Increased tax for the self employed

DoctorStrange

I note the Chancellor's comments about needing to equalise the taxes between the employed and the self-employed when things get back to normal.

Does anyone have an inkling what those increases might look like? It seems to me there's very little tax advantages left with self-employment so I'm wondering what taxes he can raise solely from the self-employed to "equalise" things.

In addition, are there many differences in the taxes between the self-employed and Ltd Co Directors/contractors? I'm guessing contractors will be hit by whatever changes are likely to be introduced despite not being eligible for any help just now, so just trying to wonder what may lie in store.

(Totally appreciate no one can say for sure, but educated guesses are still valuable info.

Also appreciate there's more important things to worry about right now, but any distraction is welcome, right?!)

Thanks

zagfles

Probably talking about NI (which is really a tax), which for the self employed is well under half the amount paid on employed earnings (by employees and employers).

Thrugelmir

If self employed wish to receive the same full benefits as the employed. Then they'll be taxed on an equitable basis. Remember employers also pay 13.8% on employees gross wages. Something that those in limited companies avoid using dividends. One can see a full overhaul and there'll be no grounds for complaint. As the Government will need to raise revenue to repay the massive cost of the intervention. A new chapter. 

Mr87

This is almost certainly taking about bringing in IR35 into the private sector which was pulled at the very last moment possible. Probably because swathes of self employed were screaming out that they would be put on the payrolls of their clients. Changes to NI and tax on dividends has already been implemented so as you say @DoctorStrange not much left. 

oldbikebloke

Mr87 said:

This is almost certainly taking about bringing in IR35 into the private sector which was pulled at the very last moment possible. Probably because swathes of self employed were screaming out that they would be put on the payrolls of their clients. Changes to NI and tax on dividends has already been implemented so as you say @DoctorStrange not much left. 

since IR35 has merely been deferred by 1 year, that certainly isn't one of the speculations since it is already factored in - and in reality has already caused massive fall out anyway with loads of our clients moving into umbrellas, employment or simply giving up.  

Mr87

oldbikebloke said:

Mr87 said:

This is almost certainly taking about bringing in IR35 into the private sector which was pulled at the very last moment possible. Probably because swathes of self employed were screaming out that they would be put on the payrolls of their clients. Changes to NI and tax on dividends has already been implemented so as you say @DoctorStrange not much left. 

since IR35 has merely been deferred by 1 year, that certainly isn't one of the speculations since it is already factored in - and in reality has already caused massive fall out anyway with loads of our clients moving into umbrellas, employment or simply giving up.  

Politicians love getting credit for the same thing, multiple times. If the chancellor says he wants to equalise taxes between employed and self employed when things get back to normal, after postponing IR35, I think it's consistent to say he's still talking about this. I can't imagine he'd want to e.g impose anything specifically on sole traders, it would be political suicide. Realistically what else can you do? Cut the dividend allowance to 0? Raise taxes on dividends?

Edit: mind you on reflection @zagfles suggestion on NI for self employed does seem like a strong possibility. But it has been tried many times. It would be VERY unpopular, esp. with blue collar, not really fitting in with the 'leveling up' narrativ , it would get lambasted in the media (again). And I wonder to what extent it is zero sum (people pack it in, charge clients more, which are tax deductable for expenses if working for another business, etc). It does make me chuckle that there is a general perception of self employment being a gravy train. One of the best ways to improve tax take would be to crack down on cash in hand. 

DoctorStrange

Those running their own company aren't entitled to any help at all right now, which I think is fair as we should all have cash reserves to cover periods like this. However that won't be possible in future if they continue with their plans to destroy the market.

Re NIC, the missing money is a result of the engager/client not paying employers NIC. It's unfair to expect the contractors to pay both Employers and Employees NIC.

I think they should introduce a new type of NIC so that if any self employed person/sole trader wants/has taken state help then they pay same NICs as employees. If they haven't taken any or were not entitled to anything, then why should they have to pay more going forward?

zagfles

DoctorStrange said:

Those running their own company aren't entitled to any help at all right now, which I think is fair as we should all have cash reserves to cover periods like this. However that won't be possible in future if they continue with their plans to destroy the market.

Re NIC, the missing money is a result of the engager/client not paying employers NIC. It's unfair to expect the contractors to pay both Employers and Employees NIC.

I think they should introduce a new type of NIC so that if any self employed person/sole trader wants/has taken state help then they pay same NICs as employees. If they haven't taken any or were not entitled to anything, then why should they have to pay more going forward?

Maybe the "engager/client" should pay employer's NIC or equivalent then. That'll obviously reduce the amount the contracter gets paid, as happens with employees. Why introduce a new type of NIC? Just apply Class 1 and 1A together with its entitlements and benefits as well as rates to everyone, self employed or employed. Employees have no choice but to pay Class 1, why should the self employed get a choice?

Mr87

@DoctorStrange @zagfles that's exactly what IR35 is designed to address, to determine people who are in employed by their clients and thus avoiding NI. How do you otherwise distinguish between self employed through a limited company and just simply a small business? I'm not sure how you could make businesses pay NI for contractors unless you are saying they are employed by the business, in which case they should get holiday, sick pay etc just like a normal salaried employee. 

Andy_L

Mr87 said:

 I'm not sure how you could make businesses pay NI for contractors unless you are saying they are employed by the business, in which case they should get holiday, sick pay etc just like a normal salaried employee. 

The contractor should be charging enough to cover all those things, in which case the same would apply to increased NI.
 Unfortunatly many companies are fiddling SE to just pay contractors similar amounts to employees and save on all those costs rather than using them to smooth out peaks in demand or fill niche little used skill requirements

Pennywise

Yep, the issue has been the double NIC that a limited company director has to pay if they pay themselves salary.  Sole traders and partners only pay once.  That's the crucial issue that has been dodged by politicians for the last 25 years.  That's why IR35 was always a stupid rule.  A sole trader pays 9%, a director paying themselves fully in wages pays 13.8% employers NIC AND 11% employees NIC - nearly 25%.  IR35 was always a badly designed fudge that was impossible to operate - Gordon Brown was told at the time it wouldn't work but he ignored the experts.  Subsequent Chancellors havn't got to grips with the issue either.  What we should have had was a different NIC rate for directors with a significant shareholding where it was just employees NIC and zero employers NIC, to  create somewhere near parity with a sole trader/partner scenario.  Of course, back in the 90s' before Browns' tinkering, we had advance corporation tax on dividends, close company apportionment rules etc which went some way to levelling the playing field, but all that was swept aside and 20+ years later, here we are - no nearer to a sensible solution!