Contractors: IR35 & general discussion

[ITP]

theboss said:

ITP said:

Olivera said:

Blown2CV said:

so if corporation tax is shortly to be 25%, and dividend tax is anything between 8-40% or so, does it then become necessary to avoid NI entirely in order to save any money at all by running your own PSC and doing outside IR35 roles? I am unsure where the cost saving comes from otherwise.

IIRC corporation tax come financial year 23 onwards will taper up to 25% for small businesses. I looked at the figures earlier and £100k profit resulted in a corporation tax rate of 22.75%, so up 3.75% from 19%, resulting in a bill of £3750 extra. Of course assuming there's no u-turn of the u-turn of the u-turn.

Is that 22.75 on all the 100k profit or 19% up to 50k profit and 22.75% on the other 50k?
Seems a rapid ramp up towards 25% (at approx 300k profit?) if you get to 22.75% by the time you reach 100k. Not a straight line taper then?

It's 19% on the first £50k and 26.5% thereafter until £250k

Ok, thanks.
Seems an odd system, wonder why it wasn’t just 25% over £50k profit.

[theboss]

ITP said:

Ok, thanks.
Seems an odd system, wonder why it wasn’t just 25% over £50k profit.

Its a bit like the tapering of the income tax allowance, they want to make sure that any benefit of the 19% bracket is reserved for smaller companies and that companies with profits over £250k are paying 25% on the whole amount instead of 24.75 or whatever.

[worsy]

theboss said:

ITP said:

Ok, thanks.
Seems an odd system, wonder why it wasn’t just 25% over £50k profit.

Its a bit like the tapering of the income tax allowance, they want to make sure that any benefit of the 19% bracket is reserved for smaller companies and that companies with profits over £250k are paying 25% on the whole amount instead of 24.75 or whatever.

Why not....

If
Profit <=50k
then
CT = 19%
Else
CT = 25%

What loopholes does tapering fix?

[Clockwork Cupcake]

worsy said:

Why not....

If
Profit <=50k
then
CT = 19%
Else
CT = 25%

What loopholes does tapering fix?

Sorry, are you suggesting that anyone at HMRC has any interest* in making tax sensible and simple, other than the scenario I mentioned earlier?

(* - no pun intended)

edit: Presumably tapering eases the same choke points that Stamp Duty used to have before it was tapered, and encourages compliance (since there is less incentive to artificially stay below the threshold when you are just over it)

Edited by Clockwork Cupcake on Monday 17th October 19:53

[visitinglondon]

theboss said:

ITP said:

Olivera said:

Blown2CV said:

so if corporation tax is shortly to be 25%, and dividend tax is anything between 8-40% or so, does it then become necessary to avoid NI entirely in order to save any money at all by running your own PSC and doing outside IR35 roles? I am unsure where the cost saving comes from otherwise.

IIRC corporation tax come financial year 23 onwards will taper up to 25% for small businesses. I looked at the figures earlier and £100k profit resulted in a corporation tax rate of 22.75%, so up 3.75% from 19%, resulting in a bill of £3750 extra. Of course assuming there's no u-turn of the u-turn of the u-turn.

Is that 22.75 on all the 100k profit or 19% up to 50k profit and 22.75% on the other 50k?
Seems a rapid ramp up towards 25% (at approx 300k profit?) if you get to 22.75% by the time you reach 100k. Not a straight line taper then?

It's 19% on the first £50k and 26.5% thereafter until £250k

Where do you get the 26.5% from?

[Clockwork Cupcake]

Got my first payment today on this new contract, which is Inside IR35 via an Umbrella and for which I negotiated a 30% uplift on my standard rate to compensate for the extra tax, costs, etc.

Got to say it is quite the novelty to see a large chunk of cash hit my personal bank account and know that it is all mine and all tax already been paid on it.

[SWoll]

Clockwork Cupcake said:

Got my first payment today on this new contract, which is Inside IR35 via an Umbrella and for which I negotiated a 30% uplift on my standard rate to compensate for the extra tax, costs, etc.

Got to say it is quite the novelty to see a large chunk of cash hit my personal bank account and know that it is all mine and all tax already been paid on it.

Quite nice if you can negotiate a decent rate isn't it?

Just don't read the associated payslip. I weep every month for a minute or two.

[Clockwork Cupcake]

SWoll said:

Just don't read the associated payslip. I weep every month for a minute or two.

Well, quite.

Especially as it itemises both Employer and Employee deductions, the former of which is something that actual employees don't usually see.

I think a lot of employees don't realise just how much tax is paid on their behalf by their employers. And, if they do, they think it isn't anything to do with them and comes off some magic money tree that their employer grows or something.

[Guvernator]

Still can't get my head around the fact that you are expected to pay both sides of NI, just seems bizarre to me but I guess you are in some weird middle ground where you aren't an employee of the end client, nor are you an employee of the umbrella company so that's the best fudge they could come up with.

[Clockwork Cupcake]

Guvernator said:

Still can't get my head around the fact that you are expected to pay both sides of NI, just seems bizarre to me but I guess you are in some weird middle ground where you aren't an employee of the end client, nor are you an employee of the umbrella company so that's the best fudge they could come up with.

One is, to use a phrase I coined*, "Shroedinger's Employee"

(* - although, like the Eye of the Octopus (parallel evolution), or the Jet Engine (different people independently having the same idea), I don't claim I invented it. Funnily enough, same happened to me back in the early 90's with "hard-coded", which is a phrase that seemed natural to me and then I subsequently discovered others had also come up with.)

[Countdown]

Guvernator said:

Still can't get my head around the fact that you are expected to pay both sides of NI, just seems bizarre to me but I guess you are in some weird middle ground where you aren't an employee of the end client, nor are you an employee of the umbrella company so that's the best fudge they could come up with.

It’s the same system that Agency staff have always worked under.

[Blown2CV]

right so if i was to try and get my head around the whole CT + DT thing... you pay DT on your dividend payments, and the company pays CT on the 'profit' which is net of dividends? Does that mean when you come to somehow get that 'profit' out of the company, you then also pay DT / IT on it? Sorry I realise I could probably google this but then you get a stload of impenetrable HMRC.gov and accountancy firm services pages.

[Countdown]

Blown2CV said:

right so if i was to try and get my head around the whole CT + DT thing... you pay DT on your dividend payments, and the company pays CT on the 'profit' which is net of dividends? Does that mean when you come to somehow get that 'profit' out of the company, you then also pay DT / IT on it? Sorry I realise I could probably google this but then you get a stload of impenetrable HMRC.gov and accountancy firm services pages.

Company works out what its taxable profits are.
Company pays CT (19%)
Company then pays out dividends
Shareholders pay DT (7.5% / 32% / 38%)

[Eric Mc]

Blown2CV said:

right so if i was to try and get my head around the whole CT + DT thing... you pay DT on your dividend payments, and the company pays CT on the 'profit' which is net of dividends? Does that mean when you come to somehow get that 'profit' out of the company, you then also pay DT / IT on it? Sorry I realise I could probably google this but then you get a stload of impenetrable HMRC.gov and accountancy firm services pages.

Corporation Tax is paid on company profits BEFORE dividends are calculated.

Dividends are not a company expense. They are a distribution of available profits after ALL other deductions, including Corporation Tax.

[ITP]

Countdown said:

Blown2CV said:

right so if i was to try and get my head around the whole CT + DT thing... you pay DT on your dividend payments, and the company pays CT on the 'profit' which is net of dividends? Does that mean when you come to somehow get that 'profit' out of the company, you then also pay DT / IT on it? Sorry I realise I could probably google this but then you get a stload of impenetrable HMRC.gov and accountancy firm services pages.

Company works out what its taxable profits are.
Company pays CT (19%)
Company then pays out dividends
Shareholders pay DT (7.5% / 32% / 38%)

And the DT is going up to 8.75/33.25/39.25 too.

[Clockwork Cupcake]

As Eric says.

And then dividend tax is paid on the dividends, as mentioned by Countdown.

Also, you'll generally take a salary of around £12k+ pa and pay PAYE/NI on that. And then the rest as dividend, rather than taking everything as dividend.

Note: During Covid-19, you were only be eligible for Furlough payments of 80% of that salary, nothing else. We kind of fell between the cracks on that one as we weren't due anything more and also weren't eligible for the scheme for the Self-Employed. But that's fine because that's part of the risks you take operating like this and you are meant to be rewarded accordingly.

However, if you listen to the government's rhetoric about us paying our "fair share" of tax and being taxed like an employee, it's another example of us only being employees for tax purposes but definitely not for benefit purposes. Schroedinger's Employees.

Edited by Clockwork Cupcake on Tuesday 18th October 10:21

[Countdown]

ITP said:

Countdown said:

Blown2CV said:

right so if i was to try and get my head around the whole CT + DT thing... you pay DT on your dividend payments, and the company pays CT on the 'profit' which is net of dividends? Does that mean when you come to somehow get that 'profit' out of the company, you then also pay DT / IT on it? Sorry I realise I could probably google this but then you get a stload of impenetrable HMRC.gov and accountancy firm services pages.

Company works out what its taxable profits are.
Company pays CT (19%)
Company then pays out dividends
Shareholders pay DT (7.5% / 32% / 38%)

And the DT is going up to 8.75/33.25/39.25 too.

i thought that was to adjust the DT for the NHS Social care levy? Seems harsh to charge it on DT if NI isn't being increased. (Although arguably PSC are still saving a shedload on NI)

[Pit Pony]

Guvernator said:

Gazzab said:

How any contractor could have voted for them last time (maybe it was the quality of the alternative(s)….?)……

General consensus amongst most of my contractor friends circle was that last time, they were still the lessor of two evils.

I don't think that "goodwill" will survive this debacle though, especially when added to the long list of other previous debacles. The GE is gonna be a bloodbath.

Most of my contractor contacts, had a slight left of centre bias. Like myself. I'm not sure our mercenary attitude to working, conflicts with my socialist upbringing.

[Pit Pony]

Clockwork Cupcake said:

SWoll said:

Just don't read the associated payslip. I weep every month for a minute or two.

Well, quite.

Especially as it itemises both Employer and Employee deductions, the former of which is something that actual employees don't usually see.

I think a lot of employees don't realise just how much tax is paid on their behalf by their employers. And, if they do, they think it isn't anything to do with them and comes off some magic money tree that their employer grows or something.

Went permie in August 2021.

My permie pay slip includes a line showing employer Ni, and because I salary sacrifice £15k into pension on top of their contributions, another line showing how much Of their Ni they have added to my pension.

Unfortunately I'm finding that the net isn't enough* to live on.

• To live like I did before covid

[768]

Clockwork Cupcake said:

Well, quite.

Especially as it itemises both Employer and Employee deductions, the former of which is something that actual employees don't usually see.

I think a lot of employees don't realise just how much tax is paid on their behalf by their employers. And, if they do, they think it isn't anything to do with them and comes off some magic money tree that their employer grows or something.

I saw a post in NP&E in the last week from someone confused about why anyone would be against corporation tax rises, asking if there was any possible downside to increasing it. At least they asked the question I suppose.