2021 Budget Predictions
Discussion
JagLover said:
ITP said:
They, and by they I mean Rishi and his henchman Jesse Norman, have some kind of vendetta against ltd company contractors. They just want to ‘win’ against them, because they keep getting beaten in court, apart from the odd case. Everyone is telling them what they are doing is wrong but they just want to prove a point. They say what they are doing with IR35 will bring in more tax. It won’t, it will bring in less, but that’s not really their motivation.
Anyone with any wish to bring the public finances into balance would be moving against "ltd company contractors" for the simple reason you pay significantly less tax and NI (including the employer NI borne by the employer) than when you were on PAYE (often doing the exact same job and hours). Labour brought in IR35 and the Tories gave it some teeth. As contracting via a limited company grew it creates the seeds of its own demise IMO, as once it reaches a certain size it becomes unaffordable.
JagLover said:
ant1973 said:
According to the Budget report, the cost of the "super deduction" will be just under £25bn.
That is more than the increase in corporation tax is estimated to raise by 2025 - 2026 (c. 17bn).
So this is in effect a tax transfer from non-capital intensive businesses to capital intensive businesses.
Which is reasonable from a "rebalancing" perspective. That is more than the increase in corporation tax is estimated to raise by 2025 - 2026 (c. 17bn).
So this is in effect a tax transfer from non-capital intensive businesses to capital intensive businesses.
snuffy said:
People seem to believe that if you work as a contractor/single person limited company, you only pay corporation tax at 19%. But they fail to understand that once you take out dividends over the higher rate threshold, you will pay tax at 40% just like anyone else.
But the media constantly tells people that "they only pay 19%" and forget to mention the 40% you will pay if you exceed said threshold and also forget to mention the 7.5% additional dividend tax as well.
The only difference is really the Employer's NI. Post the CT increase, div+salary will increase by 8%, so the gap will diminish further. But the media constantly tells people that "they only pay 19%" and forget to mention the 40% you will pay if you exceed said threshold and also forget to mention the 7.5% additional dividend tax as well.
ant1973 said:
I think that is slightly presumptuous for two reasons. Firstly capital investment may lead to higher levels of automation which, although positive in the long term, can drive short term unemployment. That is unfortunate given what awaits us this year. Secondly, non capital intensive business are significant employers and payers of payroll taxes. I realise that people are disparaging about the service sector but it encompasses the professions, financial services and the creative industries. These are non capital intensive businesses who will not meaningfully benefit from the tax change. Might have been sensible to have split the benefits.
Automation is inevitable. What we need to ensure is that we do not have an excess of unskilled workers unable to find work in the new economy. We can do this through our education and skills policies and our immigration policy.I am not disparaging about the professional services sector, I work in it. What is the case is that "rebalancing" means building an economy for more than just the "knowledge" workers.
Interesting article from CEBR:-
https://cebr.com/reports/dont-expect-higher-corpor...
The headline rate comparison does not really work, apparently.
https://cebr.com/reports/dont-expect-higher-corpor...
The headline rate comparison does not really work, apparently.
wormus said:
98elise said:
Do you pay Employers NI or does your employer? If contractors are disguised employees then the employing company should be paying it?
Aren’t you employed by your Ltd co? Go perm and get all the perks that go with it.
richardxjr said:
m3jappa said:
I wonder if the new 'super deduction' will apply to someone like me, want to buy a new digger and a truck, probably a used truck but if theres a 130% deduction.....might be new!
In fact i need a whole load of new equipment, interested to find out what applies.
I think that's exactly what it's meant for. Awaiting exactly what plant is approved for this, but it does start next month. A mate of mine has £1m of plant paid for and about to ship from the US right now so he's kinda interested in this!In fact i need a whole load of new equipment, interested to find out what applies.
JagLover said:
Anyone with any wish to bring the public finances into balance would be moving against "ltd company contractors" for the simple reason you pay significantly less tax and NI (including the employer NI borne by the employer) than when you were on PAYE (often doing the exact same job and hours).
...
You need to show your workings please....
There used to be reasonable advantages. Those are largely gone now and have been for a while. Increases in dividend tax narrowing the gap to the point where there really isn't that much in it other than a different flexibility/risk balance.
This is just ANOther bogeyman for people to get upset about. The changes will yield no material increase in the overall tax receipts (not just one flavour of tax that happens to get up someone's nose).
Murph7355 said:
JagLover said:
Anyone with any wish to bring the public finances into balance would be moving against "ltd company contractors" for the simple reason you pay significantly less tax and NI (including the employer NI borne by the employer) than when you were on PAYE (often doing the exact same job and hours).
...
You need to show your workings please....
There used to be reasonable advantages. Those are largely gone now and have been for a while. Increases in dividend tax narrowing the gap to the point where there really isn't that much in it other than a different flexibility/risk balance.
This is just ANOther bogeyman for people to get upset about. The changes will yield no material increase in the overall tax receipts (not just one flavour of tax that happens to get up someone's nose).
There are two significant tax advantages to contracting via a limited company that still haven't gone away.
First of all the NI situation, in particular employers NI. A PAYE employee with a salary of £50K has a cost to their employer of £55,600. On a salary of £50K they receive £37,640.
A contractor making a profit of £55,600 pays tax of £10,564 directly. They then extract the funds which for the sake of argument is salary up to the NI threshold and then dividends for the rest. Take home pay is roughly £42,700 and that makes a tax and NI difference of roughly £5K at that income level, most of that being NI (which in this scenario is not paid at all) rather than tax.
The second advantage is that there is no reason why the funds have to be extracted now. Any excess savings can be left in the company and paid out in retirement (when income is typically lower and so at a lower tax rate) or extracted as capital if the company is wound up in the future.
98elise said:
No I retried. The ultimate tax avoidance scheme. I really must check what benefits we get now we're a low income family
You won’t unless you’re of state retirement age and on low income with no capital or savings, in which case you may be eligible for pension credit. If you are of working age, there will be a restriction on savings before you’ll qualify for UC, and then you’ll be expected to look for work. HTH.RichB said:
I see, in their desperation to put a negative slant on what has widely been seen as a good budget, the BBC are running with an puff piece predicting that it will pull half a million people into poverty, including 200,000 children. I am guessing none of the lovies in the BBC have been to Africa or other poor countries where kids scour refuse heaps looking for plastic bottles to sell? Half a million more people in poverty today? Get real... This nonsense seriously pisses me off because it distracts from those who are genuinely suffering poverty.
I'm surprised there is less mention of the £20 a week uplift to Universal Credit, but the BBC are a bit disingenuous with their criticism that it's not going to be tapered. He's paying it in full for another 6 months, if he had said £20 for 3 months then £10 for 3 months they'd have slated that too.I'm still not sure what the extra £20 UC is for - covod19 support, but support for what?
Increased food bills while kids are at home - perhaps, but St Marcus of Rashford has ensured those kids already get their free school meals when not at school.
Maybe extra heating bills since the kids are at home - but its not targeted at parents.
Higher transport costs - but public transport is still running and the only place they need to go is the weekly shop?
Mask allowance? Takeaway delivery charges? What extra costs do the unemployed have due to a lockdown/pandemic?
What I'm (not really) surprised at is that he has not limited this years state pension rise to inflation rather than the current triple lock where they will get 2.5%. I guess that would have been too much of a vote looser even in such exceptional circumstances.
JagLover said:
Changes in the taxation of dividends narrowed the gap not eliminated it.
There are two significant tax advantages to contracting via a limited company that still haven't gone away.
First of all the NI situation, in particular employers NI. A PAYE employee with a salary of £50K has a cost to their employer of £55,600. On a salary of £50K they receive £37,640.
A contractor making a profit of £55,600 pays tax of £10,564 directly. They then extract the funds which for the sake of argument is salary up to the NI threshold and then dividends for the rest. Take home pay is roughly £42,700 and that makes a tax and NI difference of roughly £5K at that income level, most of that being NI (which in this scenario is not paid at all) rather than tax.
The second advantage is that there is no reason why the funds have to be extracted now. Any excess savings can be left in the company and paid out in retirement (when income is typically lower and so at a lower tax rate) or extracted as capital if the company is wound up in the future.
I didn't say the gap had been totally eliminated, though there are other reasons why that might not be "fair" to try and do (some will note rates are designed to cover them. It's a partially successful argument). Either way, if there was a desire to close it fully, the path already trodden, IMO, would be more sensible than stupid legislation that wasn't really needed.There are two significant tax advantages to contracting via a limited company that still haven't gone away.
First of all the NI situation, in particular employers NI. A PAYE employee with a salary of £50K has a cost to their employer of £55,600. On a salary of £50K they receive £37,640.
A contractor making a profit of £55,600 pays tax of £10,564 directly. They then extract the funds which for the sake of argument is salary up to the NI threshold and then dividends for the rest. Take home pay is roughly £42,700 and that makes a tax and NI difference of roughly £5K at that income level, most of that being NI (which in this scenario is not paid at all) rather than tax.
The second advantage is that there is no reason why the funds have to be extracted now. Any excess savings can be left in the company and paid out in retirement (when income is typically lower and so at a lower tax rate) or extracted as capital if the company is wound up in the future.
Your tax calcs are only looking at tax one dimensionally. Employers' NI and income tax are not the only taxes people pay.
Your second advantage is the biggest one IME. Though that also has to be offset to a degree by the risks associated with operating this way. (Yes yes, if it's so risky become a PAYE employee. The flipside argument applies - if it's so cushty/easy, set up a Ltd Co. and fill you boots. Zero sum
). I'm also not convinced it's in the country's best interests to put hurdles in the way of people looking out for themselves in retirement (state pension expenditure in this country is massive - address that by means testing it would be my preferred way of dealing with the cost/income gap there).One current advantage of the capital release option is entrepreneur's relief. But that also has strings attached to it, and I strongly suspect that will be addressed at some point anyway, probably this government term in all likelihood, the second Infosys' favourite son-in-law realises his moves this time out yielded sweetFA.
JagLover said:
Murph7355 said:
JagLover said:
Anyone with any wish to bring the public finances into balance would be moving against "ltd company contractors" for the simple reason you pay significantly less tax and NI (including the employer NI borne by the employer) than when you were on PAYE (often doing the exact same job and hours).
...
You need to show your workings please....
There used to be reasonable advantages. Those are largely gone now and have been for a while. Increases in dividend tax narrowing the gap to the point where there really isn't that much in it other than a different flexibility/risk balance.
This is just ANOther bogeyman for people to get upset about. The changes will yield no material increase in the overall tax receipts (not just one flavour of tax that happens to get up someone's nose).
There are two significant tax advantages to contracting via a limited company that still haven't gone away.
First of all the NI situation, in particular employers NI. A PAYE employee with a salary of £50K has a cost to their employer of £55,600. On a salary of £50K they receive £37,640.
A contractor making a profit of £55,600 pays tax of £10,564 directly. They then extract the funds which for the sake of argument is salary up to the NI threshold and then dividends for the rest. Take home pay is roughly £42,700 and that makes a tax and NI difference of roughly £5K at that income level, most of that being NI (which in this scenario is not paid at all) rather than tax.
The second advantage is that there is no reason why the funds have to be extracted now. Any excess savings can be left in the company and paid out in retirement (when income is typically lower and so at a lower tax rate) or extracted as capital if the company is wound up in the future.
Murph7355 said:
I didn't say the gap had been totally eliminated, though there are other reasons why that might not be "fair" to try and do (some will note rates are designed to cover them. It's a partially successful argument). Either way, if there was a desire to close it fully, the path already trodden, IMO, would be more sensible than stupid legislation that wasn't really needed.
.
The big issue, and why they brought in said "stupid" legislation, is that they want to incentivise entrepreneurship and not tax avoidance. I.E. they want a light tax burden on genuine small businesses that they hope will grow and flourish. .
The issue became that as soon as it became more advantageous to contract via a limited company then hundreds of thousands did just that. One of the drivers for that was Brown's changes to the CT rates, though probably the biggest factor was the changing admin burden that made smaller companies easier to run. Until 1993 all companies required an audit and if that had remained the case I very much doubt we would have seen the "contracting via ltd company" boom.
wormus said:
98elise said:
No I retried. The ultimate tax avoidance scheme. I really must check what benefits we get now we're a low income family
You won’t unless you’re of state retirement age and on low income with no capital or savings, in which case you may be eligible for pension credit. If you are of working age, there will be a restriction on savings before you’ll qualify for UC, and then you’ll be expected to look for work. HTH. ?I'm a long way from state retirement, and If I was entitled to benefits I wouldn't have waited 6 months after retirement!
Last fat cheque gets written to HMRC in April, then it's a life of non productivity
98elise said:
Did you miss the ?
I'm a long way from state retirement, and If I was entitled to benefits I wouldn't have waited 6 months after retirement!
Last fat cheque gets written to HMRC in April, then it's a life of non productivity
Sorry thought you were serious. I have a friend who was a contractor, retired at 55 having built up money in his ltd company. Plan was to draw down on it as salary for coming years. Good plan if the money lasts for long enough but a bit of gamble. ?I'm a long way from state retirement, and If I was entitled to benefits I wouldn't have waited 6 months after retirement!
Last fat cheque gets written to HMRC in April, then it's a life of non productivity
98elise said:
wormus said:
98elise said:
No I retried. The ultimate tax avoidance scheme. I really must check what benefits we get now we're a low income family
You won’t unless you’re of state retirement age and on low income with no capital or savings, in which case you may be eligible for pension credit. If you are of working age, there will be a restriction on savings before you’ll qualify for UC, and then you’ll be expected to look for work. HTH. ? I'm a long way from state retirement, and If I was entitled to benefits I wouldn't have waited 6 months after retirement! Last fat cheque gets written to HMRC in April, then it's a life of non productivity 
Most people in the country don’t understand how ltd company contractors work, just use simplistic figures and assume their pay is massively higher. This is not true.
If we take the £50k salary before, cost to the company £56.something with employers NI.
If a contractor is on, say, £30/hr ltd rate and does 2000hrs over a year all people say is ‘he’s on 60k, I’m on £50k it’s outrageous!’
The reality is the ltd rate has employers NI and holiday pay built in, roughly 24%. If found inside IR35 the rate would drop to approx £24/hr paye. You are suddenly earning less than the staff member, but with zero benefits. And no responsibility for the company as they want to keep you at arms length by placing you in an umbrella company, pay their employers NI, and yet HMRC still class you as ‘employed’ in the same way as a staff member.
We will have a situation where companies want all the flexibility and experience of the contractors, taking on and laying off to suit workload, but without any employment commitments, for LESS cost than the staff person.
Assuming it seems reasonable that a contractor supplying services on a flexible basis should, because of the risk they are taking (sickness, periods out of work, spending time working away from home etc etc), earn more take home pay than a staff member, then you would expect in our example above the PAYE rate should be maybe £35/hr or more. But it won’t be it, will be £24/hr.
You may say 2 things. Why should they earn more? Or, just renegotiate your rate to maintain your take home pay. How successful do you think asking for a 50% increase would pan out?
The reality at that level is I’d just pack in and work as a gardener, and general handyman work for £15/hr cash in hand!
Companies would struggle to find quality contractors at these new rates and be forced to use offshore centres because, surprisingly they are struggling to find contractors any more at the PAYE rates that means they can bid for jobs without being too expensive. Hence just send it offshore instead. It’s a race to the bottom.
And this is why HMRC will not get in the extra tax receipts they think they will. Many of the jobs will go all together from the uk economy. Zero tax.
If we take the £50k salary before, cost to the company £56.something with employers NI.
If a contractor is on, say, £30/hr ltd rate and does 2000hrs over a year all people say is ‘he’s on 60k, I’m on £50k it’s outrageous!’
The reality is the ltd rate has employers NI and holiday pay built in, roughly 24%. If found inside IR35 the rate would drop to approx £24/hr paye. You are suddenly earning less than the staff member, but with zero benefits. And no responsibility for the company as they want to keep you at arms length by placing you in an umbrella company, pay their employers NI, and yet HMRC still class you as ‘employed’ in the same way as a staff member.
We will have a situation where companies want all the flexibility and experience of the contractors, taking on and laying off to suit workload, but without any employment commitments, for LESS cost than the staff person.
Assuming it seems reasonable that a contractor supplying services on a flexible basis should, because of the risk they are taking (sickness, periods out of work, spending time working away from home etc etc), earn more take home pay than a staff member, then you would expect in our example above the PAYE rate should be maybe £35/hr or more. But it won’t be it, will be £24/hr.
You may say 2 things. Why should they earn more? Or, just renegotiate your rate to maintain your take home pay. How successful do you think asking for a 50% increase would pan out?
The reality at that level is I’d just pack in and work as a gardener, and general handyman work for £15/hr cash in hand!
Companies would struggle to find quality contractors at these new rates and be forced to use offshore centres because, surprisingly they are struggling to find contractors any more at the PAYE rates that means they can bid for jobs without being too expensive. Hence just send it offshore instead. It’s a race to the bottom.
And this is why HMRC will not get in the extra tax receipts they think they will. Many of the jobs will go all together from the uk economy. Zero tax.
Edited by ITP on Thursday 4th March 12:22
JagLover said:
The big issue, and why they brought in said "stupid" legislation, is that they want to incentivise entrepreneurship and not tax avoidance. I.E. they want a light tax burden on genuine small businesses that they hope will grow and flourish.
The issue became that as soon as it became more advantageous to contract via a limited company then hundreds of thousands did just that. One of the drivers for that was Brown's changes to the CT rates, though probably the biggest factor was the changing admin burden that made smaller companies easier to run. Until 1993 all companies required an audit and if that had remained the case I very much doubt we would have seen the "contracting via ltd company" boom.
I think that's a little of an over-simplification. Though am prone to it myself.The issue became that as soon as it became more advantageous to contract via a limited company then hundreds of thousands did just that. One of the drivers for that was Brown's changes to the CT rates, though probably the biggest factor was the changing admin burden that made smaller companies easier to run. Until 1993 all companies required an audit and if that had remained the case I very much doubt we would have seen the "contracting via ltd company" boom.
My version is that I suspect another large part of the uptick in this method of working is that work is changing very rapidly. The cycles of work and change within the market are shortening and the need for flexibility and shifts in the precise skillsets required is increasing. For a proportion of an organisation's workforce that does not work if you solely utilise full employees.
The big issue was that many companies (as much as employees) took advantage of that. Their work changed not one iota and we all know of people employed under a Ltd company doing the same jobs as they did as an employee and have been doing so for decades. The basis if IR35 legislation is fair enough, the "stupid" comes into it with the way it is implemented - pretty much underscored by the amount (ie not many) of cases the HMRC have actually won in the last 20yrs. Rather than address that, the govt then implements further sledgehammers to crack the nut.
There can never be any guarantees of what might happen when small companies start. I know of plenty who had zero intention of having no other employees and now do. And vice versa. I do wonder if the approaches being taken will actually hamper productivity, which is something else we really need to get a grip of in this country.
As the CEBR note on CT tax changes not likely to yield any extra revenue, I am pretty convinced things like IR35 won't either. I'd actually be surprised if they didn't have a negative impact. If people are OK with that in the interests of perceived "fairness" then OK. Personally I think it's stupid - the primary objective should be to yield more revenue (or, preferably, spend less). And if you cannot guarantee that a change will do that having thought through all the consequences, stop meddling.
Gassing Station | News, Politics & Economics | Top of Page | What's New | My Stuff