4 ms·

The irony is that it mostly doesn't any more. There are several different types of employment status and business relationship recognised in legal and tax rules

The irony is that it mostly doesn't any more. There are several different types of employment status and business relationship recognised in legal and tax rules but one way or another the person actually doing the work ends up paying a very similar rate of tax in all of them now. Since the government started taxing dividends at significant rates on top of the corporation tax already paid any small owner-run businesses that pay out via salary+dividend arrangements are close to the same total tax level as an employee pays in income tax and NI. You're actually quite a bit worse off financially now if you equate gross revenue for the business with salary for an employee because the business has to cover all its own costs in terms of paid time off, pension contributions and so on. And of course you have none of the job security and other protections that employees have under our system. The only ones who really win big under the current system seem to be the employers of disguised employees because they can dodge employer NI contributions if they pay via a Ltd company outside IR35. But they solved the problem of getting hit with employer NI under IR35 by forcing contractors to work through umbrella companies and then pay all of the costs for both employee and employer themselves. And since that has widely been done inappropriately through blanket policies and lazy status determinations since the rules that are now to be repealed were introduced the one really big tax anomaly in the whole system is the legitimate contractors (and other independents like freelancers) who have been hit with a far higher tax bill than anyone else.

sparsely 4y ago
The dodged NI contributions can be passed through via higher comp though - it ends up reducing the total cost of employment.
- Silhouette 4y ago
  If you're going to look at the wider picture like that then you should also consider the extra costs though. A typical employee in this country might receive around 7 weeks of paid time off per year at their employer's expense, mostly holidays plus a few sick days on average. That alone would be a far greater benefit in terms of effective rate than receiving a rate increase equivalent to dodged employer NI that are being passed through instead. Then there are pension contributions, more exotic paid time off that most employed professionals could benefit from like parental leave or cover for jury service, and the expenses of running the Ltd including statutory obligations to file accounts and some other paperwork.

sparsely 4y ago

The dodged NI contributions can be passed through via higher comp though - it ends up reducing the total cost of employment.

Silhouette 4y ago
If you're going to look at the wider picture like that then you should also consider the extra costs though. A typical employee in this country might receive around 7 weeks of paid time off per year at their employer's expense, mostly holidays plus a few sick days on average. That alone would be a far greater benefit in terms of effective rate than receiving a rate increase equivalent to dodged employer NI that are being passed through instead. Then there are pension contributions, more exotic paid time off that most employed professionals could benefit from like parental leave or cover for jury service, and the expenses of running the Ltd including statutory obligations to file accounts and some other paperwork.