Cyclone Posted August 17, 2011 Share Posted August 17, 2011 I haven't got any problem at all with the concept. But if you wind back a little bit this discussion started with the 50p tax rate and how individuals might chose to avoid it. One of the options was setting up a limited company. Now I know all businesses need to start somewhere and they will be one man bands for a time. Most businesses will anticipate employing other people as time progresses. It's good that we have a system that can reward the directors of businesses that do wthat with dividends. But on the other hand we have limited companies set up with the intention of avoiding tax - they remain one man bands and the intention is to never, ever provide employment for anybody else. It's a tax wheeze in some cases, nothing more. I have a problem with that. You might have heard of IR35, this law was introduced deliberately to stop the scenario you partially describe, that of setting up a ltd company but continuing to act as an employee. There is no issue with a business continuing to just employ one person, that's perfectly valid and it's what many people running all sorts of businesses do, small shops, gardeners, builders, plasterers, tradesmen of all kinds and small service providers, entirely legitimate. It's not been possible to simply create a ltd company, stay with your employer and avoid tax for at least a decade though. You have to be genuinely self employed, work for multiple clients, without any of the benefits a real employee would have and equally without any of the protection. The higher take home pay could be considered to be compensation for the risk that my contract could be terminated tomorrow, that I have to hire an accountant, take out business insurance, pay my own expenses, pay for my own pension and pay for my own holiday time... Of course the law doesn't spell that out, but that's certainly one way of looking at it. Link to comment Share on other sites More sharing options...
truman Posted August 17, 2011 Share Posted August 17, 2011 There are lots of arguments about taxation. Many possible sytems. Some fairer than others. very rarely a perfect one. Ours is generally consided to be an arcane and horribly complex mess. The Tories themselves are touting the remove of the 50p rate as a simplification measure. How much extra does the 50p rate bring in? How much extra does it cost to adminster it? Wasn't it just done for appearance sake by the last lot..? Link to comment Share on other sites More sharing options...
I1L2T3 Posted August 17, 2011 Share Posted August 17, 2011 That is what we all do. Which doesn't mean commensurate with your income if it were PAYE, which seems to be what you really mean. My view is it should be treated as if was PAYE, employed or self-employed to make the overall system simpler. I do understand your argument about directors and I know why in many cases directors would want to pay themselves a low wage in order to help grow their company. That should be easy to prove and justify to the taxman. But when that system is abused by a limited company with one director who happens to be the only person paid by the company, and it's obvious that there are no plans to ever employ anybody else - IMO that is not in the spirit of how it should work. Link to comment Share on other sites More sharing options...
I1L2T3 Posted August 17, 2011 Share Posted August 17, 2011 How much extra does the 50p rate bring in? How much extra does it cost to adminster it? Wasn't it just done for appearance sake by the last lot..? "Only" £750m according to the treasury. Link to comment Share on other sites More sharing options...
truman Posted August 17, 2011 Share Posted August 17, 2011 "Only" £750m according to the treasury. How much to administer...? Link to comment Share on other sites More sharing options...
I1L2T3 Posted August 17, 2011 Share Posted August 17, 2011 You might have heard of IR35, this law was introduced deliberately to stop the scenario you partially describe, that of setting up a ltd company but continuing to act as an employee. There is no issue with a business continuing to just employ one person, that's perfectly valid and it's what many people running all sorts of businesses do, small shops, gardeners, builders, plasterers, tradesmen of all kinds and small service providers, entirely legitimate. It's not been possible to simply create a ltd company, stay with your employer and avoid tax for at least a decade though. You have to be genuinely self employed, work for multiple clients, without any of the benefits a real employee would have and equally without any of the protection. The higher take home pay could be considered to be compensation for the risk that my contract could be terminated tomorrow, that I have to hire an accountant, take out business insurance, pay my own expenses, pay for my own pension and pay for my own holiday time... Of course the law doesn't spell that out, but that's certainly one way of looking at it. Yes I know about IR35. Not particularly effective, horribly complex and confusing. Link to comment Share on other sites More sharing options...
I1L2T3 Posted August 17, 2011 Share Posted August 17, 2011 How much to administer...? Ask the treasury Link to comment Share on other sites More sharing options...
I1L2T3 Posted August 17, 2011 Share Posted August 17, 2011 That is what we all do. Which doesn't mean commensurate with your income if it were PAYE, which seems to be what you really mean. It's not what we all do unfortunately, e.g. if you choose to set your income at a low level you could avoid income tax altogether. Sure you might pay tax in other ways but it would be simpler, and fairer if the system was consistent and transparent. Link to comment Share on other sites More sharing options...
I1L2T3 Posted August 17, 2011 Share Posted August 17, 2011 Speak to the government then...and ask them to stop tax relief on pension contributions while you're at it.. They already set up a Office of Tax Simplification. I'm not holding my breath. Link to comment Share on other sites More sharing options...
Cyclone Posted August 17, 2011 Share Posted August 17, 2011 My view is it should be treated as if was PAYE, employed or self-employed to make the overall system simpler. That would be possible I suppose. I do understand your argument about directors and I know why in many cases directors would want to pay themselves a low wage in order to help grow their company. That should be easy to prove and justify to the taxman. You don't have to prove or justify anything, just work within the rules that are set. But when that system is abused by a limited company with one director who happens to be the only person paid by the company, and it's obvious that there are no plans to never, ever employ anybody else - IMO that is not in the spirit of how it should work. I'm your opinion is just that though, and as I already gave you examples of half a dozen small businesses that may well never employ a second person. Are you telling me that a gardener who works for many different clients isn't really self employed, or that someone running a small shop who never hires anyone else should have to pay himself a salary instead of dividends? Have you considered what this really means? Imagine you changed the law, only businesses with 2 employee's are allowed to pay the director a dividend... It would be so easy to circumvent that it's pointless. Not to mention that it's entirely arbitrary and penalises genuine one person service companies just because you think they should pay more tax. Link to comment Share on other sites More sharing options...
Recommended Posts
Archived
This topic is now archived and is closed to further replies.