Who pays too much/too little tax? ...Inspired (?!) by Jon the Hat

[BoneDog]

I pay too much.

[Rincewind]

has anyone said they are paying too little yet?

[Captain...]

My point here is that we have people arguing that paying more tax is not a disincentive to wanting to earn more. Then we have the new university fee and "loan" system which is basically a graduate tax, because you only pay it if you get to earn higher salaries. Then we have people arguing that the huge student loans put people off going to Uni. It doesn't add up. Sadly people believe what they are told, and the loony left with the BBC and unions etc have brainwashed people into believing they will leave Uni with massive debts.

That is because of the way it has been worded/thought out/reported, if it actually was a student tax, it wouldn't be an issue, those that earnt more would pay more than those that didn't but it wouldn't disincentivise anyone as it all happens afterwards, you would still have loans to pay off as most people need maintenance loans anyway, but the idea of having a 30 grand+ debt for an undergraduate degree is quite disconcerting, but then if it makes people assess their chances of improving their career prospects by taking further education, rather than doing a degree for the sake of it, then it could be argued as a goo thing.

Student "loans" only paid back when earning significant money are an excellent idea.

That is the current system

[Monk]

My facts are straight buddy boy, I even provided a link to show my working, and admitted I got a little lost when it started talking about the higher tax band, which you say is based on total income being over 40k, (or 35k I read somewhere else) I found it difficult to work out, so in the context of self employed and set up as a limited company, you take a salary of 15k, then you can take up to 20k/25k as a dividend and not pay any more tax on it.

Or are you disputing that?

And as for VAT, do you not also charge VAT on everything you sell, so you are not really paying 20% VAT just passing it on from the customer to the Governement whilst it sitd in your account getting interest in the process, and I am assuming you claim back VAT on everything you purchase, or subscribe to the flat rate of VAT scheme, so you don't pay 20% VAT on all income, unless you are doing it wrong.

The way you phrased your original answer made it sound like divs are tax free, which they are not, for anyone, at any earning.

Re VAT, I do charge 20% on all of my consultancy work, unless it's a foreign company (<10% of my work). My business bank account pays practically zero interest, I'm not exactly cashing in on it for the 3 months it sits there each quarter. Usually I have to pay VAT on invoices I've raised but haven't received money for yet which can be tricky. I'm not on the flat rate scheme as I would actually be worse off, as running my own business I have to invest in my own technology, training etc, for which the VAT gets offset against that I bring in.

For tax rates up to 45k it's not massively different to being employed - bare in mind I also pay EMPLOYERS NI and PAYE too! Above 45k it is more efficient, but if it's a genuine small business and you are working completely within the rules, what is the problem? Tax rates in the higher income brackets are still significant.

You're trying to make genuine businesses sound like they're running some kind of scam, which they are not, in general. There is a problem with some people using companies as a vehicle when they are technically in employment, as has been the case on the news recently but this should be picked up by the tax law IR35 and is more a case ofHMRC not enforcing the rules than it is a problem with tax rates.

Also - I risked pretty much everything financially starting my business. At one point had no money in any accounts at all, but kept going and a year on am on track to bring in almost 100k to the business. So what is exactly wrong with that? I've payed ~20k in VAT, about 15K in corporation tax, and additional 25% on any dividends over 45k, plenty other tax in employee and employer paye and NI, I pay significant amount for business insurance and an accountant.

It isn't a walk in the park by any stretch of the imagination.

[Captain...]

The way you phrased your original answer made it sound like divs are tax free, which they are not, for anyone, at any earning.

Re VAT, I do charge 20% on all of my consultancy work, unless it's a foreign company (<10% of my work). My business bank account pays practically zero interest, I'm not exactly cashing in on it for the 3 months it sits there each quarter. Usually I have to pay VAT on invoices I've raised but haven't received money for yet which can be tricky. I'm not on the flat rate scheme as I would actually be worse off, as running my own business I have to invest in my own technology, training etc, for which the VAT gets offset against that I bring in.

For tax rates up to 45k it's not massively different to being employed - bare in mind I also pay EMPLOYERS NI and PAYE too! Above 45k it is more efficient, but if it's a genuine small business and you are working completely within the rules, what is the problem? Tax rates in the higher income brackets are still significant.

You're trying to make genuine businesses sound like they're running some kind of scam, which they are not, in general. There is a problem with some people using companies as a vehicle when they are technically in employment, as has been the case on the news recently but this should be picked up by the tax law IR35 and is more a case ofHMRC not enforcing the rules than it is a problem with tax rates.

Also - I risked pretty much everything financially starting my business. At one point had no money in any accounts at all, but kept going and a year on am on track to bring in almost 100k to the business. So what is exactly wrong with that? I've payed ~20k in VAT, about 15K in corporation tax, and additional 25% on any dividends over 45k, plenty other tax in employee and employer paye and NI, I pay significant amount for business insurance and an accountant.

It isn't a walk in the park by any stretch of the imagination.

If you read what I have said, this is aimed at people who are setting themselves up as businesses as a tax break, and I know plenty that do, and they pay themselves the minimum as an income, and take the rest as "tax free" dividends up to the limit, as that is the most efficient way of getting the money, the rest sits in the company accounts until they can withdraw it, or spend it.

I am an IT contractor, and I declare my earnings as an income, my colleagues think I am mad for doing so, but the hassle of all the tax fiddles I can't be arsed with, I am not a small business, I have an agency that find me work and take a cut, but I have no overheads, no stock, no premises, I do nothing different to what I did as an employee, except send in an invoice and a timesheet instead of getting paid a wage, but I get paid considerably more, so I should pay my fair share of tax.

But most of my colleagues think I am an idiot, and yet they pay thousands a year to an accountant to fiddle it all for them.

The savings are considerable and legal, but not really moral.

What is your business?

[Monk]

If you read what I have said, this is aimed at people who are setting themselves up as businesses as a tax break, and I know plenty that do, and they pay themselves the minimum as an income, and take the rest as "tax free" dividends up to the limit, as that is the most efficient way of getting the money, the rest sits in the company accounts until they can withdraw it, or spend it.

I am an IT contractor, and I declare my earnings as an income, my colleagues think I am mad for doing so, but the hassle of all the tax fiddles I can't be arsed with, I am not a small business, I have an agency that find me work and take a cut, but I have no overheads, no stock, no premises, I do nothing different to what I did as an employee, except send in an invoice and a timesheet instead of getting paid a wage, but I get paid considerably more, so I should pay my fair share of tax.

But most of my colleagues think I am an idiot, and yet they pay thousands a year to an accountant to fiddle it all for them.

The savings are considerable and legal, but not really moral.

What is your business?

For me - it all comes down to where you stand with tax law IR35 that distinguishes between employees and genuine companies (http://www.hmrc.gov.uk/ir35/guidance.pdf). if you have a few clients a year and are paying for extra travel, training etc then there is absolutely nothing unethical about setting up a limited company. If you have one client and you're working in a 'business as usual' role, then yes it is edging on the dodgy side to claim to be a business when really you're an employee. I also think if you see yourself as a business you invest in growing it, for example I've spent thousands on training and qualifications this year. If I was an employee I'd expect my employer or even agency to pay for this. I often have 3-4 clients on the go at once so I'm no where near a disguised employee.

I run a small consultancy doing business intelligence / data analytics + other technical projects mostly in financial services in Scotland (website - http://www.effectivemi.com ... but needs to be updated). Also do a fair bit of web design on the side.

For people that do flout IR35, unfortunately it's too easy because

- HMRC made the law extremely grey in terms of whether it applies or not

- The number of IR35 cases that HMRC have successfully taken to court and won is very small indeed

I know of a few who do even worse - set up as an offshore beneficiary trust and pay themselves almost @0% tax. It's beggars belief that these schemes still exist.