Changes to Dividend taxation
Discussion
Mandat said:
I'm sure that the new dividend regime is aimed at people like myself, since I run my own Limited Company and take minimal PAYE salary, with the rest as dividends. I know that I will now be paying more tax as a result of the changes, but I am resigned to the fact that this is a "necessary evil" in helping the country get back on it's feet financially.
However, ultimately, I am thankful that is is possible to benefit from dividend income (albeit with the new tax imposed), rather than taking all of the income under PAYE, which would incur a much greater tax liability.
I don't like having to paying more tax, but it is what it is. Any changes to tax will always affect one group or other, and whatever changes are made, someone will always be able to say that the changes were ill conceived and unfair.
No doubt it will be returned to you once we're back on our feet However, ultimately, I am thankful that is is possible to benefit from dividend income (albeit with the new tax imposed), rather than taking all of the income under PAYE, which would incur a much greater tax liability.
I don't like having to paying more tax, but it is what it is. Any changes to tax will always affect one group or other, and whatever changes are made, someone will always be able to say that the changes were ill conceived and unfair.
TX.
Mandat said:
I'm sure that the new dividend regime is aimed at people like myself, since I run my own Limited Company and take minimal PAYE salary, with the rest as dividends. I know that I will now be paying more tax as a result of the changes, but I am resigned to the fact that this is a "necessary evil" in helping the country get back on it's feet financially.
However, ultimately, I am thankful that is is possible to benefit from dividend income (albeit with the new tax imposed), rather than taking all of the income under PAYE, which would incur a much greater tax liability.
I don't like having to paying more tax, but it is what it is. Any changes to tax will always affect one group or other, and whatever changes are made, someone will always be able to say that the changes were ill conceived and unfair.
This.However, ultimately, I am thankful that is is possible to benefit from dividend income (albeit with the new tax imposed), rather than taking all of the income under PAYE, which would incur a much greater tax liability.
I don't like having to paying more tax, but it is what it is. Any changes to tax will always affect one group or other, and whatever changes are made, someone will always be able to say that the changes were ill conceived and unfair.
The method of forming a limited company and working as a contractor in roles which 'could' - with some creative thinking - be construed as working in the same manner as an employee has always, and will always, be classed as sailing a little close to the wind.
At the end of the day these changes are coming in and in the same way I'm quite happy to see benefit caps reduced I must also contribute (or suck it up - depending how you see it) where necessary.
As it stands I have my own limited company and over the past 7 years or so I have demonstrable evidence of different contracts with differing requirements and for differing clients. I can't say I'm particularly happy about the changes to dividend payments but from what I can tell, while it will make it less profitable to operate in this manner it will still be better than an equivalent staff position.
I cant remember who mentioned it previously in the thread but it was said that being a limited company for financial reasons isn't really in the spirit of limited companies - I kind of agree with this. The financial benefits are nice but I also like the freedom to chase other work (i.e. hold multiple contracts) move onto another client at the end of a package of work if I'm not enjoying it and generally be in control of my own arrangements. It allows me a freedom that a staff position wouldn't provide.
The only element I may have a real grip with is changes to the expenses but I will refrain from commenting until I see the result of the consultations.
As a matter of good business sense I will be looking at the most efficient way to manage my tax liability going forward but in the short term this is likely to result in a reduction of director payments, leaving profit within the business until I decide what to do (I'm gonna get stung for corporation tax regardless!). If anyone has any ideas I'm all ears.
Pete102 said:
The method of forming a limited company and working as a contractor in roles which 'could' - with some creative thinking - be construed as working in the same manner as an employee has always, and will always, be classed as sailing a little close to the wind.
At the end of the day these changes are coming in and in the same way I'm quite happy to see benefit caps reduced I must also contribute (or suck it up - depending how you see it) where necessary.
As it stands I have my own limited company and over the past 7 years or so I have demonstrable evidence of different contracts with differing requirements and for differing clients. I can't say I'm particularly happy about the changes to dividend payments but from what I can tell, while it will make it less profitable to operate in this manner it will still be better than an equivalent staff position.
I cant remember who mentioned it previously in the thread but it was said that being a limited company for financial reasons isn't really in the spirit of limited companies - I kind of agree with this. The financial benefits are nice but I also like the freedom to chase other work (i.e. hold multiple contracts) move onto another client at the end of a package of work if I'm not enjoying it and generally be in control of my own arrangements. It allows me a freedom that a staff position wouldn't provide.
The only element I may have a real grip with is changes to the expenses but I will refrain from commenting until I see the result of the consultations.
As a matter of good business sense I will be looking at the most efficient way to manage my tax liability going forward but in the short term this is likely to result in a reduction of director payments, leaving profit within the business until I decide what to do (I'm gonna get stung for corporation tax regardless!). If anyone has any ideas I'm all ears.
That's a very fair post, yes. At the end of the day these changes are coming in and in the same way I'm quite happy to see benefit caps reduced I must also contribute (or suck it up - depending how you see it) where necessary.
As it stands I have my own limited company and over the past 7 years or so I have demonstrable evidence of different contracts with differing requirements and for differing clients. I can't say I'm particularly happy about the changes to dividend payments but from what I can tell, while it will make it less profitable to operate in this manner it will still be better than an equivalent staff position.
I cant remember who mentioned it previously in the thread but it was said that being a limited company for financial reasons isn't really in the spirit of limited companies - I kind of agree with this. The financial benefits are nice but I also like the freedom to chase other work (i.e. hold multiple contracts) move onto another client at the end of a package of work if I'm not enjoying it and generally be in control of my own arrangements. It allows me a freedom that a staff position wouldn't provide.
The only element I may have a real grip with is changes to the expenses but I will refrain from commenting until I see the result of the consultations.
As a matter of good business sense I will be looking at the most efficient way to manage my tax liability going forward but in the short term this is likely to result in a reduction of director payments, leaving profit within the business until I decide what to do (I'm gonna get stung for corporation tax regardless!). If anyone has any ideas I'm all ears.
I think that at one end of the scale we have "perma-temps", who are taken on by clients (and treated as) essentially temps. Often working through Umbrella companies and sometimes even declaring themselves inside IR35 for an easy life, and rarely (if ever) having parallel contracts. I think those kind of people are what some people are classing all IT Contractors as, and that's clearly not the case because others, like you and me, will enjoy parallel contracts, less client control, more freedom to move around, and generally be more in control of our professional lives (although whether we actually are or whether it is merely an illusion, who knows).
I think the key thing that some need to understand is that the way we work is not just a tax thing. We don't *want* to be the employees of our clients and often they don't want us as their employees either.
I've noted that those who are whining most are those who seem to be on contracting roles and who it's been known for sometime the government has been trying to crackdown on with schemes like IR35.
Those running actual businesses seem to be quietly getting on with it despite have been struck with the same heavy handed brush.
Those running actual businesses seem to be quietly getting on with it despite have been struck with the same heavy handed brush.
surveyor said:
I've noted that those who are whining most are those who seem to be on contracting roles and who it's been known for sometime the government has been trying to crackdown on with schemes like IR35.
Those running actual businesses seem to be quietly getting on with it despite have been struck with the same heavy handed brush.
Those running actual businesses seem to be quietly getting on with it despite have been struck with the same heavy handed brush.
JonRB said:
That's a very fair post, yes.
I think that at one end of the scale we have "perma-temps", who are taken on by clients (and treated as) essentially temps. Often working through Umbrella companies and sometimes even declaring themselves inside IR35 for an easy life, and rarely (if ever) having parallel contracts. I think those kind of people are what some people are classing all IT Contractors as, and that's clearly not the case because others, like you and me, will enjoy parallel contracts, less client control, more freedom to move around, and generally be more in control of our professional lives (although whether we actually are or whether it is merely an illusion, who knows).
I think the key thing that some need to understand is that the way we work is not just a tax thing. We don't *want* to be the employees of our clients and often they don't want us as their employees either.
Perfect example, I provide what can be described as specialist engineering services (design and management of safety systems and safety system projects), in addition I also provide training to companies on the relevant British Standards, requirements, practical approaches to implementing the standards etc. It is always a condition of any contract that I have the freedom to engage other contracts (barring any obvious conflicts of interest). While providing some nice additional income - I actually enjoy delivering the training and appreciate the freedom to do so. I think that at one end of the scale we have "perma-temps", who are taken on by clients (and treated as) essentially temps. Often working through Umbrella companies and sometimes even declaring themselves inside IR35 for an easy life, and rarely (if ever) having parallel contracts. I think those kind of people are what some people are classing all IT Contractors as, and that's clearly not the case because others, like you and me, will enjoy parallel contracts, less client control, more freedom to move around, and generally be more in control of our professional lives (although whether we actually are or whether it is merely an illusion, who knows).
I think the key thing that some need to understand is that the way we work is not just a tax thing. We don't *want* to be the employees of our clients and often they don't want us as their employees either.
Although HMRC will always say that "status" (employee or self-employed) is NOT a matter of "choice" or "want" but a matter of "fact".
Even if the two parties involved don't "want" to treat the individual as an employee, HMRC will ignore this desire if they feel the facts of the case support employed status.
Even if the two parties involved don't "want" to treat the individual as an employee, HMRC will ignore this desire if they feel the facts of the case support employed status.
trickywoo said:
Looks like a kick in the guts for anyone running a Ltd as their main source of income and previously taking profits as dividend.
Don't forget you will have already paid 20% corp tax (has that changed?) before you get your hands on any dividend. I haven't done the maths yet but can't be much benefit taking dividends instead of PAYE and paying the NI.
Doesn't come in until April 2016 so hopefully gives time to sort something out.
I can't decide whether it will suit me or not. Should I pay out dividends this year, before the changes in April 16, and the corporation tax I'll have to pay at 20% this year anyway, or bank the money, pay the 20% CT then next year pay out £5000 of the stored remainder tax free and then 18% on whatever profits I've made by the end of the year?Don't forget you will have already paid 20% corp tax (has that changed?) before you get your hands on any dividend. I haven't done the maths yet but can't be much benefit taking dividends instead of PAYE and paying the NI.
Doesn't come in until April 2016 so hopefully gives time to sort something out.
LastLight said:
I can't decide whether it will suit me or not. Should I pay out dividends this year, before the changes in April 16, and the corporation tax I'll have to pay at 20% this year anyway, or bank the money, pay the 20% CT then next year pay out £5000 of the stored remainder tax free and then 18% on whatever profits I've made by the end of the year?
18% CT isn't effective until 2020.As is usual with the Government, what they take starts immediately but what they give starts way in the future.
Pete102 said:
One aspect I am keen to explore is the possibility of piling cash into a pension or ISA - would there be any advantages? - As you can probably tell I'm not frothing at the mouth to drag money out of the business but by hand I'd rather not needlessly attract tax liability.
One thing to bear in mind is that if your company is cash rich and you fall foul of an IR35 investigation, then there is very little you can do apart from to pay up (assuming all appeals etc have been exhausted). There is one school of thought that says that if you have drawn down the money out of the company already (as in legitimately, routinely, and before any investigation happened) then your company doesn't have the money to pay HMRC.
The other school of thought (which I know that Eric subscribes to) says that this is rubbish and HMRC will come after you personally.
Very valid point. Either way HMRC are turning the screws. It will be interesting to see the effect this has on business figures over the next couple of years and also the effect it may have on use of offshore accounts (for the record this isn't something I've ever participated in).
As it also stands I have eyes on emigrating to Canada over the next 18 months or so, hence any effect is only short-term for me. Interesting times ahead for sure though on wider industry.
I read the consultation package over lunch and while it would appear to focus heavily on the IT industry I'd hazard a guess there will be quite a few affected in Oil & Gas. I'm starting to see an uptrend in capital spend - there's always the possibility of an increase in rates by contractors to counter increased taxation.
Also, whats the betting on several government officials falling foul of the PSC arrangements going forward??
As it also stands I have eyes on emigrating to Canada over the next 18 months or so, hence any effect is only short-term for me. Interesting times ahead for sure though on wider industry.
I read the consultation package over lunch and while it would appear to focus heavily on the IT industry I'd hazard a guess there will be quite a few affected in Oil & Gas. I'm starting to see an uptrend in capital spend - there's always the possibility of an increase in rates by contractors to counter increased taxation.
Also, whats the betting on several government officials falling foul of the PSC arrangements going forward??
JonRB said:
One thing to bear in mind is that if your company is cash rich and you fall foul of an IR35 investigation, then there is very little you can do apart from to pay up (assuming all appeals etc have been exhausted).
There is one school of thought that says that if you have drawn down the money out of the company already (as in legitimately, routinely, and before any investigation happened) then your company doesn't have the money to pay HMRC.
The other school of thought (which I know that Eric subscribes to) says that this is rubbish and HMRC will come after you personally.
Not in the IT sector but there is at least one set of contractors who were deemed to be employees by HMRC who then took their "employer" to an employment tribunal and successfully claimed for holiday pay!There is one school of thought that says that if you have drawn down the money out of the company already (as in legitimately, routinely, and before any investigation happened) then your company doesn't have the money to pay HMRC.
The other school of thought (which I know that Eric subscribes to) says that this is rubbish and HMRC will come after you personally.
plasticpig said:
Not in the IT sector but there is at least one set of contractors who were deemed to be employees by HMRC who then took their "employer" to an employment tribunal and successfully claimed for holiday pay!
Interesting. I'd heard apocryphal reports that you can be deemed to be both an employee for tax purposes yet at the same time (with the same client) be deemed not an employee for benefits / protection purposes. In other words, HMRC are quite happy to have their cake and eat it, and to also protect clients from the ruling. In the IT industry, at least, it has always been the one main impediment to clients co-operating with contractors in IR35 matters - inasmuch as the client has nothing to gain or lose, so generally can't be bothered. Imagine if a contractor being deemed to be within IR35 automatically meant that your client had to give you all the benefits that their employees enjoy. It would either kill contracting overnight, or else kill IR35 overnight.
They aren't apocryphal. They tend to be based on actual court cases. There was one such case fairly recently where a bunch of "Self Employed" car wash workers took their boss to court when he refused them holiday pay and sick pay. He said he didn't have to pay them this money as they were "self employed". The courts thought otherwise and made him pay the holiday pay and sick pay.
Now, whether HMRC decides to follow up any such non-tax cases is up to them.
Now, whether HMRC decides to follow up any such non-tax cases is up to them.
Eric Mc said:
They aren't apocryphal. They tend to be based on actual court cases.
I think maybe I used the wrong word, in that case. What I meant by "apocryphal" was literally "not gospel", or else rumours, stories, hearsay, 'I think I recall someone saying...' or 'stuff that I can't substantiate so please take it with a pinch of salt'.In short, I am saying that although I have heard it said, I am not commenting on the veracity of the report either way.
There have been stories of IT Contractors who have lost an IR35 case who have then gone after their client for employee benefits on the grounds that HMRC have deemed them to be 'disguised employees'. I don't recall the outcome, but I very much doubt that they were successful.
Edited by JonRB on Tuesday 14th July 16:52
I found a simple calculator which seems to have been updated for the 2016/17 tax year. It even takes into account the loss of the Employers NIC allowance for one man companies.
http://www.contractorcalculator.co.uk/Limited_Comp...
http://www.contractorcalculator.co.uk/Limited_Comp...
JonRB said:
I think maybe I used the wrong word, in that case. What I meant by "apocryphal" was literally "not gospel", or else rumours, stories, hearsay, 'I think I recall someone saying...' or 'stuff that I can't substantiate so please take it with a pinch of salt'.
In short, I am saying that although I have heard it said, I am not commenting on the veracity of the report either way.
There have been stories of IT Contractors who have lost an IR35 case who have then gone after their client for employee benefits on the grounds that HMRC have deemed them to be 'disguised employees'. I don't recall the outcome, but I very much doubt that they were successful.
The result of these court cases and tribunal hearings aren't gossip or rumour. If you want to check up on them, you can find them reported and commented on on various websites.In short, I am saying that although I have heard it said, I am not commenting on the veracity of the report either way.
There have been stories of IT Contractors who have lost an IR35 case who have then gone after their client for employee benefits on the grounds that HMRC have deemed them to be 'disguised employees'. I don't recall the outcome, but I very much doubt that they were successful.
Edited by JonRB on Tuesday 14th July 16:52
Here's an interesting one concerning a lap dancer who worked at Stringfellow -
http://www.lawatwork.co.uk/news/lap-dancer-strippe...
What's interesting here is that the Employment Tribunal decison that she WAS an employee was overturned in a higher court.
It just shows how tricky this whole area can be.
Eric Mc said:
The result of these court cases and tribunal hearings aren't gossip or rumour.
Eric, I think you are completely missing what I was saying. I wasn't saying that those court cases are gossip and rumour. I wasn't saying that I disbelieved you. I wasn't throwing any doubt on their veracity at all. All I was saying that I had heard reports and anecdotal conversations about things that had happened in my industry, and that I was making the caveat that I had not personally researched the veracity of what I was posting.
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