The new dividend tax - does this mean contractors who paid themselvs big divvies

lisyloo

So far they could pay themselves very low wage and big dividends. But now their tax burden increases significantly.

This assumes all things being equal i.e. they continue doing what they did before.
It won't work like that because some will be a bit smarter.
For example they might decide to put more into their pension on which they pay no tax at all.
As another example married contractors might decide to pay their spouse £5K in dividends (there's a £5K allowance) for "services rendered".
There are more options I'm sure.

Thrugelmir

Reading the budget details last night. The whole IR35 status is to be reviewed by the HMRC. As a consequence changes will most likely follow in the future.

Thrugelmir

lisyloo wrote: »

As another example married contractors might decide to pay their spouse £5K in dividends (there's a £5K allowance) for "services rendered".

If they are shareholders then yes.

kabayiri

The best scam involved the use of these umbrella companies of dubious nature, often based out of Isle of Man or similar.

A fellow work colleague told me how he got 90%+ of gross as pay.

Of course, it wasn't "pay" as such; just a series of loans on ridiculously generous neverending payment terms -- reminds me of Greece really

These really annoyed HM Gov and co. I think George alluded to these as well in the budget?

TheBlueHorse

Generali wrote: »

What's fair? All you do is follow the tax rules.

the rules were unfair. I didn't think they were personally doing anything wrong.


If someone earns £100k as a salary or if someone generates £100k into their company and pays themselves a salary and a dividend, they should both, more or less get the same amount.


It was a sham that they could pay themselves £10k and pay no income tax, then get the rest as a dividend.


The rule should be that whatever you do, your "salary" must be reasonable and in line with what an employee doing the same job would get.


the whole thing is a farce. people get paid more than they should. Companies pay less than they should. the taxpayer loses out. It needed to be addressed. This is a start.

TheBlueHorse

in fact I think there should be a law that companies can only hire "contractors" for 6 months - and after that have to make them permanent employees or get rid.


As Lissyloo said - they should get an income advantage as they don't get benefits, so the employee may get £50k plus holiday, pension, share options, health etc etc and the contractor could get £60k to make up for that BUT the contractor should still pay the same rate of tax on his £60k that the the employee does on his £50k.


This madness of dividends at a lower rate and giving money to your spouse as a shareholder or "secretary" or whatever, needs looking at.


In fact, in one man band companies, it should be illegal to have spouses as "secretaries" unless they can 100% prove they are doing the work.


Also with giving yourself a loan.


If the cash is actually reinvested into the company then that is fair enough and relief should be given.


I know people who "work for themselves" that are constantly on the fiddle, reclaiming VAT left right and centre, paying spouses, giving loans. All a ruse for paying less tax.

theEnd

TheBlueHorse wrote: »

the rules were unfair. I didn't think they were personally doing anything wrong.


If someone earns £100k as a salary or if someone generates £100k into their company and pays themselves a salary and a dividend, they should both, more or less get the same amount.


It was a sham that they could pay themselves £10k and pay no income tax, then get the rest as a dividend.

But there was still loads of tax to pay.

Corp tax @ 20%, then a further 25% of whatever you took as a dividend, so for each £1 'earned' in the higher tax band, both employees and contractors pay around 40% income tax. The difference is that the contractor would not pay both sides of the national insurance.

Under the new rules, this will become 18% corp tax and 32.5% divd tax, so will go up to 44.5%.

There's plenty of complications with gross/net and the lower tax band ... but, overall, now very little difference.

Thrugelmir

TheBlueHorse wrote: »

reclaiming VAT left right and centre,

Perfectly legitimate. If they are in breach an investigation (which one day they will have ) will reveal all.

TheBlueHorse

Thrugelmir wrote: »

Perfectly legitimate. If they are in breach an investigation (which one day they will have ) will reveal all.

not perfectly legitimate when it has nothing to do with the company ie filling the family car up with petrol, going on holiday (or "business trip"), mobile phones etc etc. All hidden/grey areas.

lisyloo

But there was still loads of tax to pay.
Corp tax @ 20%, then a further 25% of whatever you took as a dividend

Are you certain about this?
Citywire say this
http://citywire.co.uk/new-model-adviser/news/summer-budget-gov-t-overhauls-dividend-tax-regime/a825348

Currently, those receiving dividends benefit from a 10% tax credit. Given the tax on dividends for basic rate taxpayers (those paying 20% income tax) is 10%, it means basic rate taxpayers receive dividend income tax-free.

or are you only talking about the higher rate part?

I am pretty sure there isn't loads of tax to pay and I'm talking from real experience and NOT doing anything fradulent but certainly avoiding tax.