Pension tax raid being touted again

dunstonh

Remove tax-free dividends, at the end of the day they are just 'income' and why should any income be tax-free separate from your tax allowance. Appreciate this would? affect investment dividends also.

Some nice ideas but I am going to pick a couple to play devils advocate.    The dividend allowance exists as its cheaper to remove all the people that get small amounts of dividends rather than create an extra circa 5 million tax returns to complete where the taxation revenue may be pennies per person on avearge.

Get rid of the loophole/system where self-employed people/company owners pay themselves the bare minimum of wages, just enough to qualify for NI credits and pay themselves the rest of their wages in dividends. Make dividends taxable at full BR/HR and not some artificially low figure so they pay the same amount of tax as PAYE people.

Under the current taxation levels, there is very little difference between the two methods.   Primary threshold salary and dividends above is still marginally better in most scenarios but that method also saw those needing furlough lose out (correctly so IMO).   So, there was a consequence to that method and I dont personally think that further work is necessary given the small difference that there is today.   Going to full BR/HR would see small business owners suffer 19% Corp Tax on profit and then 40% HRT on dividends (as dividends are not a business expense).   Is it really fair that people earning £50k,60k or similar being taxed on over half earnings?

Raise CGT tax rates to 0%, 20% and 40% in line with basic and higher rate tax. Again, it's income so why is it taxed below PAYE income rates. Very unlikely to be a problem for lower earners (exceptions may/will exist)

It would have a knock-on effect with the personal allowance, personal savings allowance and benefits and others.  It would also create further tax returns that result in unprofitable collections.

kangoora

1. Accept that probably a small tax-free dividend allowance is required

2. Maybe accept dividends as an allowable business expense, but then tax them when they are paid at BR/HR - maybe add NI 'tax' to dividend payments also? Agree this could get very complex but what is Government/HMRC for.

3. Disagree on this but partly see your point. At the end of the day if the government raised CGT tax everyone would have to fall in line, they've changed the system/rates 4-5 times in the last 40 years to one degree or another. It would just be another change the government and people would have to work through. Also, it doesn't mean any more people will pay CGT, just that those currently liable for CGT pay a little more in tax.

Albermarle

How about HMRC employ a lot more people, or reverse recent cost cutting , to make sure as many people as possible actually pay what they should,even before any of the suggested changes ?

kangoora

Albermarle, totally agree. My wife has worked almost exclusively in accounts for small companies for the last 20 years and there is a staggering amount of low level tax fiddling going on. Where she worked it's never been anything you could call significant fraud (£ks) apart from one firm which went bankrupt 10 years ago but extrapolated across the country and the 1000's of small businesses I'd imagine it would be prety significant. Simple stuff like cash in hand payments, incorrect use/categorisation of company cars, putting personal purchases through the books to avoid VAT etc - very, very difficult to police without a deep dive which would be counter-productive on cost vs benefit.

badmemory

Anyone remember the plan a couple of years ago to get self employed to pay both employers & employees NI.  That should be fun!

I was trying to remember the first time I read about removing the 40% (extra 20%) tax relief on pension contributions on here, it has got to be at least 10 years.  Still hasn't happened.  It would affect too many of their mates.  I hardly think that will happen as they have been handing out contracts for large amounts to those self same mates.  If any of the changes effect people on over £75k/a I will be very surprised.

Thrugelmir

kangoora said:

Albermarle, totally agree. My wife has worked almost exclusively in accounts for small companies for the last 20 years and there is a staggering amount of low level tax fiddling going on. Where she worked it's never been anything you could call significant fraud (£ks) apart from one firm which went bankrupt 10 years ago but extrapolated across the country and the 1000's of small businesses I'd imagine it would be prety significant. Simple stuff like cash in hand payments, incorrect use/categorisation of company cars, putting personal purchases through the books to avoid VAT etc - very, very difficult to police without a deep dive which would be counter-productive on cost vs benefit.

HMRC payroll audits are extremely effective. People rarely take the risk again. 

Gary1984

The IR35 changes already target people paying themselves via dividends. However it's a mess and creates a class of people who have all the tax obligations of employees (plus 13.8% employer NI) but none of the benefits (furlough, sick pay, wrongful dismissal, redundancy, training, pensions conts etc). It will probably also have an impact on the economy as going after a highly skilled, self motivated and agile workforce isn't the best of ideas. They should follow the Irish system of having dividends taxed at the same rate as income with perhaps a special 'Directors' rate of NI to be paid on this income to even things up a bit with employees. Or just increase corporation tax. 

zagfles

Rishi's already hinted at bringing the self employed into line with the employed for NI.

CGT rates in line with income tax rates seems fair.

Not dividends though - dividend rates are much lower for the obvious reason that they're a tax on a tax. They're a tax on money which has already had corporation tax levied. In the old days dividends were taxed at income tax rates but there was a tax credit of (some of) the corporation tax to offset this. (This was Gordon Brown alleged raid on pensions when he abolished this tax credit for pension funds).

Income tax rates increase - sensible but far too risky politically, very visible, breaking a manifesto promise. Why cause this problem when there are so many other ways of raising taxes.

What about removing the tax benefits of ISAs, and perhaps replacing them with a combined savings and dividend allowance of say £5k? Vast majority of people don't earn anywhere near £5k in interest and dividends particularly in these days of low interest rates. A few will squeal, but this might be like the child benefit tax for higher earners, hugely popular despite being unfair and the squealing was highly benefical for the govt as it kept a popular policy in the headlines. Perhaps exempt any assets bought while in the ISA from CGT, or at least start the CGT clock at the abolision date. Keep the £5k 0% "starting rate" for savings for low earners to protect low income pensioners relying on savings income, so they'd get £10k tax free on top of the personal allowance.

Apply CGT on owner occupied housing on death (except beneficial jointly owned property where the surviving owner is an occupier too). Would encorage downsizing before death, releasing property and equity and boosting the economy.

zagfles

Gary1984 said:

The IR35 changes already target people paying themselves via dividends. However it's a mess and creates a class of people who have all the tax obligations of employees (plus 13.8% employer NI) but none of the benefits (furlough, sick pay, wrongful dismissal, redundancy, training, pensions conts etc). It will probably also have an impact on the economy as going after a highly skilled, self motivated and agile workforce isn't the best of ideas. They should follow the Irish system of having dividends taxed at the same rate as income with perhaps a special 'Directors' rate of NI to be paid on this income to even things up a bit with employees. Or just increase corporation tax. 

If they're paying the same NI as employees they get the same NI benefits. One man band limited companies could furlough themselves on their salary (not dividends, obviously), they can get SSP, the company can pay their pension conts etc. They could probably make themselves redundant but obviously their company would be paying the redundancy

dunstonh

Anyone remember the plan a couple of years ago to get self employed to pay both employers & employees NI.  That should be fun!

I don't remember that one.  However, Hammond wanted to increase the self employed NI.   Not unreasonable seeing as the self employed had just massively increased their state pension entitlement at no cost to them.   That went down badly.  Although it was quite funny seeing large numbers of limited company directors moaning about it thinking they were self employed when they are not.