4 ms·

What you see with IR35 and various laws in the US (eg preferential tax treatment for passthrough corporations that produce stuff since the Trump tax cuts) can a

by cletus 4y ago

What you see with IR35 and various laws in the US (eg preferential tax treatment for passthrough corporations that produce stuff since the Trump tax cuts) can all be boiled down a complete failure in dividend taxation. In the US, corporate profits get taxed. You pay a dividend (for the sake of argument; in reality it's a share buyback these days). You then have to pay tax on that dividend. That's dumb and unnecessary. In the UK as a contractor you pay yourself a low wsage (IIRC ~32K GBP) then a certain amount in dividends because of preferential tax treatment and then you'd try and deduct a bunch of stuff (eg car leases). You might retain profits and then dispose of your business at a preferential tax rate after a few years. Australia on the other hand is one of the few countries in the world with a simple system of dividend imputation. Say the corporate tax rate is 30% (it was; not sure if it still is). Say you make $1000 in profits and pay 4300 in corporate tax and decide to distribute the remaining $700 as a dividend. That $700 is what's called fully-franked meaning it comes with $300 in franking credits. When you file your taxes, you get credit for paying $300 in taxes. If your overall tax rate is lower you'll get a refund (essentially). If it's higher, you'll have to pay a little more. But this way there's almost no difference between paying yourself ordinary income and paying a dividend so a lot of problems just do not exist. There are some differences (eg the Medicare levy and superannuation requirements). I truly do not understand why the US cannot do this and why the UK spent 20+ years trying to enforce stupid legislation like IR35 rather than simply fixing the dividend system. It's mind-blowing. The solution is so simple. IR35 enforcement was such a huge waste of money that simply could've been avoided by not caring if someone gets a tax deduction for a car lease.

LatteLazy 4y ago
The fact that this is such an easily solved "problem", and that the solution is so poor (force contractors to pay very high deductions and not give them any credit for doing so) has led many (including me) to believe this is just an attempt to outlaw individual contracting by the back door...
mindslight 4y ago
> I truly do not understand why the US cannot do this and why the UK spent 20+ years trying to enforce stupid legislation like IR35 rather than simply fixing the dividend system Because politicians work for rich people, and rich people do not like to pay taxes. Rich people mostly get dividends, and so the dividend tax rate remains low. The entire legal system is warped around the desires of wealth. Look at the LLC regime in the US. LLCs actually provide very little protection for individuals or small groups running their own businesses, since it can always be argued that active owners should be held personally liable, or even that the business is undercapitalized because the owners have to be directly involved instead of just paying employees. To actually get the big print liability shield, you must only supplying dumb money while hiring patsies to do all the actual work. The regime that LLCs grew out of, Limited Partnerships, openly make this distinction between general partners who actually do work and can be held fully liable, and limited partners who invested money and thus must be held harmless.

by cletus 4y ago

LatteLazy 4y ago

The fact that this is such an easily solved "problem", and that the solution is so poor (force contractors to pay very high deductions and not give them any credit for doing so) has led many (including me) to believe this is just an attempt to outlaw individual contracting by the back door...

mindslight 4y ago

> I truly do not understand why the US cannot do this and why the UK spent 20+ years trying to enforce stupid legislation like IR35 rather than simply fixing the dividend system Because politicians work for rich people, and rich people do not like to pay taxes. Rich people mostly get dividends, and so the dividend tax rate remains low. The entire legal system is warped around the desires of wealth. Look at the LLC regime in the US. LLCs actually provide very little protection for individuals or small groups running their own businesses, since it can always be argued that active owners should be held personally liable, or even that the business is undercapitalized because the owners have to be directly involved instead of just paying employees. To actually get the big print liability shield, you must only supplying dumb money while hiring patsies to do all the actual work. The regime that LLCs grew out of, Limited Partnerships, openly make this distinction between general partners who actually do work and can be held fully liable, and limited partners who invested money and thus must be held harmless.