back to article The voters hate Google. Heeeeyyyy... how about a 'Google Tax'?

As the tech news outlet of record has told us, UK chancellor George Osborne is preparing to bring in the “Google Tax”. Properly known as the Diverted Profits Tax, it is supposed to be a way of scraping tax revenue off those profits that the tech giants are diverting out of what should be righteously paid to HM Treasury and …

Anonymous Coward

The voters hate Google

But I wonder how many of them use it (for free)?

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Anonymous Coward

Re: The voters hate Google

It's not free if you end up buying goods at an inflated price because they've paid Google a fortune.

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Re: The voters hate Google

But I wonder how many of them use it (for free)

"Without financial detriment". It's not free.

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Re: The voters hate Google

Is it free? I'm paying taxes so they can have a nice police service guarding their buildings, and there is a nice infrastructure with clean electric supplies etc.

After all in the same way they don't have to pay taxes because that's the way the law is, they don't charge me a connection fee why should I volunteer any to them?

Anyway I don't hate Google, I dislike the bad tax laws we have though.

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Re: The voters hate Google

The service they provide and the tax they pay in the country are not closely coupled, I think it's a spurious line of argument.

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Anonymous Coward

Re: The voters hate Google

google are still paying HUGE rates on offices, VAT on purchases, National Insurance contributions on employees as far as infrastructure goes ur taxes aren't paying for that G profits are. They are not getting a free lunch for the business they actually carry out in the UK.

we live in a global economy - if the UK is backwards and insular less attractive to forward thinking profit making organisations and only more attractive to benefit seeking immigrants then that is the fundamental problem.

Osborne is either really thick thinking that this is actually viable, or the worst type of self deluded conman thinking this will give him the 'attention of the people'. I do not know what is worse.

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Re: The voters hate Google

>> HUGE rates on offices, VAT on purchases, National Insurance contributions on employees as far as infrastructure goes ur taxes aren't paying for that G profits are. <<

Rates will be for local council, NI contributions are the same as every employer has to pay (can't really champion them on that front - not like they don't have employees in every country they do business), VAT doesn't work that way (they reclaim every pound, only the end consumer suffers VAT). Understanding how these things work makes sweeping statements like 'as far as infrastructure goes ur taxes aren't paying for that G profits are' easier to make correctly.

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JDX
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Re: google are still paying HUGE rates on offices, VAT on purchases...

So what? If I have a salary of £100k I can't say to HMRC "look, I pay my National Insurance contributions and that's quite a lot, so I won't bother with income tax as well"

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Re: The voters hate Google

Google + your brain = cheap prices found for services & goods

Google - your brain = non-optimal higher prices paid

Where was your brain?

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Re: google are still paying HUGE rates on offices, VAT on purchases...

No, but apparently if you have a salary of a million that's more or less how it works...

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Re: The voters hate Google

Since 1992 Business Rates have gone straight to HM Treasury, Local Government just acts as an (unpaid) collection agency.

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Pint

Suggestions...

To clarify, the subject here is the profit earned and taxable within a given jurisdiction. The profit where they use "creative techniques" to export and avoid paying the usual rate of income tax.

Solution 1) When companies export profits, they typically pretend to "import" something to balance the books. Often they "import" rights to use a trademark, thus the profits are bundle up as a "royalty payment" and sent off to the corporate mothership untaxed (and a deductible expense no less). So, duh, tax the imports. Slap a 20% import duty on imports of trademark rights, or whatever else they pretend to import. This could be implemented in an afternoon.

Solution 2) Slap a tax on a fixed target, and then allow deductions for income tax actually paid. Find something, anything, that can't be moved. Tax it. But if the corporation has paid any income tax, then allow that to quickly 'deduct to zero' the new tax. If they forgot to pay income tax, then they can't escape the alternate tax.

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Re: Suggestions...

>tax the imports.

That might catch "pure ip" plays like Google Search, but it won't catch anyone with physical goods for sale (such as Apple), since they simply jack up the buy-price paid by the in-country sales company. The only reason those companies don't run at a loss and pick up a rebate, is that it would attract too much hate to be worthwhile.

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I don't hate Google

I don't hate Google. But then I'm not a voter. (Been out of the country too long.) So, I suppose Osborne might know his public better than I initially thought.

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Anonymous Coward

Re: I don't hate Google

I have no idea who this guy is, but making the tax 5% higher seems like a plan to make people think you care, while intentionally creating a scape goat so it can't happen when the time comes to answer for it.

I'm American, so blame it on my pessimism, but this looks VERY familiar in politics (like very very very...?...very)

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Holmes

Hmmm

What about spurious and inflated licensing fees being charged purposely to ensure the UK entity never makes a profit? Are they the same rate worldwide - and if not why not?

What about UK sales people working for a UK company and making the sale but handing off the agreement to be signed to an Irish company? For all intents and purposes the sales are being made in this country by a UK corporation but then completed by a third entity purely for tax avoidance.

At the moment both these are legitimate tax avoidance - not sure they should be though.

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Re: Hmmm

"What about spurious and inflated licensing fees being charged purposely to ensure the UK entity never makes a profit?"

Wioth respect to hte tech companies that's not what actually happens. Well, it does in Ireland but that's an issue for their tax system, not ours. They're all selling into the UK from other EU countries. As above, under EU single market laws, that's just not even tax avoidances.

" Are they the same rate worldwide - and if not why not?"

Ah, if they're not then they would be in trouble, yes, transfer pricing rules would get them. And people are looking at this. Starbucks barnd royalties to that Dutch company for example. The EU found that Starbucks UK was being charged the same royalty rate as Starbucks franchises in other countries. So that's OK then.

"What about UK sales people working for a UK company and making the sale but handing off the agreement to be signed to an Irish company?"

That's a little more dodgy and and area where Google could, theoretically, come unstuck. Depends on how far down the line those UK based "sales engineers" go in "making" the sale. This is something that is being investigated/argued about right now and we'll just have to see how it turns out.

"For all intents and purposes the sales are being made in this country by a UK corporation but then completed by a third entity purely for tax avoidance."

As above, it's about how close that is to being true.

"At the moment both these are legitimate tax avoidance"

I tend to argue that tax avoidance is an attempt to reduce taxation. But once it passses therough the system there's actually no such thing as avoidance. Either you've obeyed the law as written, in which case it's tax compliance, or you haven't, so it's tax evasion.

" not sure they should be though."

And that is an entirely different matter. what "should" be is up to each of us to decide based on our ideas of fairness. That's not really something economics can help with.

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Re: Hmmm

Not sure why you got downvoted for this, Tim. Maybe the typos? Have an upvote from me.

Guess some people can't accept the reality of the situation. As things stand, no laws have been broken, therefore no action can be taken against the multinationals.

Perhaps the way around all this is to legislate that all sales in this country must be done by a company registered in this country. That way all sales to UK clients occur in the UK and are therefore taxable at UK corporation rates. However IANAL and expect that runs contrary to some trade treaty, tax agreement or whatever. And all EU countries would likely need to enact a similar law at the same time to be effective. I dunno. Just putting it out there.

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Re: Hmmm

And and upvote from me as the Op. I presume the down votes are from those who are unable to determine whats happening from what they want to happen and are using Tim as a whipping boy.

I enjoyed both the article and his reposte to my post.

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Re: Hmmm

Perhaps the way around all this is to legislate that all sales in this country must be done by a company registered in this country. That way all sales to UK clients occur in the UK and are therefore taxable at UK corporation rates. However IANAL and expect that runs contrary to some trade treaty, tax agreement or whatever. And all EU countries would likely need to enact a similar law at the same time to be effective. I dunno. Just putting it out there.

Jimmy2Cows,

I'm afraid that defeats the whole object of the European Single Market. The idea is supposed to be that any EU company in any EU country can sell to any other EU country. That means that companies only need to comply with one set of laws and taxes. It's an awful lot of hassle to harmonise this stuff, and it's taken a very long time to build the single market.

Even if we vote to leave the EU in a few years, there's still a very good chance that we'll want to stay in the single market and EEA, so we'll still have to agree to harmonised taxation and regulation.

There are some changes to tax law that might help. For example, I believe Ireland have a system where you only pay corporation tax on sales within Ireland, and none on sales elsewhere, and that's attracted many companies to operate there. If companies had to pay all their corporation tax to Ireland, it might be less attractive to move there, just for a couple of percentage points off their tax. Luxembourg are being investigated for doing special sweetheart deals to attract companies to move their headquarters there. That's the negotiation that's going on at an EU level, and that may be able to fix some of the problems.

I'm not a tax lawyer, so I've no idea if this will work. But those negotiations are going on at an EU level, and I beleive that it's also something that's been quite seriously discussed at the G20 as well, so there may well be broader international action. But all that moves very, very, very slowly.

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Anonymous Coward

Re: Hmmm

It's only legal because it is hard or impossible to make illegal without affecting global trading laws.

It's not ethical or fair.

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Re: Hmmm

Excellent point - tax avoidance is a fantasy promulgated by HMRC and other branches of Government, and there is no meaningful way that it can exist in reality. Tax is what the law say tax is, end of. All the stuff about "avoidance" boils down to the HMRC saying the law makes them look foolish, having a tantrum about it, and attempting to extort tax the law says they aren't entitled to.

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JDX
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Re: Hmmm

Not really. Avoiding tax means you are explicitly arranging your affairs in some more complicated way, for the primary purpose of reducing how much tax you pay - but that all of those mechanisms are legal. The issue is that some avoidance is just common sense and some is obviously devious.

What's that quote about "I can't define right and wrong but I know them when I see them"? Clearly, the legal system has to work to the letter of the law but that doesn't mean some cases aren't very obviously taking the mick - while others look fine to some and dodgy to others.

For instance an IT contractor working through a Ltd company (because agencies aren't happy if you work as a sole trader) can balance their income between company dividends and salary as they see fit. How can you possibly draw a line where that balance becomes 'wrong'?

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Re: Hmmm

@I ain't Spartacus

"There are some changes to tax law that might help. For example, I believe Ireland have a system where you only pay corporation tax on sales within Ireland, and none on sales elsewhere, and that's attracted many companies to operate there. If companies had to pay all their corporation tax to Ireland, it might be less attractive to move there, just for a couple of percentage points off their tax. "

I don't think that's the case (although I think that the EU investigation of the Apple setup described something along those lines)

The Irish Times recently reported that Microsoft Ireland recorded pretax profit of $1.4 billion on turnover of $22.2 billion, and paid "paid an effective corporate tax rate of about 14.4 per cent, with a tax bill of around $204 million"

"The company’s cost of sales for the year was $2.8 billion (€2.5 billion) while “administrative expenses” were $17.9 billion (€16 billion). These are most likely royalty and other IP payments made to other Microsoft companies not tax resident in Ireland. There is no explanatory note about the expenses in the accounts"

"The company’s turnover came from Europe ($15.9 billion – €14.2 billion), the UK ($3 billion – €2.7 billion), the rest of the world excluding the US ($2.9 billion – €2.6 billion), and the Republic ($212 million – €189 million)."

http://www.irishtimes.com/business/technology/microsoft-ireland-warns-on-european-union-tax-audits-1.2119184

http://www.irishtimes.com/business/technology/pretax-profits-at-microsoft-ireland-increase-to-1-4bn-1.2110182

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Re: Hmmm

" For example, I believe Ireland have a system where you only pay corporation tax on sales within Ireland, and none on sales elsewhere, and that's attracted many companies to operate there."

If that's the case then I'd have thought that a lot of the possible legal objections fade away. It's not that CT isn't being paid in the nation of residence, it's that CT isn't being paid anywhere. The whole thing starts to look like a complex structure whose purpose is not to pay tax and not for operational reasons. That, as I understand it, is something the tax authorities are entitled to take action against.

"If companies had to pay all their corporation tax to Ireland, it might be less attractive to move there, just for a couple of percentage points off their tax."

It's not just a couple of percentage points. Ireland's CT rate is much lower. When one regime starts undercutting tax to that extent any entity which can move there will do so; it's not possible for must of us to move to personal tax havens but for a multi-national corporation to move to a CT haven it's practically a no-brainer. How should other countries react? They could make similar cuts but the end result is that none of them win; businesses stay where they started and none of the countries collects much tax. If, however, other countries have the sense not to join a race to the bottom they lose the tax of the companies that head-quartered in the tax haven but are effectively conducting business in their territories. At the point where this becomes intolerable - politically if not financially - they need to find some other solution. If this looks like such a solution then it's unlikely to be a problem at an international level as there would be plenty of other countries looking to follow suit.

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Re: Hmmm

I avoid paying tax by buying Jaffa Cakes instead of biscuits. My employer colludes in my not paying tax by paying me less than the personal income tax allowance. I avoid tax by not buying cigarettes. There's probably loads of other tax I avoid. I avoid minerals extraction duty by not being a oil company.

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Re: Hmmm

"I avoid minerals extraction duty by not being a oil company."

And by not farting, I presume.

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Re: Hmmm

Countries that have tried this sort of thing generally find themselves cut off from the rest of the world.

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Anonymous Coward

tax avoidance?

We are all tax avoiders, or should be.

Do you get tax relief for children? Pension contributions? Repairs to the house you let while working elsewhere? Work related expenses? Sorry, I have not lived and worked in UK for many years so I do not know exactly what tax allowances can be claimed. But allowances are there, the tax payer is expected to claim them (that's why the laws and regulations were made) to avoid tax on the allowed amounts.

Evasion is another story and bears no relationship to tax avoidance using the official mechanisms to reduce one's tax. Evasion is a form of dishonesty.

It does seem as if large, American companies in particular are good at exploiting their status as non-EU firms to gain lots of tax avoidance advantages. That is a problem to be sorted at EU level with their opposite numbers. Note that the USA is changing or has changed its laws for the taxation of USA domiciled companies to prevent USA companies using British based acquisitions to avoid USA tax.

In fact, the hypocrisy of the British system is egregious: I read somewhere that London is one of the biggest tax havens for non-domiciled residents in the world, many of whom live full time, long term in Britain. But, being political party donors and good chaps, that is perfectly right and proper.

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Re: tax avoidance?

There's a distinction between tax planning and tax avoidance.

The former is lowering your tax by using the law as intended. Getting an ISA is an example of this.

The latter is using loopholes in the law to lower your tax. For example, buying and selling Cayman Islands companies that do nothing except own London property.

It's a case of spirit of the law vs letter of the law.

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Anonymous Coward

Re: Hmmm

I worked for a UK company in Hong Kong. We were a sales office and sold stuff all over asia, we merely forwarded the POs to the UK. The firm only paid corporation or profits tax in the UK. I paid income tax in HK.

Those who bleat that Google should pay UK tax are deluding themselves

If every country decides to tax overseas firms on the (percieved) profit made in their country no-one will be able to afford the accountants to figure it all out.

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Anonymous Coward

The voters hate Osborne

His first act, when the country was on it's uppers, was to cut the top tax rate for himself, and his millionaire school bottom friends.

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Re: The voters hate Osborne

A top tax rate which raised no money and was nothing but a sop to the student-union-polits.

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Anonymous Coward

Re: The voters hate Osborne

Cutting taxes for the rich in a time when the nation is skint is daft. If it brings in another 50 or 100 megaquids, that's fine by me. An extra tuppence ha'penny would be fine. Rather than just removing child benefit from the moderately well off, the stinking rich can help too, buy paying an extra 5%. We are, after all, 'in this together'. We are, aren't we?

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Facepalm

Re: The voters hate Osborne

and his millionaire school bottom friends.

Hadvar,

Well done for keeping the debate on such a reasoned and mature level...

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Anonymous Coward

Re: The voters hate Osborne

Higher taxes drive people away from the UK.

Do you want 40% of £100 billion or 50% of £70 billion?

Quite a few businesses have said they're moving their HQs to London away from the US where the taxes are too high.

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Re: The voters hate Osborne

Cutting taxes for the rich in a time when the nation is skint is daft. If it brings in another 50 or 100 megaquids, that's fine by me. An extra tuppence ha'penny would be fine.

How about if it brings in less money than not having the tax at all, do you still want it then?

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Re: The voters hate Osborne

Labour only increased the top rate of tax weeks before the 2010 general election because they knew they would lose and the tories would have to reduce it ( but to more than it ever was under Labour ).

Taking around 60% of somebody's pay ( inc NI ) is immoral. If Labour didn't think so, they would have started doing it years before 2010.

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Re: How about if it brings in less money

His kind do because for them it is all about the hate and not about the actual tax revenue.

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Re: The voters hate Osborne

If it cost more to run than it brought in perhaps it needed to be higher. The tax rate has been much higher in the past without bank bailouts crippling the country.

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JDX
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Re: The voters hate Osborne

He didn't impose a tax cut. He partially reduced the TEMPORARY new tax band created by the previous government. That tax bracket was never supposed to be around long-term.

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Re: The voters hate Osborne

If it cost more to run than it brought in perhaps it needed to be higher.

It's not that it "costs lots to run". When you change tax rates, you change peoples attitudes to earning money, and the tax generated by income taxes depends on what money people earn.

You can put the higher tax rate at whatever you like, but if you put it too high, there is no incentive for anyone earning above that level to bother to earn any more money, since they don't get much of it.

Similarly, there comes a point where the amount you are being taxed makes it advantageous to restructure your income to minimize your tax obligations. It should be self evident that the higher the tax rate is, the lower the level of personal income required to make it worthwhile to (legally) avoid tax.

Eventually, you can raise it to a point where anyone earning enough to pay top rate tax is a fool for staying in this country - in the 1974, the top tax rate on personal income from investments was 98%, and subsequently, a) its not worth investing in the UK, b) anyone affected who could leave the UK, left the UK.

Less people to tax, people (legally) working harder to keep hold of their money, people who are disincentivized to work harder and make more money - all of these things reduce the take from income tax.

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Re: The voters hate Osborne

At what income level do you pay 60% of it in National Insurance. Total IT+NI only platauxes out at 50-anna-bit% of total income when getting to the £800K level.

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Re: The voters hate Osborne

Income tax maxes out at 60% if you have income just above £100k, as you lose £1 of your personal allowance for every £2 above £100k. So in the £100k-£120k band, every £1 of income suffers 40p of tax and causes another 50p to pay 40% tax, giving a total tax bill of 60p - 60% effective tax rate.

You can also get some effective tax rates well above 45% in the £50-60k band where the High Income Child Benefit Charge applies, though the ETR there varies depending on the benefit you're losing. It can go above 60% if you have a lot of children.

For someone on £120k, the effective tax rate including employee's NI is 62%. If you include employer's NI, then the effective tax rate is more like 67%. Paying an employee £100 of gross salary means £60 in income tax, £2 in primary NI, and £13.80 in secondary NI - so out of the £113.80 cost to the company, £75.80 goes to the Treasury.

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Re: The voters hate Osborne

@ Tom 38

Seeing the downvotes on your comment is depressing. So far the votes are 3-3 which means 3 downvoters are financially illiterate. And they get to vote!

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Anonymous Coward

Re: The voters hate Osborne

Personally, I find the excessive "pay" and the widening and extraordinary income differences in modern Britain to be immoral and very damaging to the country (which is not a business, it is a society of which business is a part). Indeed, I have not got any references to hand; but a couple of serious and accepted studies were reported recently that demonstrated that the widening wealth gap is damaging the economy.

UK now has the proud boast that it has the most low paid workers in Europe, though not the lowest prices, so that large numbers of people in work can subsist only by state subsidies and charity. It seems someone got the digits in 1920 and 2019 (as we are nearly there) confused.

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Re: The voters hate Osborne

The top rate didn't bring in any extra money because it didn't last long enough.

High earners bought their income forward to avoid the first year, and then deferred income to avoid the second year.

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Anonymous Coward

Re: The voters hate Osborne

The top rate didn't bring in any extra money because it didn't last long enough.

High earners bought their income forward to avoid the first year, and then deferred income to avoid the second year.

Or they did what my sister did, quit their job, become a consultant providing services for the company she used to work for (and a couple of others), pays herself basically nothing and takes the rest as dividends.

She wasn't a huge earner - less than £80k - but having £3k less a year, when a few changes and £250 spent with an accountant means you have £3k more, no brainer.

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JDX
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Re: The voters hate Osborne

Well that's entirely legal and she is still paying tax. Company profits are taxed, and dividends which take your personal earnings into the higher-rate tax bracket then attract additional tax. It's probably more tax efficient BUT it's NOT allowed to simply quit your job and do the exact same thing through a Ltd company. Or rather, that is legal but then the dividend thing isn't - you can work through your company but lose the tax and NI advantages (IR35).

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Re: The voters hate Osborne

60%?

Is that with VAT?

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