Changes to Dividend taxation
Discussion
The way I see it is that those of us who are working for ourselves through a limited company will (mostly) be able to increase our day rates to accommodate the increase in tax.
However any increase for those people who really and truly should just be employed then negates most of the savings that large companies who exploit these rules get. So hopefully we'll see them offering employment for more of those people rather than forcing them on to a contract.
However any increase for those people who really and truly should just be employed then negates most of the savings that large companies who exploit these rules get. So hopefully we'll see them offering employment for more of those people rather than forcing them on to a contract.
jammy_basturd said:
The way I see it is that those of us who are working for ourselves through a limited company will (mostly) be able to increase our day rates to accommodate the increase in tax.
This will depend on the industry. We use a high proportion of contractors. In the current market, rate increases are not going to happen.plasticpig said:
Slight difference is that I don't tell a plumber what tools to use, dictate his working hours or implement a self billing system so I don't even to have to look at his invoice. He is also likely to be working for several clients at the same time. How flexible is an IT contractor? Can they go off site for half a day or even two days to go and fix a previous client's urgent issue? On Thursday can they say they won't be in on Friday because the weather is good and the golf course beckons? Because in my experience that's the sort of thing plumbers and electricians do all the time.
So by targeting those guys they have thrown all company owners in to the same pot?! Make sense. TX.
JonRB said:
Anyway, plasticpig, we get it. You're overjoyed that the stinking IT contractors are now getting their "comeuppance". 
Are you going to stick around this thread and gloat some more, or are you actually going to contribute?
Wow! what a massive assumption on your part. Just for the record; part of my income is through dividends and I will suffer financially from the changes. I have even been an IT contractor. Way before IR35 was introduced though and I was self employed not running through a limited company. Also as I have already posted my company uses contractors or I guess you might call them freelancers as we only tend to have very small packages of work for them; often no more than a week or two.Are you going to stick around this thread and gloat some more, or are you actually going to contribute?
That's beside the point though. The government is trying to solve a problem in that it's tax take from NIC's has been going down. It has to something to compensate for this. I am not happy about getting less money but I understand the government has to compensate for the reduction from somewhere. As I have already pointed out there are many sectors who use contractors not just IT. The construction sector is full of them. So much so that a special scheme was introduced to deduct some tax at source rather than collecting it from individual operatives. Many being of an itinerant nature they often failed to pay some or all of their taxes.
It will affect contractors who are near parity with their PAYE counterparts far more. Deployment / rollout guys don't seem to get much more as contractors than they do as PAYE. Wheres senior developer roles seem to get at least twice what a permie gets.
As for expenses; There is going to be a consultation. It looks like if your are outside of IR35 then nothings going to change. A quick google search bought up that information.
ContractorUK said:
Another brolly director, Lisa Keeble of Contractor Umbrella, seemed to welcome the spirit of the government’s proposed removal of relief -- a removal which was predicted to ContractorUK.
“It’s going to separate highly skilled, highly paid contractors from straight temps because it’s going to take away the workers who should have never been going via PSCs/umbrellas in the first place.
“What we’re going to have is contractors via umbrellas or PSCs who will still be able to claim relief on travel and subsistence as long as they can show no SDC,” she said.
“It’s going to separate highly skilled, highly paid contractors from straight temps because it’s going to take away the workers who should have never been going via PSCs/umbrellas in the first place.
“What we’re going to have is contractors via umbrellas or PSCs who will still be able to claim relief on travel and subsistence as long as they can show no SDC,” she said.
Dr Jekyll said:
Eric Mc said:
HMRC has never had any problem with dividends. The issue they have always been concerned about was people using limited companies to disguise the true nature of what they are doing work-wise.
That is why IR35 was devised.
It is not an issue unique to the UK. There is an article in this months "Taxation" magazine by John Whiting which outlines the problems cause by these arrangements and how other countries tackle them.
Osborne's changes will actually sweep up all dividends paid by all companies - so is rather a blunderbus approach to "levelling the playing field".
What about those of us who work through limited companies because our clients are worried about being stung for employers NI and won't let us be self employed? What are we supposed to do?That is why IR35 was devised.
It is not an issue unique to the UK. There is an article in this months "Taxation" magazine by John Whiting which outlines the problems cause by these arrangements and how other countries tackle them.
Osborne's changes will actually sweep up all dividends paid by all companies - so is rather a blunderbus approach to "levelling the playing field".
plasticpig said:
Starting a limited company purely on the basis of wanting to avoid tax is a crap reason for doing so. It should be about entrepreneurialism. From having an idea and growing a business around it.
I agree that no "employer" should be forcing a potential employee to set up limited companies just so that they will hire them. That is perverse and not what limited companies are about.However, I don't think Osborne's changes are targeted sufficiently well at this particular practice. As I said, he is using a blunderbus approach when a surgical strike was needed.
Eric Mc said:
Dr Jekyll said:
Eric Mc said:
HMRC has never had any problem with dividends. The issue they have always been concerned about was people using limited companies to disguise the true nature of what they are doing work-wise.
That is why IR35 was devised.
It is not an issue unique to the UK. There is an article in this months "Taxation" magazine by John Whiting which outlines the problems cause by these arrangements and how other countries tackle them.
Osborne's changes will actually sweep up all dividends paid by all companies - so is rather a blunderbus approach to "levelling the playing field".
What about those of us who work through limited companies because our clients are worried about being stung for employers NI and won't let us be self employed? What are we supposed to do?That is why IR35 was devised.
It is not an issue unique to the UK. There is an article in this months "Taxation" magazine by John Whiting which outlines the problems cause by these arrangements and how other countries tackle them.
Osborne's changes will actually sweep up all dividends paid by all companies - so is rather a blunderbus approach to "levelling the playing field".
Dr Jekyll said:
Eric Mc said:
Dr Jekyll said:
Eric Mc said:
HMRC has never had any problem with dividends. The issue they have always been concerned about was people using limited companies to disguise the true nature of what they are doing work-wise.
That is why IR35 was devised.
It is not an issue unique to the UK. There is an article in this months "Taxation" magazine by John Whiting which outlines the problems cause by these arrangements and how other countries tackle them.
Osborne's changes will actually sweep up all dividends paid by all companies - so is rather a blunderbus approach to "levelling the playing field".
What about those of us who work through limited companies because our clients are worried about being stung for employers NI and won't let us be self employed? What are we supposed to do?That is why IR35 was devised.
It is not an issue unique to the UK. There is an article in this months "Taxation" magazine by John Whiting which outlines the problems cause by these arrangements and how other countries tackle them.
Osborne's changes will actually sweep up all dividends paid by all companies - so is rather a blunderbus approach to "levelling the playing field".
plasticpig said:
Wow! what a massive assumption on your part. Just for the record; part of my income is through dividends and I will suffer financially from the changes. I have even been an IT contractor. Way before IR35 was introduced though and I was self employed not running through a limited company. Also as I have already posted my company uses contractors or I guess you might call them freelancers as we only tend to have very small packages of work for them; often no more than a week or two.
Apologies. Perhaps I misinterpreted some of your posts in that case. plasticpig said:
It will affect contractors who are near parity with their PAYE counterparts far more. Deployment / rollout guys don't seem to get much more as contractors than they do as PAYE. Wheres senior developer roles seem to get at least twice what a permie gets.
As you know, it's always very difficult to compare permie with freelance - permies get contributory pensions, sick pay, redundancy payments, benefits, and the like. And freelancers get money instead. 
As I always say to permie colleagues, it's just a different way of working. If the grass was genuinely greener all the time on my side of the fence then there wouldn't be anyone on the other side.
Eric Mc said:
I agree that no "employer" should be forcing a potential employee to set up limited companies just so that they will hire them. That is perverse and not what limited companies are about.
However, I don't think Osborne's changes are targeted sufficiently well at this particular practice. As I said, he is using a blunderbus approach when a surgical strike was needed.
HMRC have problems with surgical strikes though. They are far more expensive to implement and they require far more management. I don't believe they have the staffing resources to do such things these days. They seem to have shed 10,000 staff in the last six years. 74000 employed in 2009 and they are down to 64,000 now. They cant be doing anything that would make their KPI's look worse than they already are.However, I don't think Osborne's changes are targeted sufficiently well at this particular practice. As I said, he is using a blunderbus approach when a surgical strike was needed.
Eric Mc said:
Not really. At the moment there doesn't seem that there is much that you can do about it - apart from upping your fees and renegotiating the arrangements with those unscrupulous hirers who "make" people like you work through limited companies.
The hirers are not being unscrupulous. They don't want to take on permanent staff for short term projects, they want flexibility. They don't want me self employed because of the way HMRC might interpret this. So the options for me are an intermediate LTD company or unemployment.You do seem to think contract working is some devious plot to deprive the inland revenue of their just desserts. It isn't, it is the simplest possible way of working. You get paid for working, you don't get paid for not working. All splendidly logical. For a hirer to simply want a job done without worrying about holiday entitlement sick pay or HR b
ks is perfectly reasonable.Even if they are unscrupulous, that's hardly a reason for punishing me, I'm just the contractor.
If the hirer goes to a big IT consultancy such as Cap Gemini and hires someone with my skills to do exactly the same project, the consultancy will pay their employee a salary and travelling expenses in addition. The money they spend sending their staff around the country is a tax deductible business expense. But if they hire me instead, then due to this impending regulation my travel will not be tax deductible. How does that make sense?
Dr Jekyll said:
The hirers are not being unscrupulous. They don't want to take on permanent staff for short term projects, they want flexibility. They don't want me self employed because of the way HMRC might interpret this. So the options for me are an intermediate LTD company or unemployment.
You do seem to think contract working is some devious plot to deprive the inland revenue of their just desserts. It isn't, it is the simplest possible way of working. You get paid for working, you don't get paid for not working. All splendidly logical. For a hirer to simply want a job done without worrying about holiday entitlement sick pay or HR bks is perfectly reasonable.
Even if they are unscrupulous, that's hardly a reason for punishing me, I'm just the contractor.
If the hirer goes to a big IT consultancy such as Cap Gemini and hires someone with my skills to do exactly the same project, the consultancy will pay their employee a salary and travelling expenses in addition. The money they spend sending their staff around the country is a tax deductible business expense. But if they hire me instead, then due to this impending regulation my travel will not be tax deductible. How does that make sense?
I know why the hirers do this.You do seem to think contract working is some devious plot to deprive the inland revenue of their just desserts. It isn't, it is the simplest possible way of working. You get paid for working, you don't get paid for not working. All splendidly logical. For a hirer to simply want a job done without worrying about holiday entitlement sick pay or HR b
ks is perfectly reasonable.Even if they are unscrupulous, that's hardly a reason for punishing me, I'm just the contractor.
If the hirer goes to a big IT consultancy such as Cap Gemini and hires someone with my skills to do exactly the same project, the consultancy will pay their employee a salary and travelling expenses in addition. The money they spend sending their staff around the country is a tax deductible business expense. But if they hire me instead, then due to this impending regulation my travel will not be tax deductible. How does that make sense?
But they should not FORCE individuals into having to set up limited companies if that is something the individual had no intention of doing. I have one client who was in tears because she had to do this. I understood her position completely. There is room in employment and tax regulations for short term staff if they only want to hire for a short period. In this case, she was being hired on a permanent basis - but they weren't wiling to "put her on their books".
However, Osborne's lame brained way of tackling this is just dumb as it sweeps up "genuine" trading businesses..
Eric Mc said:
But they should not FORCE individuals into having to set up limited companies if that is something the individual had no intention of doing.
I can't speak for other industries, but in mine nobody FORCEs me to trade through a limited company. It's just that few agencies or clients would deal with anyone who isn't working through a limited company - it's very much B2B only. I'm sure there are companies here and there who might, but most won't. It's like nobody is forcing an accountant to be Chartered and Certified. You can get work without, but you can get much more work with.
Mandat said:
It's quite simple I would have thought. If you were self employed, you would pay income tax and NIC on your earnings, similar to PAYE.
If you are forced to work through a LTD company, why don't you pay yourself via PAYE, (in the same way that you would as being self employed), and not take any dividends at all?
Because, let's be honest, that would be like a non-smoker buying cigarettes and throwing them in the bin, in order to pay the tax on smoking.If you are forced to work through a LTD company, why don't you pay yourself via PAYE, (in the same way that you would as being self employed), and not take any dividends at all?
But, yes, I do see where you are coming from.
I think that part of the debate of this thread is that suddenly many of us are faced with a massive tax hike. And I think that many of the people so affected want to know if they were specifically targetted or if they are merely "collatoral damage".
We can debate the rights and wrongs of it, and the wherefortos of whether some people were "getting away with" something before and now might not be, and moralities, social responsibilities, etc. But the way I see it is that this thread really is about "how does this affect people who are affected?" in which case some of the discussion is somewhat off-topic (or, at the very least, secondary).
Personally, in my industry, the whole "risk vs reward" thing on IT Contactacting outside of IR35 has been about right up until now. I'm happy, my clients are happy, my permie colleagues are broadly happy (they realise I earn more, but I have less certainty and I have more hassle and arseache).
But now things are changing and am I better off contract? And yet I see my permie colleagues with their Personal Development Targets, and mandatory meetings, and HR b
ks, and all the st that comes with being a salaried employee (yes, Eric, I know I am a salaried employee of the company of which I am a 100% shareholder but that was not my point), and I think that I simply couldn't cope with that. I am a freelancer. It's what I do. I can't see me not being that even though HMRC are trying their damnedest to stamp out me and my ilk. And the corporations like CAP Gemini are paying for the boots. Granfondo said:
A question for Eric
Ltd co with 2 directors with profit of £100k and non ltd partnership with same £100k!
What would now be the difference in tax payable between them if the directors took it all out using dividends?
I hope you know what I mean!
I'm not 100% clued up on the exact permutations of the new system so won't risk doing any number crunching. Anyway, on the whole I don't actually do number crunching on this forum as that, to me, counts as actual "work" Ltd co with 2 directors with profit of £100k and non ltd partnership with same £100k!
What would now be the difference in tax payable between them if the directors took it all out using dividends?
I hope you know what I mean!
Eric Mc said:
I'm not 100% clued up on the exact permutations of the new system so won't risk doing any number crunching. Anyway, on the whole I don't actually do number crunching on this forum as that, to me, counts as actual "work"
Sorry Eric,it was just to see if the Ltd v sole trader tax benefit was getting closer together to the point of not worth the bothering about! Gassing Station | Business | Top of Page | What's New | My Stuff