Why has Sunak deliberately excluded 3m from COVID support?

Why has Sunak deliberately excluded 3m from COVID support?

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Countdown

39,689 posts

195 months

Sunday 7th March 2021
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CaptainSlow said:
Are you basing those numbers on ~£30k salaries for three people...so three personal allowances? This salary level isnt really representative of the salary levels of the typical contractor. Up the salary levels to something closer to reality for a disguised employee so £80k salary compared to a fee equivalent to £80k plus employers NI. When you run these calcs you'll find that the difference is sizeable. Then start putting in the travel against the Ltd, then start giving the Mrs a salary for her admin job. Up the fee levels and start giving her a pension too.
I stand to be corrected but I think RMAMC was using "real world figures" to demonstrate the savings between taking the Contractor/PSC approach vs PAYE. In the circumstances he's described there were £8k savings, and that's before taking into account other techniques which reduce the tax bill further.

CaptainSlow

13,179 posts

211 months

Sunday 7th March 2021
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Countdown said:
CaptainSlow said:
Are you basing those numbers on ~£30k salaries for three people...so three personal allowances? This salary level isnt really representative of the salary levels of the typical contractor. Up the salary levels to something closer to reality for a disguised employee so £80k salary compared to a fee equivalent to £80k plus employers NI. When you run these calcs you'll find that the difference is sizeable. Then start putting in the travel against the Ltd, then start giving the Mrs a salary for her admin job. Up the fee levels and start giving her a pension too.
I stand to be corrected but I think RMAMC was using "real world figures" to demonstrate the savings between taking the Contractor/PSC approach vs PAYE. In the circumstances he's described there were £8k savings, and that's before taking into account other techniques which reduce the tax bill further.
Whilst they may be "real world figures" they aren't representative, not many professional contractors on £30k.

Even in his scenario it seemed to be a saving in tax of a third so still sizeable.

anonymous-user

53 months

Sunday 7th March 2021
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CaptainSlow said:
Whilst they may be "real world figures" they aren't representative, not many professional contractors on £30k.

Even in his scenario it seemed to be a saving in tax of a third so still sizeable.
On a quick calculation someone on PAYE £80k would pay about £25k in tax/NI. On dividends it would be about half that. Similar to the saving over 3 people in aggregate I listed earlier.

It's obviously more tax efficient overall, otherwise people wouldn't do it. There's nothing wrong with business owners getting a tax advantage for creating wealth. If it were wrong, the government could always legislate against it.

chrispmartha

15,360 posts

128 months

Sunday 7th March 2021
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RonaldMcDonaldAteMyCat said:
CaptainSlow said:
Whilst they may be "real world figures" they aren't representative, not many professional contractors on £30k.

Even in his scenario it seemed to be a saving in tax of a third so still sizeable.
On a quick calculation someone on PAYE £80k would pay about £25k in tax/NI. On dividends it would be about half that. Similar to the saving over 3 people in aggregate I listed earlier.

It's obviously more tax efficient overall, otherwise people wouldn't do it. There's nothing wrong with business owners getting a tax advantage for creating wealth. If it were wrong, the government could always legislate against it.
Don’t forget corporation tax to paid on the £80k if taken as dividends.

It is more tax efficient I don’t think anyone is saying that and as you say I think there should be tax advantages for people that create wealth and employ people.

CaptainSlow

13,179 posts

211 months

Sunday 7th March 2021
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RonaldMcDonaldAteMyCat said:
CaptainSlow said:
Whilst they may be "real world figures" they aren't representative, not many professional contractors on £30k.

Even in his scenario it seemed to be a saving in tax of a third so still sizeable.
On a quick calculation someone on PAYE £80k would pay about £24k in tax/NI. On dividends it would be about half that. Similar to the saving over 3 people in aggregate I listed earlier.

It's obviously more tax efficient overall, otherwise people wouldn't do it. There's nothing wrong with business owners getting a tax advantage for creating wealth. If it were wrong, the government could always legislate against it.
For genuine risk taking business owners I agree. For disguised employees, that have been legislated against via IR35, that have avoided or even evaded tax for the last couple of decades I shed no tears that they aren't getting much help from the tax-payer.


Countdown

39,689 posts

195 months

Sunday 7th March 2021
quotequote all
RonaldMcDonaldAteMyCat said:
It's obviously more tax efficient overall, otherwise people wouldn't do it. There's nothing wrong with business owners getting a tax advantage for creating wealth. If it were wrong, the government could always legislate against it.
Indeed. However in some cases they're doing basically the same work as an Employee or Agency member of staff but setting themselves up as a PSC purely for the tax benefits. This is recognised by the Government and that's why they're trying to implement IR35, to crack down on what they consider to be "disguised employees". there's a thread elsewhere where the arguments have been done to death.


anonymous-user

53 months

Sunday 7th March 2021
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Get that I presumed the point being made in relation to this thread was that disguised employees operating as ltd cos shouldn't complain if they are ignored by government support schemes, as they've paid less tax in than they might.

That's relatively short sighted, as they will likely earn relatively significant sums, meaning they pay divi tax, corp tax, then almost certainly plenty of VAT and duty on their purchases. They can invest in things that create further wealth and tax.

ITP

1,996 posts

196 months

Sunday 7th March 2021
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Countdown said:
CaptainSlow said:
Are you basing those numbers on ~£30k salaries for three people...so three personal allowances? This salary level isnt really representative of the salary levels of the typical contractor. Up the salary levels to something closer to reality for a disguised employee so £80k salary compared to a fee equivalent to £80k plus employers NI. When you run these calcs you'll find that the difference is sizeable. Then start putting in the travel against the Ltd, then start giving the Mrs a salary for her admin job. Up the fee levels and start giving her a pension too.
I stand to be corrected but I think RMAMC was using "real world figures" to demonstrate the savings between taking the Contractor/PSC approach vs PAYE. In the circumstances he's described there were £8k savings, and that's before taking into account other techniques which reduce the tax bill further.
Do you believe that a temporary contractor, doing a similar job to a staff member, should be paid the same?

So if a staff salary is 50k (in reality may be more like 60k with pension contribution, sick pay etc., but let’s put that aside for the moment) then a contractors rate should approximately £28/hr, on a PAYE basis, which is about 1800hrs/year. Equivalent ltd rate is about £35/hr, which adds employers NI and holiday pay. At this rate the contractor is cheaper than the staff man for the company. But many people just see £35/hr x 1800hrs being 63k a year. Outrage! I’m only on 50k!

Sure, due to (legal) ltd company set up with lower salary and dividends etc the way tax is paid is different, and tax can be saved, it’s not news. But with the erosion of rates, increasing of dividend tax, closure of flat rate VAT scheme, as has been said, the difference is not that much. Plenty of tax is still paid by contractors, be it corp tax, dividend tax etc. It’s all tax whatever it’s called, focusing on NI doesn’t really matter, it’s just another tax that goes into the pot.

What forcing contractors onto PAYE will do is just stifle the flexible workforce. I’ve worked all over the uk and Europe, if I had no ltd company I’d have no vehicle for claiming expenses for accomodation/travel etc. So I won’t go. Companies around the uk who need contractors to man short term projects, as they cannot afford to carry them all as full time staff will not be able to get them. Unless they are prepared to pay a lot more to cover all the costs based on a contractor PAYE rate plus expenses. Not likely because their costs go up, they don’t win the contract, and there’s no work for the staff either, who lose their jobs. Unless of course they decide it’s too expensive, so we’ll just give up on contractors due to these new IR35 rules and send all the work to India.
Everyone’s a winner, oh hang on, we don’t get any tax at all from them. And quality tanks.

But the main thing is those nasty contractors, ripping off the taxpayer, have been put in their place.



Biker 1

7,691 posts

118 months

Sunday 7th March 2021
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I won't paste IPTs post for brevity.
This is EXACTLY the issue. Tax is tax is tax..... I'm a director for 'tax reasons', but HMRC get pretty much the same take from CT/divided tax as PAYE. I programme in subbies for building/maintenance work. It's all part of the food chain.

Gecko1978

9,603 posts

156 months

Sunday 7th March 2021
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ITP said:
But the main thing is those nasty contractors, ripping off the taxpayer, have been put in their place.
There is a lot of this at play too. Years ago i was at a place and a senior manager was talking about his new car e class or 5 series I forget, nice car but not special. Telling the junior guys it was 40k or what ever. One of the contractors said he was not a fan etc and got the "well what do you drive then". 911 turbo was the reply which sort of stole his thunder. Its stuff like that which means their is zero respect for contractors we are just seen as over paid temps and its "not fair" etc. So now the pendulum as swung the other way, life is full of ups an downs. One door will close often another will open.

ITP

1,996 posts

196 months

Sunday 7th March 2021
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Gecko1978 said:
ITP said:
But the main thing is those nasty contractors, ripping off the taxpayer, have been put in their place.
There is a lot of this at play too. Years ago i was at a place and a senior manager was talking about his new car e class or 5 series I forget, nice car but not special. Telling the junior guys it was 40k or what ever. One of the contractors said he was not a fan etc and got the "well what do you drive then". 911 turbo was the reply which sort of stole his thunder. Its stuff like that which means their is zero respect for contractors we are just seen as over paid temps and its "not fair" etc. So now the pendulum as swung the other way, life is full of ups an downs. One door will close often another will open.
The 911 turbo was probably a second hand one for 35k though, but I understand what you are saying. If he’d bought a new 320d instead for a bit more that would probably have been ok to all the staff.

There actually used to be a hiring manager in my industry who asked every contractor at interview what car they drove. What he wanted to hear was a mondeo estate, a vectra etc. He was very reluctant to hire anyone who had a bmw or Mercedes for example, as he claimed it meant instead of being a steady family man they were a rate chasing wide boy who would leave as soon as someone offered an extra 50p/hr.

Terminator X

14,921 posts

203 months

Sunday 7th March 2021
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Louis Balfour said:
Martin Lewis was speaking about this again on the Marr programme this morning.

Evidently, he asked Sunak directly "Can I tell all company directors that the door is permanently closed to them?" To which the answer was "yes".
Amusing that they will be the ones paying back all the furlough money though. 25% of fk all is still fk all so Starbucks etc will get off scott free (again).

TX.

Piersman2

6,596 posts

198 months

Sunday 7th March 2021
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Ultimately those companies that cannot or will not determine PSCs workers as outside IR35 will either have to pay more, or not have those flexible/experienced/skilled resources avaiable to them.

I've just started a new contract, I've been contracting for 30 years ALL outside IR35.

The new client intially offered the role inside IR35 at the old outside IR35 rate. I rejected the offer and decided to take some time out. The client came back a week later and offered a very sizeable uplift in rate to cover the inside IR35 costs. I don't actually end up taking much, if any, of that uplift home, the impact of IR35 means that will all go the goverment. I've not lost out, the client has.

Mind you, I do get the full rate paid into my limited company for the next 4 weeks which will give a nice little top up to my Ltd company that I wasn't expecting smile and will offset some of the issues when they will start deducting NI(both), PAYE, App levy etc...from April 6th onward.

Like when IR35 first came in, give it 6 months. By then companies will be starting to realise that it's worth taking the time to do sensible CEST determinations and new style SOW contracts will be the new norm. Companies need PSCs as much as PSCs need the companies.

Terminator X

14,921 posts

203 months

Sunday 7th March 2021
quotequote all
Gecko1978 said:
ITP said:
But the main thing is those nasty contractors, ripping off the taxpayer, have been put in their place.
There is a lot of this at play too. Years ago i was at a place and a senior manager was talking about his new car e class or 5 series I forget, nice car but not special. Telling the junior guys it was 40k or what ever. One of the contractors said he was not a fan etc and got the "well what do you drive then". 911 turbo was the reply which sort of stole his thunder. Its stuff like that which means their is zero respect for contractors we are just seen as over paid temps and its "not fair" etc. So now the pendulum as swung the other way, life is full of ups an downs. One door will close often another will open.
What if the chap with a 911 lived in a small house or a rented house vs the Boss living in a mansion? You know what they say about people who assume.

TX.

thebraketester

14,192 posts

137 months

Sunday 7th March 2021
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That 3 million also includes many self employed who averaged over 50k taxible.

It’s disgusting. Everyone who needed help should have been looked after

spanky3

258 posts

140 months

Sunday 7th March 2021
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Surely the answer to the original question is the one pointed out on the second page: if you compensate directors/contractors who have lost dividends you have to compensate everyone who has lost dividends.

Director who earns 7k pa salary and £150K investment dividend gets grant/furlough/etc to cover lost total income? Great but then every other shareholder that did worse in 2019 will need compensation for lost income too.

Salary based schemes are simple.. compensation for investment failings is whole lot harder.


anonymous-user

53 months

Monday 8th March 2021
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spanky3 said:
if you compensate directors/contractors who have lost dividends you have to compensate everyone who has lost dividends.
Not really. You've already made the distinction yourself; shareholders who are also directors can be treated differently to shareholders who don't work in or manage the business. Allow shareholder directors to count a proportion of dividends as their working income.

The difficulty is perhaps that if you do that, you open up a wider problem; government acceptance that dividends can be used as a substitute for salary. It's not supposed to be the case, but everybody knows that's how many small owner managed businesses operate. Hence the reduction in tax free allowance on divvies.

ITP

1,996 posts

196 months

Monday 8th March 2021
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I suppose that with rishi confirming that no ltd company directors are eligible for furlough he is unwittingly confirming he thinks they are outside IR35!

Because if they are actually inside IR35 (which he believes 90% are) and these company directors are now subsequently investigated, and deemed inside, they will be given a tax bill as if all their dividend payments should have been subject to PAYE tax and NI. Does this mean they can claim back all the furlough payments they were told they didn’t qualify for?

Gecko1978

9,603 posts

156 months

Monday 8th March 2021
quotequote all
Terminator X said:
What if the chap with a 911 lived in a small house or a rented house vs the Boss living in a mansion? You know what they say about people who assume.

TX.
Tye chap in question had been a contractor for a long time no kids was proably his biggest saving. The point was mire he was not telling the world he had a nice car but when it came up there was a lot of resentment. But I always find it odd because you are free to choose. So if x earns more than you its should not be a case of changing the rules to punish them rather you are free to follow the path they took or not.

Pit Pony

8,265 posts

120 months

Monday 8th March 2021
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Countdown said:
Because paying NI entitles you to certain State benefits (Pension, Jobseekers allowance etc). SEISS is basically another State benefit.
I pay a salary to myself at a level that gives me entitlement to those state benefits.

Income tax and national insurance does need reform. IR35 did not need to be the solution.

Get rid of NIC. Increase income tax and corporation tax.
Set the levels at a point where being Permie, self employed or LTD makes not much difference to the final outcome.