role with a company and then chose to live a hundred miles away, that's clearly a lifestyle choice. If as a business I commit to servicing clients (occasionally for extended periods of time) within a hundred miles of my home, that's a business choice.
Obviously there's a line where the 'many clients' becomes 'one client' and the 'running a business' becomes 'working for another organisation'. There are loads of tests to decide where the line should be drawn, and the 2 year rule for travel expenses seems a reasonable (if a bit arbitrary) part of that. Changing that towards 'no such thing as remote clients' seems harsh. Even if you justify it by whinging about how much contractors earn.
Firstly, and a small point of order here, I have absolutely no issue with the daily rates and so on. Contractors cost more as a single bill but are not much more expensive than a full timer (outside some specialists who would never get a full time job doing what they do as they are only needed a few days/weeks/months a year so it is easy to see why they might be telephone numbers per day).Yes, contractors' rates are higher; certainly the risk/reward ratio suits different people, and for sure there are some particularly terrible contractors, just as there are some spectacularly bad permanent members of staff. The only thing I object to is when people (permanent or contract) concentrate solely on the money and do this weird value judgement that just because there is a difference in rates something is inherently unfair.
Personally I will absolutely decide if a contract some distance from home is 'worth it' based on some combination of the work involved, the people, the skill development, the inconvenience of travel and the rate. My point is purely that as someone who has worked hard to develop a valuable and relatively rare skillset, it benefits both my client and myself to be able to travel cost effectively.
The difference is that if I took a permanent role with a company and then chose to live a hundred miles away, that's clearly a lifestyle choice. If as a business I commit to servicing clients (occasionally for extended periods of time) within a hundred miles of my home, that's a business choice.
Obviously there's a line where the 'many clients' becomes 'one client' and the 'running a business' becomes 'working for another organisation'. There are loads of tests to decide where the line should be drawn, and the 2 year rule for travel expenses seems a reasonable (if a bit arbitrary) part of that. Changing that towards 'no such thing as remote clients' seems harsh. Even if you justify it by whinging about how much contractors earn.
What I have a small issue (it really doesn't exercise me, just a bit of a niggle) with is that many contractors call their spare room their office and then are going to work on one site, for one employer, for weeks and often months at a time and then claiming travel expenses based on that. There is an inequality there which is not easily swallowed. Especially by those of us who would love to work like contractors but are legally and practically prevented from doing so.
If I was a plumber I might have contracts with say a factory an once a month or more I might go there to check on things...but I am only doing that as part of my business I do not work for that company etc so it seems a smack in the face that my employer (ltd company) cant claim the cost of that agaist tax.
Typical expenses are about £11 to £15K a year.
Pit Pony said:
Directors can only be personally liable if they did something they KNEW was wrong. Criminal Negligence might lead to a personal civil liability, but mistakes ? Well not a problem as long as you didn't lie about your competence and turn work down that you are not qualified for.
I hold Professional Indemnity Insurance to the tune of £2M. As far as I can tell if I made a big mistake it could cost a lot more than that. They can have my ltd company, as it cost me £33.50 to set up.
And there in the last sentence somes up what's wrong with ltd co's or more the "directors" attitude to them!I hold Professional Indemnity Insurance to the tune of £2M. As far as I can tell if I made a big mistake it could cost a lot more than that. They can have my ltd company, as it cost me £33.50 to set up.
Granfondo said:
And there in the last sentence somes up what's wrong with ltd co's or more the "directors" attitude to them!
Depends on the wider stance of the individual.IME most freelancers/small limited company owners know only too well that they are only as good as their last job. They will go way more than the extra mile (expensed or not
) to ensure that things never get that far in the first place.Where expenses are concerned, the second MPs conform to the same rules as everyone else, or their rules are open to the rest of us, I will happily listen to what they have to say.
Moonhawk said:
I have just received an email from my accountant which indicates that HMRC are looking to put curbs on tax deductible travel expenses and subsistence allowance for self employed and freelance workers.
Whilst they say this won't affect sole traders and people running their own limited company to start with (it's initially aimed at people working under umbrella companies) - they do fear that will be the next logical step.
Anyone else heard of this?
Do they also plan to stop MP's doing it Whilst they say this won't affect sole traders and people running their own limited company to start with (it's initially aimed at people working under umbrella companies) - they do fear that will be the next logical step.
Anyone else heard of this?
TX.
Pit Pony said:
I'm not sure that most people understand the reality of freelancing.
You have no employment rights. Your next contract could be miles from home. You don't get paid if you are ill, you have no vicarious liability to fall back on if you make a mistake, your travel expenses, even when minimised by careful decision making, can be as much as some people earn.
For some life is a fine financial balance, and this might upset that balance to an extent where doing what they do is no longer worth doing.
I think it is. Many of us live with it daily. I've not been trying to bash contractors by my previous comments. But provide some perspective. There is a huge difference in my mind between those who are self-employed/contractors who effectively work for one company doing effectively the same job as Mr staffer sitting next to him & the individual who contracts to multiple companies offereing specialised skills not available in that company.You have no employment rights. Your next contract could be miles from home. You don't get paid if you are ill, you have no vicarious liability to fall back on if you make a mistake, your travel expenses, even when minimised by careful decision making, can be as much as some people earn.
For some life is a fine financial balance, and this might upset that balance to an extent where doing what they do is no longer worth doing.
Many contractors fall into the former category. I see them a lot in my business. I don't see why from a tax perspective they should be treated any different on their travel costs getting to work than a staffer.
But lets take some of your points above....
you have no employment rights...... but you are self employed, who is going to sack you? Gold plated redundancy packages are rare for staffers. Legal minimum in most case or zero if the company goes bust.
your next contract could be miles from home.... so take one closer, Mr Staffer who is made redundant has the same problem
you don't get paid if you are ill..... you do...it's in your rate.
you have no vicarious liability to fall back on if you make a mistake.... take out insurance, the premium is in your rate. For HSE transgressions an employee can still carry the can.
your travel expenses can be as much as some people earn..... so price it in or take a contract locally.
I think some of us do understand the issues. The point is, one thing that gets staffers noses put out of joint is some contractors giving it the loadsamoney shouting off about these huge daily rates they get, then the next thing you hear is contractors then moaning they have no sick pay/holidays/insurances/pensions/etc.. I know these are not always the same people...but... well hopefully you see where I am coming from....
By the time a ltd co. operator pays NI, PAYE....albeit a bit smaller but still paid for, and we remember that "employees" do not pay NI...their employers pay it so their salary is net of income tax only, then we factor in quite astonishing high VAT, and then Corporation Tax all before a self assessment that results in even more tax being paid...and then if the ltd. co ceases trading you can throw in some CGT but not before the VAT and Corp tax is settled....and still leaves at least one self assessment to follow...
It really is no longer financially viable to operate a ltd co. and I am staggered beyond belief that any small companies can even turn a profit let alone employ anyone let alone drive any kind of recovery which apparently small companies and entrepreneurs drive.
Contractor rates are rarely double a perm rate...and as has been mentioned a perm rate does not account for all the benefits and the pension.
Further still... as well as being squeezed by HMRC the contractor will be squeezed by agencies who are being squeezed by the end-client. This can happen mid contract on a take it or leave it basis.
If any accountants are here maybe they could estimate on percentage terms how much less tax is paid through operating a ltd co. compared to being a perm employee....I would be surprised if its a lot....I would not be surprised if its close to equal if not more.
The only reason to go contracting would be that more work is available but we should recognise that comes at a price....fewer perm positions in society....less certainty for more people...who spend less in the economy. However....take that away and what is left? I have seen contracting make the difference between a role being kept onsure vs being offshored... So there can be a benefit but the real issue should be to insentivise job creation.
As PH'ers everyone should have seen the top gear episode in China where they said BMW took a Chinese manufacturer to court for copying the X5 and lost...that is what we are up against...rival economies who will allow their own people and companies to breach international IP law....here we are in the UK with the Govt and HMRC treating its people like they are the enemy and seemingly wanting to close out any opportunity anybody has to get ahead in life.
People should also recognise that permies are being set against contractors in the same way the employed were set against the unemployed / disabled... They want you to feel aggrieved in order to garner support for tax increases and spending cuts that are necessary in order to pay down the QE and borrowing that was used to kick the can down the road... but be careful what you wish for.... they are not on your side just because you are a permie.... You are undoubtedly next...it might not come in the form of income tax increases....but it will come
plasticpig said:
Dr Jekyll said:
I daresay you can, but I was initially responding to the accusation that any contractor who operates through a Ltd must be running a tax dodge.
Hmm. Well I know a few contractors. Pretty much all of them minimize their salary and maximize their income through dividends. Why wouldn't you avoid paying out loads in both employer and employee NI contributions if you can avoid it? If this isn't a tax dodge what is it? Its no different to using something like an ISA to "dodge" income tax on interest.
FredClogs said:
Eric Mc said:
FredClogs said:
IR35 (this conversation is soooo 2005) is b
ks and I don't know of hardly any cases where contractors have actually paid any money back to the revenue,
Have you read the case of "Dragonfly Ltd"?ks and I don't know of hardly any cases where contractors have actually paid any money back to the revenue, Gassing Station | News, Politics & Economics | Top of Page | What's New | My Stuff