Self Employed Loop Hole

zygurat789

It's wrong because it is unfair. These taxation provisions were brought in to encourage investment in companies. The old system taxed dividends as additional income, not a special source. The government has tried to stop this with IR35 and restricting certain expenses to two years but it has all been very ineffective.
Looking on the other side it saves the company "employing" the contractor on all sorts of employment costs such as pensions and these workers are always the first to be laid off in a recession.
Bigger risks taken the bigger the reward.

inmypocketnottheirs

psmyth wrote: »

but this one is costing billions as well, I'm not sure you've quite grasped why it's wrong.

Who says its wrong? There is nothing to grasp!

wireframe_2

psmyth wrote: »

but this one is costing billions as well, I'm not sure you've quite grasped why it's wrong.

You're just coming across as bitter that you haven't thought of this / are unable to do this yourself.
There is no such thing as "wrong", just your perception of an event.
Just like there is no such thing as "bad" weather. Its just weather. You just label it "bad".

TM1976

There is an NI saving here, although the government have reduced the benefits through IR35.

When you look at the pure numbers compared to your payslip you don't see that:

The contractor doesn't get paid holiday.
The contractor doesn't get paid sickness/SMP/SSP etc.
The employer can cease the contract at any time.

So the contractor takes on a lot of the risk of the work that a normal employee wouldn't - the cost of this is higher than you may think.

patrick1

This loophole has been around for a long time. Labour tried to get rid of it with IR35 but drafted the legislation so poorly that virtually everyone got around it.

I used to use the loophole when IT contracting and was effectively paying about 15% tax by paying myself £8K year and receiving the rest as dividents. Fellow colleagues were working through dodgy umbrella companies overseas and paying less than 10%. We were all earning over 120k before tax.

I've worked in a permanent position for 10 years now so pay higher rate tax and my salary is a lot less than back then, but all the contractors I work with now just change the wording on their contracts so they can avoid IR35.

The Tories say they're going to get rid of IR35 which is disgraceful, they should sort it out so that everyone pays a fair rate of tax. The Lib Dems seem to be the only party who are onto this issue.

By the way, http://www.pcg.org.uk/cms/index.php is the place to go if you want to learn how to avoid IR35.

Nosht

zygurat789 wrote: »

An employee grossing £75,000 nets £50,560.
A sole trader making a profit of £83,868 (£75000+ers nic 8868) nets £56813.
An LTD profit £83,868 gives a net income of £60,530.

It's easier to "steal" money out of your business if you are a sole trader.



N.

zygurat789

Nosht wrote: »

It's easier to "steal" money out of your business if you are a sole trader.



N.

I don't see why but I couldn't possibly comment

James_Trimby

TN1976 makes a very valid point also potentally better state pensions/redundancy etc etc, this is worth a lot of money. IR35 has crept into the thread but this difference in tax applies to anyone in business whether subcontractor or manufacturer. It is impossible to be fair as there are so many variables. IT is true all self employed are more able to adjust their tax positions but that has always been the case and they are normally less likely to benefit from the state as well.

Re IR 35 This is a stupidly complex and daft tax. It is not always as easy to get around as some think but too complex for Revenue to check on everyone as it is the individual who is checked not the "contracting" company. I suspect it costs as much to run as it collects in extra taxes (it has added two or three extra boxes on most peoples tax papers for a start!) It would be much easier to be tougher on the whole subcontractor/employee arguement (althought the big firms "employing" all these workers will put up a fight). It is also the reason for a lot of loophole schemes (I have one available for my clients!) which is always a good sign that the legislation is too complex and badly planned. Though I benefit from the complexity I will still cheer everytime a piece of tax law is removed !