4 ms·

> What's different is the tax rate on dividends from shares, and the tax on employment, and that's the tax loophole that IR35 seeks to close The dividend tax m

> What's different is the tax rate on dividends from shares, and the tax on employment, and that's the tax loophole that IR35 seeks to close The dividend tax makes up for this What's different is the dividends escape employers National Insurance contributions

petercooper 4y ago
True, though I'm not sure they "escape" NICs so much as not being relevant. No NICs on capital gains or lottery winnings either. As an aside, I think they should scrap NICs and transparently collect it all through a single, higher income tax, but I guess it's handy to trick basic rate tax payers into paying 45% marginally (income tax, plus employee and employer NICs) by breaking it all into pieces..
- denton-scratch 4y ago
  > income tax, plus employee and employer NICs The other tax that individuals get hit by, that megacorps get to avoid, is VAT. Sure, megacorps pay VAT on their inputs; but they claim them back on their outputs. Individuals spend most of their residual income, so that gets taxed at whatever (20% now?). So individuals end up paying something like 70% tax. VAT is a wicked tax. [Edited] 20%, not 25%.
  - youngtaff 4y ago
    UK VAT is 20% on most of the items it applies to Most contractors are in a position to claim it back if they're also charging it
    - Nextgrid 4y ago
      Only claim it back on company expenses. I think what the parent is referring to is that individuals get taxed twice - once when they acquire the money (whether NI via employment, or dividend tax via limited-company self-employment) and then a second time when they spend it because most of what they spend it on includes VAT.
      - denton-scratch 4y ago
        That's exactly what I meant; except that although you mentioned NI, you didn't mention income tax. Dividend is irrelevant - I was referring to individual employees (sorry - didn't make that clear). The government (doesn't matter which colour, they're the same) make a huge deal about income tax rates, tax-free thresholds and so on. Income tax is a smaller part of my tax outgoings than VAT, by a long chalk. (Well, it was when I was earning; now I'm retired, I don't earn income, and nearly all my taxes are VAT).
  - vidarh 4y ago
    While VAT is highly regressive, this does not make sense. Most people spend only a tiny proportion of their income on things subject to VAT. E.g. for starters, the 20% VAT can only at most apply to what you haven't already paid in tax, so in the event of your hypothetical 50% effective tax rate including employers NI as a contractor (which means you'd need to be making around 110k GBP, placing you in the top 2% or so), you're at most spending 50% of your income, in which case VAT will at most add up to an additional 10% tax on your gross income. But in reality, most peoples biggest expensive will be things like mortgage payments or rent, neither of which you pay VAT on, and other major expenses such as a lot of food products, are also VAT exempt. Last time I did the maths for myself, VAT added up to 4% of my gross salary.
- youngtaff 4y ago
  Agree PAYE and NI should be merged – the distinction between earned and unearned income in the UK benefits those with capital rather than people who actually work To me dividends escape employers NI in the sense that if they were paid as salary then they'd attract employers NI and contractors can choose whether to take income as salary or dividends As a contractor I've always disagreed with the argument that "it's unfair that contractors pay employers NI" and think many contractors see their company's income as their personal income when it's not
  - vidarh 4y ago
    The PAYE/NI distinction is really because it's wildly politically inconvenient to admit that the difference between the lower and higher tax band is effectively much smaller than most people think it is. Merging them would create a lot of political pressure to widen the difference.
Silhouette 4y ago
But other small businesses get quite a generous allowance before they start paying employers NI as well now. There's yet another special case in the tax rules that hits solo companies specifically by saying they can't claim the same allowance as everyone else.
varispeed 4y ago
It's not different if the client hires a big consultancy firm though, but HMRC has no problem with these for some (khem... khem..) reason...

petercooper 4y ago

True, though I'm not sure they "escape" NICs so much as not being relevant. No NICs on capital gains or lottery winnings either. As an aside, I think they should scrap NICs and transparently collect it all through a single, higher income tax, but I guess it's handy to trick basic rate tax payers into paying 45% marginally (income tax, plus employee and employer NICs) by breaking it all into pieces..

denton-scratch 4y ago
> income tax, plus employee and employer NICs The other tax that individuals get hit by, that megacorps get to avoid, is VAT. Sure, megacorps pay VAT on their inputs; but they claim them back on their outputs. Individuals spend most of their residual income, so that gets taxed at whatever (20% now?). So individuals end up paying something like 70% tax. VAT is a wicked tax. [Edited] 20%, not 25%.
- youngtaff 4y ago
  UK VAT is 20% on most of the items it applies to Most contractors are in a position to claim it back if they're also charging it
  - Nextgrid 4y ago
    Only claim it back on company expenses. I think what the parent is referring to is that individuals get taxed twice - once when they acquire the money (whether NI via employment, or dividend tax via limited-company self-employment) and then a second time when they spend it because most of what they spend it on includes VAT.
    - denton-scratch 4y ago
      That's exactly what I meant; except that although you mentioned NI, you didn't mention income tax. Dividend is irrelevant - I was referring to individual employees (sorry - didn't make that clear). The government (doesn't matter which colour, they're the same) make a huge deal about income tax rates, tax-free thresholds and so on. Income tax is a smaller part of my tax outgoings than VAT, by a long chalk. (Well, it was when I was earning; now I'm retired, I don't earn income, and nearly all my taxes are VAT).
- vidarh 4y ago
  While VAT is highly regressive, this does not make sense. Most people spend only a tiny proportion of their income on things subject to VAT. E.g. for starters, the 20% VAT can only at most apply to what you haven't already paid in tax, so in the event of your hypothetical 50% effective tax rate including employers NI as a contractor (which means you'd need to be making around 110k GBP, placing you in the top 2% or so), you're at most spending 50% of your income, in which case VAT will at most add up to an additional 10% tax on your gross income. But in reality, most peoples biggest expensive will be things like mortgage payments or rent, neither of which you pay VAT on, and other major expenses such as a lot of food products, are also VAT exempt. Last time I did the maths for myself, VAT added up to 4% of my gross salary.
youngtaff 4y ago
Agree PAYE and NI should be merged – the distinction between earned and unearned income in the UK benefits those with capital rather than people who actually work To me dividends escape employers NI in the sense that if they were paid as salary then they'd attract employers NI and contractors can choose whether to take income as salary or dividends As a contractor I've always disagreed with the argument that "it's unfair that contractors pay employers NI" and think many contractors see their company's income as their personal income when it's not
- vidarh 4y ago
  The PAYE/NI distinction is really because it's wildly politically inconvenient to admit that the difference between the lower and higher tax band is effectively much smaller than most people think it is. Merging them would create a lot of political pressure to widen the difference.

Silhouette 4y ago

But other small businesses get quite a generous allowance before they start paying employers NI as well now. There's yet another special case in the tax rules that hits solo companies specifically by saying they can't claim the same allowance as everyone else.

varispeed 4y ago

It's not different if the client hires a big consultancy firm though, but HMRC has no problem with these for some (khem... khem..) reason...