Corporation Tax vs Income Tax
Discussion
Eric Mc said:
HMRC is well aware of this and have spent decades trying to prevent this exploitation (IR35 is one method used).
Decades and exploitation are a bit strong.Dividend tax has only increased over the past couple of years and every accountant I’ve had has sent out a letter at the start of each financial year saying how much to take as salary and how much as dividend.
The IR35 rules are a reasonable step imo as there are still a lot of companies with one owner who are genuinely trading and also need to be limited company.
Running a company is a pita compared to being employed, in many ways. Therefore there still needs to be a reward if you will to run one and not just be an employee.
I actually do less work than I might under the new rules because by the time I’ve paid the tax the money isn’t worth the time I lose. Not a great way to encourage enterprise. Over half of my invoicing is abroad so you would think the government would encourage rather than discourage.
It’s a fine line.
trickywoo said:
Decades and exploitation are a bit strong.
Dividend tax has only increased over the past couple of years and every accountant I’ve had has sent out a letter at the start of each financial year saying how much to take as salary and how much as dividend.
The IR35 rules are a reasonable step imo as there are still a lot of companies with one owner who are genuinely trading and also need to be limited company.
Running a company is a pita compared to being employed, in many ways. Therefore there still needs to be a reward if you will to run one and not just be an employee.
I actually do less work than I might under the new rules because by the time I’ve paid the tax the money isn’t worth the time I lose. Not a great way to encourage enterprise. Over half of my invoicing is abroad so you would think the government would encourage rather than discourage.
It’s a fine line.
"Decades" is the correct term. For instance, IR35 in its original form was introduced 20 years ago. There have been other tax cases over the years where the use of dividends to extract income "tax efficiently" from an "!owner managed company" has been the subject of the Inland Revenue's/HMRC's attack (anyone remember the Arctic Systems Ltd case?).Dividend tax has only increased over the past couple of years and every accountant I’ve had has sent out a letter at the start of each financial year saying how much to take as salary and how much as dividend.
The IR35 rules are a reasonable step imo as there are still a lot of companies with one owner who are genuinely trading and also need to be limited company.
Running a company is a pita compared to being employed, in many ways. Therefore there still needs to be a reward if you will to run one and not just be an employee.
I actually do less work than I might under the new rules because by the time I’ve paid the tax the money isn’t worth the time I lose. Not a great way to encourage enterprise. Over half of my invoicing is abroad so you would think the government would encourage rather than discourage.
It’s a fine line.
On the whole, they have been fairly unsuccessful because there is a real reluctance by courts and tribunals to treat small owner managed companies in a different way to larger companies which may have lots of outside shareholders. That is why we have such a lot of tinkering around the edges of tax treatment of small companies but not a full frontal wholesale assault - yet.
Eric Mc said:
"Decades" is the correct term. For instance, IR35 in its original form was introduced 20 years ago. There have been other tax cases over the years where the use of dividends to extract income "tax efficiently" from an "!owner managed company" has been the subject of the Inland Revenue's/HMRC's attack (anyone remember the Arctic Systems Ltd case?).
On the whole, they have been fairly unsuccessful because there is a real reluctance by courts and tribunals to treat small owner managed companies in a different way to larger companies which may have lots of outside shareholders. That is why we have such a lot of tinkering around the edges of tax treatment of small companies but not a full frontal wholesale assault - yet.
On tax courses for accountants that i have been on the lecturers have said that noises from different bits of hmrc / the treasury suggest that there may be plans to charge companies with small profits higher rates of corporation tax as this could be used to stop the avoidance of national insurance - or more accurately up the tax rate so that overall the effect is the same as paying employer and employee national insurance and getting corporation tax relief on the employer bit of it . On the whole, they have been fairly unsuccessful because there is a real reluctance by courts and tribunals to treat small owner managed companies in a different way to larger companies which may have lots of outside shareholders. That is why we have such a lot of tinkering around the edges of tax treatment of small companies but not a full frontal wholesale assault - yet.
They may end up doing something like that. The problem they have at the moment is that limited companies are more or less taxed in the same way no matter whether they are small one man band operations or much larger businesses with multiple shareholders and hundreds of employees.
On the one hand they don't want to seen to be stifling genuine entrepreneurship but at the same time they don't like the notion that so many "businesses" are, in their view, not "trading" in any meaningful way and are really vehicles to mitigates a person's tax and NI liabilities.
On the one hand they don't want to seen to be stifling genuine entrepreneurship but at the same time they don't like the notion that so many "businesses" are, in their view, not "trading" in any meaningful way and are really vehicles to mitigates a person's tax and NI liabilities.
Murph7355 said:
HMRC would be better off just scrapping NI. Fold it into normal taxation - it's all one big pot anyway.
No government will ever do that because it would reduce their options in terms of how they can raise revenues without pissing off the electorate (who are generally not well versed enough to understand how this stuff works). Most people don't even realise that they pay tax on the money that they've already paid in NI anyway!Much the same as when Blair & Brown (in 97) came into office on a ticket that said they would not raise tax. Well they didn't raise income tax, but they also didn't raise allowances over time (fiscal drag) & increased NI & every other kind of duty/tax you can think of - and then raided everyone's pension - but oh no, they didn't raise taxes
Also, at the moment, there are many types of income that are not included in the NI system - basically any personal income that is not job or work related.
So rental income, dividend income, interest received, profits on capital disposals etc are ignored completely for NI. If NI was abolished and replaced by a "simpler" unified tax system, you would almost definitely see that taxation on these current "Non-NI" income categories be subject to additional taxation.
Even though the UK tax system is complex, attempts to simplify it usually result in the opposite.
So rental income, dividend income, interest received, profits on capital disposals etc are ignored completely for NI. If NI was abolished and replaced by a "simpler" unified tax system, you would almost definitely see that taxation on these current "Non-NI" income categories be subject to additional taxation.
Even though the UK tax system is complex, attempts to simplify it usually result in the opposite.
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