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

[Deleted User]

TheBlueHorse wrote: »

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.

Are you meaning secretaries in the clerical sense or do you mean company secretary/director?

If you mean the first, then yes you will get in trouble paying someone a salary and then doing no work for it.

If its shareholder/company secretary then this is perfectly allowable. If you stopped this you'd have to stop every single family business in the country.

[Deleted User]

TheBlueHorse wrote: »

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.

£10K more. Are you insane? You really think its only worth £10K a year?

You also seem to be forgetting how easy it is to get rid of a contractor so you have to take into account time out of work. I've had gigs cancelled on the friday before the monday and then been out of work for 3 months.

If you did the 6 months thing people would just leave. Then the company would be moaning they cant get someone.

[Deleted User]

TheBlueHorse wrote: »

the family holiday IS the business trip.


the mobile phone is essentially personal


the petrol is his wife driving kids around


and so on....

Anyone who claims holiday on expenses and/or petrol for personal mileage is breaking the law. completely different. Not everyone does this.

lisyloo

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

Not sure what your experience is of either, but I'd expect a ratio of £60K permanent salary to £100K contractor salary.
This assume that contractor is working away and having commuting or short term accomodation costs, whereas permanent workers tend to get jobs where their home is.

Of course it depends on cirs, but I don't think anyone would give up benefits, sickness, employment rights for only £10K if of course they had a choice.

We shouldn't of course overlook the fact that good jobs are hard to come by and not everyone has the choice.
Some people are contracting because they couldn't find a permanent job and vice versa.

caronoel

Quite a bit of discussion here on contractors evading tax.

Rather than whinge on an Internet forum, you can directly report your suspicions to HMRC using this form

https://online.hmrc.gov.uk/shortforms/form/TEH_IRF

chucknorris

I think a lot of 'anti-contractor' feeling is because of misplaced jealousy (I have never worked as a contractor). Yes they get better (hourly/daily) pay and have better tax treatment, but they give up job security and comfort (have to move around possibly sometimes also living away from home, have to adopt to new systems and work colleagues frequently). If it is so good, why don't more do it, instead of sniping from the sidelines.

ukcarper

chucknorris wrote: »

I think a lot of 'anti-contractor' feeling is because of misplaced jealousy (I have never worked as a contractor). Yes they get better (hourly/daily) pay and have better tax treatment, but they give up job security and comfort (have to move around possibly sometimes also living away from home, have to adopt to new systems and work colleagues frequently). If it is so good, why don't more do it, instead of sniping from the sidelines.

I think there must be financial benefits otherwise why do people opt for it. But I agree the pay should be better to compensate for the loss of holiday pay, security etc. It is a matter of personal preference I have always giving up the chance of higher earnings for the security pension etc.

chucknorris

ukcarper wrote: »

I think there must be financial benefits otherwise why do people opt for it. But I agree the pay should be better to compensate for the loss of holiday pay, security etc. It is a matter of personal preference I have always giving up the chance of higher earnings for the security pension etc.

Totally agree, but taking on risk must be rewarded. It was different for me, I opted for being employed, because I took risk on with my two businesses (that I ran in addition to being employed), that was my risk/reward strategy.

woolythoughts

ukcarper wrote: »

I think there must be financial benefits otherwise why do people opt for it. But I agree the pay should be better to compensate for the loss of holiday pay, security etc. It is a matter of personal preference I have always giving up the chance of higher earnings for the security pension etc.

There are financial benefits but not as much as they used to be. Day rate in my sector is about £450-500 per day but its been the same for the last ten years - mean while costs have gone up. A semi decent hotel used to be circa £40 a night now its £60-70 unless you want a dirty room over a pub. I am talking London and Thames Valley which is where most of the work is.

Not everyone can use the tax advantage of a stay at home partner - in my case my husband is a higher rate tax payer anyway so no benefit at all putting him on the payroll/dividends.

To give an illustration:

£500 per day is about £2500 per week. Out of that roughly £500 goes on travelling and subsistance - which may be removed from us in 2017 but for now we'll count it. Our profit then becomes £2000 so £8000 per month. Roughly:

£150 per month accountancy
£100 per month for high speed broadband (have to be able to be work reliably from home if on call so 2G with no service SLA to speak of doesnt count)
£50 per month for all insurances
CPD and other materials over the course of a year - lets round the total up to a conservative £500 per month

Profit is now £7500 for months we work. Lets say we choose to take 2 months off - assuming combination of bank holidays, holidays equivalent to professional perm jobs and sickness. So that is £75000 net profit. We won't complicate it by deducting an extra grand for the expenses in the two months we dont work by choice.

Remember now, when we pay salary, we pay not only emplyees NIC but employers NIC so lets say we pay a conservative wage of £20K. I know some contractors pay a lot less but I believe £20K is about average. So net profit is now £55000 but the contractor takes home rougly 16.5K. Employers NIC now has to be paid so that is about £1.5K so net profit is now about £53.5K.

Corporation tax at the moment is 20% so £10,700 - that then reduces the amount available to £44500 We havent even considered pension contributions so we

So now the contractor has taken home 16.5K and has a potential of 44,500 to distribute in dividends. Now, for every week the contractor is out of work this amount reduces by about £1000 which is the real cost of not being in work after tax.

If every penny is distributed as a dividend in the year under the current rules it approximately a total take home of 16.5 + 22.4 + 15.4 = £54,300 which is roughly equivalent to a permi salary of about £80000 - which is good but not stratospheric and roughly equates to permie salaries in my sector and experience. But then you are not taking into account any time out of contract.

The tal of reducing our travelling expenses are ok - and great on the face of it. Except my last four assignments - all of about 6-8 months in length because thats the nature of a contractor - have been London, Dublin, Baingstoke and Manchester. Am I supposed to relocate every six months? If one of the big four accountancy firms filled my role (which is what would happen if the company didnt go contract) then their employees can claim expenses.

Some of us like being freelance for one very good reason - we can choose the client. When you work for someone else, you clients could be in the outer hebrides followe dby Siberia and you have no control over that - they are know n as the martini contract for a reason. They also usually come with expecations of unpaid overtime - I dont work if I dont get paid for it.

If conttactors didnt exist - clients would not take on permies - they'd just outsource to India or one of the bigger consultanciees thereby costing themselves even more.

movilogo

This change is just one more reason to give it all up and go and work for some mega corporation and live the easy life

That is exactly what this govt. is planning to do. In a decade there will be only some mega companies and most of us would be working for them like slaves.

We are heading for a totalitarian society