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Stop digging.... Doing yourself no favours....
TJagain; are thinking about self-employed/contractors who operate as directors of limited companies and then pay themselves a minuscule salary (below the tax threshold), plus one for their partner/husband/wife then claim dividends?
To add a little context to this (as a director of a small company that employs people).
Dividends are not tax deductible from the company's side. So yes, whilst in cases like the above the individual may be liable for slightly lower rates of tax if they pay themselves partly in dividends rather than PAYE, in reality it just means that the company is on the hook for it instead.
HMRC are the *single biggest 'outgoing' on our books and the second highest spend after staff wages. We've shelled out more to Rishi and Co more than any other supplier, employee or director.
This year has been hell. And we've been incredibly fortunate in that our work has been in constant high demand.
We've seen dozens and dozens of clients, suppliers and friends really struggling and in many cases closing down businesses they've spent years building up for good.
We've watched clients and friends who own restaurants and pubs constantly have to react (often with less than a few days notice) to the latest change in guidelines, often having to throw out weeks worth of fresh food stock after being forced to delay opening again. It's heartbreaking for us to watch so it must be utterly horrific to be in the thick of it.
The notion that it's all done as part of some elusive tax dodge is wildly inaccurate at best, incredibly tedious and insulting at worst.
(* By a long, long way.)
@Jamesmio - I’ve detailed on the Coronanomics thread watching my friends, who spent 15 years building up a successful restaurant, hemorrhage money since last March and then recently admit defeat and declare bankruptcy.
They’re both now dealing with being unemployed (as are all their former employees) after all those years of graft, having lost absolutely everything
That’s why I find it incredibly insulting and offensive having smug, judgemental people in nice safe, risk-free jobs, with all the benefits that entails, and now backed by the government, basically saying we’re all just a bunch of tax dodging fraudsters
They haven’t got a bloody clue!
Being self-employed or a business owner over the last year has been an absolute bloody nightmare! And the government have been, at best, ambiguous and in the main obstructive, uncaring and part of the problem
That’s why I find it incredibly insulting and offensive having smug, judgemental people in nice safe, risk-free jobs
What about all the people who were employed at those businesses? Who work at the suppliers? In the entertainment industry? The travel industry? Just because someone is employed on PAYE doesn't mean their job is any more secure than someone who's self-employed.
Unless I'm missing the point here.
My point is that people should have a bit more empathy with people and consideration for their positions before hurling around stupid, baseless accusations which seem largely to amount to “my mate told about this bloke down the pub told me about this bloke who... “ bullshit.
This thread quickly degenerated into saying that all self-employed people are tax dodgers who are fiddling their accounts.
All I’m asking is that people have a think about what being self-employed over the last year. I fully appreciate that nobody has had it easy, but the vast majority of the self-employed have had not a penny of government support over the last year and have had an absolute nightmare.
Watching my friends business go bust, their biggest concern was for their employees who they no choice but to make redundant. In making sure they were looked after they left themselves literally penniless
But the way some people on here refer to business owners you’d think they were all Victorian Mill Owners or slave traders
Binners and the rest - I understand your frustrations with the way self employed have been dealt with in this. 3 of my friends are in real difficulties financially as a result
Its a different issue from the tax tho and I am sorry I conflated the two
I find it very frustrating watch people avoid tax that we need to run a decent country.
the OPs question was "should we pay the same tax" and my answer was yes
Now that TJ has admitted he was wrong - both in how much tax he is paying and how he alleged most self employed people were on the take - can we come back to the OP's question?
CptnPugwash - can you clarify how you are expecting to get more shafted in the budget?
Those who are willing to be self-employed or directors of limited service companies (one-man consultancies) have to take home more pay than a PAYE employee - otherwise they wouldn't exist.
I did this for 6 years and it was stressful! I didn't have one stable contract - I was always on the lookout for the next client. In the end I had to work overseas - away from my family - to keep money rolling in. I also spent 6 months during that time with nothing coming in. If it wasn't for the financial reward then nobody would bother going through that risk and stress. You need an entrepreneurial mindset, and most people just don't have that.
My point being, if we accept that the UK economy needs self-employed people then there needs to be an incentive. Some might not like the way we went about getting that incentive (e.g. using dividends and low salaries), but that's the way the tax system is structured. In my case, the UK government ended up getting more tax than when I was on PAYE due to a combination of corporation tax, employer NI, dividend tax and income tax - so I don't accept the tax dodging argument in my case at least. Whatever tax structure is dreamed up at the next budget, the end result still needs to be the same - the guy taking the risk needs to take home more pay. If the new tax structure seems a little less like tax dodging to the casual observer then all the better, but it won't stop people being envious of someone else earning more than them.... that's the underlying issue here.
(P.S. I'm back on PAYE now and earning much less. Much happier for it.)
I have been a contractor for 25 years. I work business to business so there is no way I can not declare my earning. I claim very little in expenses etc and every thing I do is legit. For years I have never claimed xmas dinner expenses or any other of the legitimate things I legally could. I design stuff that it built in the UK and helps an industry that you all used everyday (drinking water from your tap)
I pay all my taxes and don't begrudge it at all. Like a lot of people I don't choose this way of working to dodge tax I do it because of the flexibility it gives me.
I was lucky enough to have worked all through this horrible time. If I had not though I would not have been entitled to a penny in support from the government. I am diligent and I treat my company like a company and I make sure I build in a level of resilience. Yet I am lumped in with the cash in hand people who don't give a toss about paying there taxes etc.
The tax benefits of operating a Ltd company in this country have been massively eroded over the years. The main reason for doing it is the legal protection it gives you and the fact in a lot of industries companies won't engage with a sole trader.
So Cheers TJ and the others moaning from there secure permie jobs with secure pensions etc for lumping us all in the same boat with all the tax dodgers. If I am ever up your way ill bring some salt and vinegar to go with the chips on your shoulders.
Do you think we should pay the same tax as an employed person. Just throwing the question out there.
Yes 100%. Im employed if myself and the OP earn the same amount of money our employment status should mean we pay exactly the same no more or no less. why should it? That obviously sits outside of corporation tax and all that im just talking basic tax on salary.
At the risk of brining up an old topic i agree with TJ the self employed loops holes need to shut the idea of paying a min then topping up with tax free/less tax dividends needs to be closed. I am amazed though how much the Tories have hung self employed out to dry.
No we shouldn’t pay the same level of tax as we create jobs and tax take.
This is nonsense and just trolling.
I 100% agree with @bazzer above. I am one of those apparently dodgy husband and wife companies that just fo it to dodge tax. Except one of us is client facing and works 4 days a week and the other is book keeper, website builder, debt collector, new business finder etc etc and also works 4 days a week. We also have 2 other self employed consultants who work for us and rely on that work for a chunk of their income. As a vat registered ltd company I have to hand over all bank account statements, both company and personal as well as details of savings etc to my accountant and then justify every penny of money coming into all accounts. I would suggest I am under far more scrutiny financially than people on paye. And to be clear there is no such thing as magically offsetting everything against tax so it becomes free.
At the risk of brining up an old topic i agree with TJ the self employed loops holes need to shut the idea of paying a min then topping up with tax free/less tax dividends needs to be closed. I am amazed though how much the Tories have hung self employed out to dry.
Yes and also we should close that tax dodge loophole of people paying into pensions and reducing their tax burden. Also people in the public sector should be taxed on the real value of their extremely valuable pensions, that people in the private sector just don't have access too and can't buy.
Apologies if I'm being naive, but can someone briefly explain why so many have been excluded from the self employed income support scheme? My understanding was that it seemed to affect mainly newly self employed who didn't have one or two full years of earnings to base it on. And I've just read that company directors are excluded along with those earning 50k+. That part seems very unfair given the furlough scheme paid up to 2.5k a month with no apparent upper salary limit.
Bazzer - Ok with that so long as we get pay rises that then reflect what we would get with a similar level of experience, skill and responsibility in the private sector I reckon thats about a 50% pay rise, the 20% or so on top of my salary that the terms are worth is a lot less than the difference between private and public sector salaries
Until recently when the tories gutted them final salary schemes were available in the private sector. Just because the tories gutted your pensions does not mean we have to lose them as well. I accepted the lowish salery knowing that some of the difference would be made up with pensions
I’ve just read that company directors are excluded
You answered your own question.
Edited to add: That said I didn't expect any help either, I run my business like a real business and I plan for lean times as well as good times. However I don't expect to be lumped in with people who only choose to be seen as a business when it suits them either.
So you could be a sole trader and eligible for support but if set up as a director you're excluded, despite your trading profits being the same. What is the justification for this approach? They must have been aware of how many people trade as ltd companies but chose to exclude them.
Bazzer, what a load of rubbish on both counts. There is no loop hole on pensions for tax, you pay the tax when you draw down your pension at the appropriate rate. Your pension comes out of your salary before tax for that reason.
Secondly why should public sector pensions attract anymore tax than anyone else? Its part of negotiated terms and conditions, nothing underhand about it and tax is payer as normal when the retired.
Also don't forget the additional deals NHS and civil servants can get. My ex used to get 20% off mobile bills with ee, cheaper insurances by a long way, Union owned holiday camps that were cheap as hell. Blue light discount at lots of places for the emergency services.
I run a small ltd company just me as employee, I've not done less than 50hr week in years, as when you've done your 40 hrs min of earning money there's all the other duties that need doing.
On gross earnings of £40k the difference in minimum PAYE + dividend and full PAYE is less than 1% so it's not worth the 1% when a pandemic hits.
We do a lot of site work, and subsistence is £8 for a long day over 12hrs, £15 for overnight whereas people think we can claim for everything, we can't!
Interesting responses...
Those of you mentioning dividends as a tax dodge payment method do understand you have to make a profit to pay a dividend? And the personal financial risk of paying yourself this way is risky? No profit no pay?
The benefit is now very small in fact only just worth doing, tax relief on pension contributions is generous but the long term savings for the government are huge.
You can offset tax by investing in stuff for your business but its limited and has to come out of profit..
SMEs in the UK can't escape tax and tend to pay collosal levels of tax via PAYE NIC VAT Corporation Tax Dividend Tax Business Rates Fuel Duty etc.
I estimate a third of my business Gross profit ends up back in the UK treasury - hardly tax avoidance.
SMEs need a lot more encouragement to invest in people and their businesses, there also needs to be greater potential reward for risking time and money (how many on here are prepared to risk their home on a business venture?)in creating jobs and tax take.
What is the justification for this approach?
If you can fathom out the rational for who is and who isn't getting government support then you'll be doing better than most. It seems to be completely arbitrary and makes no sense at all. Its almost like they pulled names out of a hat
Just a little note for all those on here in a permanent staff job, I'm seated here in front of my2021 wall planner. I have precisely 11 days work on there going forward from today , and anyone of those could be cancelled. I don't have a single contract of work and in 25 yrs probably only a handful. Now ( touch wood) the phone will keep ringing and the calender will fill up, but it may not. We don't all live like that, but many of us do, and just for clarity I had 3 months off last year and didn't claim furlough as I felt I was ok, but I did pay my Vat, corporation tax, personal tax, and NI all on time.
Bazzer – Ok with that so long as we get pay rises that then reflect what we would get with a similar level of experience, skill and responsibility in the private sector I reckon thats about a 50% pay rise, the 20% or so on top of my salary that the terms are worth is a lot less than the difference between private and public sector salaries
If your job is available in the private sector and their is demand for it, then do it. If there is no demand for it out there then your not going to get your 50% pay rise are you.
I also suspect a 50% rise in your pension would come not where near to paying for your pension either.
That thing is I actually agree that the NI/Income tax split is mad. I for one would be totally up for there being a flat tax rate on Income of any source, be that PAYE, dividends, capital gain or inheritance.
The NI thing (which now days is pretty much the only saving from taking dividends over PAYE) is stupid and should be removed and added to a flat tax system. Then we are all on the same level playing field. For me a big consultancy would be taxed differently to me if I fall under IR35. So that makes bigger consultancies more competitive when bidding than the little guy. So I am all for tax simplification.
Ok with that so long as we get pay rises that then reflect what we would get with a similar level of experience, skill and responsibility in the private sector I reckon thats about a 50% pay rise, the 20% or so on top of my salary that the terms are worth is a lot less than the difference between private and public sector salaries
The ONS reckon the public sector are 7% better off.
Also don’t forget the additional deals NHS and civil servants can get.
That’s weird, I was a civil servant for 11 years and never got any of those benefits you mention. And no final salary pension either, that was stopped a long time ago.
Self employed need to stop thinking being a public servant is some gravy train, it simply isn’t.
I could get paid a lot more and receive the same benefits if I left. Which I did.
They would do
Now tell me of a job where you a degree, other post grad training, multiple years of experience, 24/7/365 responsibility, managing 30+ staff and a huge budget on less than £40 000 pa?
Now tell me of a job where you a degree, other post grad training, multiple years of experience, 24/7/365 responsibility, managing 30+ staff and a huge budget on less than £40 000 pa?
Pretty standard in the charity/third sector
And no final salary pension either, that was stopped a long time ago.
Sure, but the defined benefit pension is still more generous than any defined contribution scheme.
Yup - I agree Binners. Not the same levels of responsibility usually but 3rd sector salaries are poor
folk outside of healthcare don't often understand the responsibility thing - its a legal responsibility that applies ( if you are the ward manager) even if you are not on site but on holiday
also there is the legal requirement not to leave work until your replacement arrives - I have been caught by this twice. I would have been acting illegally if I had left at the end of my shift because no replacement came on duty
They would do
Well, I'm more inclined to believe the ONS with all their data and analysis published, than I am speculation about what could have been.
Bazzer, what a load of rubbish on both counts. There is no loop hole on pensions for tax, you pay the tax when you draw down your pension at the appropriate rate. Your pension comes out of your salary before tax for that reason.
Secondly why should public sector pensions attract anymore tax than anyone else? Its part of negotiated terms and conditions, nothing underhand about it and tax is payer as normal when the retired.
Because the payments into the plans don't reflect the benefits, I could pay the same amount into a defined contribution scheme (that is all that's available to me) and I would not have the same benefit at the end of it. So you are getting an additional benefit in kind.
Also people taking dividends from a company is part of the tax law of the land and not illegal and is taxed appropriately. So if we want to be on an even playing field then lets all be on one. If there can be changes to the tax regime to make things fair, lets look at the fairness of the availability of defined benefit pension schemes too.
Lots of SME owners do what you describe TJ for a lot less thsn 40k.
Had i not had a business that did ok during this pandemic three Directors would have become personally bankrupt- i know plenty who are by the way.
My point being, if we accept that the UK economy needs self-employed people then there needs to be an incentive. Some might not like the way we went about getting that incentive
To be fair the reward should be that you should be able to charge enough for your expected salary + business profit. Business profit being the payment risk and hassle of running a business. Tax is separate.
On the other hand...
The tax benefits of operating a Ltd company in this country have been massively eroded over the years.
This is defiantly true. I have had Polish work college who were paying ~ 5% tax... they had a deal where if your company turned over < 5m euro I think you had a 5% tax rate, there was some other rule for 10m as well I forget. It smarted a bit that they ended up taking home nearly twice as much as me (they had a very good day rate) to a county where cost of living was much less. Both working abroad so both away from families.
Think of the pension as deferred salary?
A part of the reason I went into healthcare was for the pension. I accepted low salaries ( and yes they are if you compare like with like) in exchange for the benefits in service and once retired
Bazzer - you have bought into the whole "public sector pensions are unaffordable" nonsense.
Bazzer – you have bought into the whole “public sector pensions are unaffordable” nonsense.
So why can't I buy one for the same price as you pay then ?
.
A part of the reason I went into healthcare was for the pension. I accepted low salaries ( and yes they are if you compare like with like) in exchange for the benefits in service and once retired
So its OK to change the rules for small business, but not for you?
I don't have the luxury of signing up for a set of rules for the length of my working career, yet you think you do? They have a budget every year that I am subject too, so you think the public sector should be outside that?
yes they are if you compare like with like
What is your comparison? I can't think of of one.
The brick - try a manager of a chain retail store.
Bazzwer - the rules on pensions have been changed to make them more expensive and less value
try a manager of a chain retail store.
Not sure about that, but go on...
Bazzwer – the rules on pensions have been changed to make them more expensive and less value
That is true, but my point is still valid, There is no product on the market I can pay the same as you and get the same benefit as you, it just does not exist. So you are getting a benefit in kind that you are not taxed on.
The reality is I really don't begrudge you your pension, I am not all about bringing people level down to the lowest common denominator.
I think a tax system that encourages people to be innovative and to take chances and build a great economy in the UK is a good thing. Yes people should be paying their fair share of taxes, but it should be a fair share.
I honestly think the job I do adds to the economy of this country and I want my share of that addition, I don't think that's wrong. If its deemed to be wrong fine, I will do something less stressful and remove my skills from the economy. I don't go to work for the fun of it.
If we want a socialist lowest common denominator society I can do that too, just like the rest.
As TJ says, the (quasi) public sector pensions are considered "deferred salary". You accept a lower wage for public service in the knowledge you will have a certain income when retired. Thats the trade off I made.
Which is galling when my final salary pension was changed to a DB ten years into a job that took 7 years to train for with no compensating increase in salary.
Also my DB pension will pay my descendants nothing.
Your personal pension will all be your spouse's to enjoy and your children's to inherit, all of it.
My spouse will be lucky to get half while she lives and my children will get nothing, nada, everything I paid goes to support others in the scheme.
Which is galling when my final salary pension was changed to a DB ten years into a job that took 7 years to train for with no compensating increase in salary.
Yeah its was galling when they changed the tax credit on Dividends 10 years into starting my business.
Your personal pension will all be your spouse’s to enjoy and your children’s to inherit, all of it.
Well no, certainly not "all of it". The chances of there being anything much left in any DC pot that will benefit children is vanishingly small. One could argue that in later life as a persons spending reduces, as it normally does, that there would be an increase of "savings" that would be possible from a DB scheme which could then be passed to children in the form of an inheritance.
If you feel so strongly on this issue you could always transfer your DB pension to a SIPP or similar and reap the benefits of having an investment pot rather than an annuity. It will almost certainly be against good financial advice and leave you the poorer for it but there may something left for your children.