taxes and law
Let's be clear here. Apart from this guy and his £99k bill (where he surely must have been doing some dodgy accounting!), most contractors running outside of IR35 are paying all taxes they are required to by law based on legal advice. The law does not say that using dividends as a major form of income is illegal. Funny enough a lot of MPs probably do exactly this through their various side interests and investments (e.g. director/chairman of XYZ etc). All that's happened is the gov has said "we want a part of that!" and invented a convoluted contradictory law that costs the tax payer a fortune to police.
The difference really is not that great, as a large chunk of income comes from dividends which (and people forget this) are taxed at source at 10% as part of corporation tax that the contractor's company pays, just the same as anyone else who gets dividends. A regular salaried employee pays 20% on their salary income at base rate. So really about a 10% difference. Well, and then there are the NI savings ;) (to be fair I'd be okay paying full NI if I have to, but not if I'm deemed an employee and forced twice what an employee pays which is what IR35 demands).
If said contractor goes into the top tax bracket, they pay another 22.5% on those dividends.
The real savings from contracting come more from the fact you are given a lump of money to use as you like (spend on sick, holidays, expenses, pension, invest in the company, etc), and typically your costs are lower than those of a big corporate.
In fact, you are likely to be costing the client less than an employee who gets the same take home, when you consider all the overhead costs, and are easier to recruit (and probably more likely to have the required skills). Saving to the client, which boosts the IT industry and better for the economy.
What's also frequently overlooked is the amount of business skills being gained through contractors running their own businesses, and how many of these businesses grow into more than just a simple contract service business.
But anyway. The real beef I have is with the concept of IR35 and the employee status as a means of targeting a specific group. Paying the extra tax is not much of a concern, but being told I am an employee of the client but at the same time I'm not and don't get the same benefits, but must pay full income, can't have profits, and can't invest in my business and thus end up with theoretically less than if I'd been a full employee. It's just so contradictory and confusing.
Solution is simple. Tax dividends as full salary with NI. We can then pay ourselves what we want, just at full tax. Bonus is we can still invest in our businesses and take profits from it when we want rather than when we are told, and thus can remain "proper" businesses.
Of course they'd hate that as a lot of influential people way beyond the IT sector will suddenly be hit with tax ;)
Failing that, provide us with a means of running our affairs that has the business/personal financial safety net of a Ltd company but is akin to being a true sole-trader / self-employed.
Biting the hand that feeds IT
