Hacker News Reader

Comment by adam-a | Hacker News Reader

As an employee earning £50k a year I would pay £12224 tax and NI, as a self employed person I would pay £11303 tax and NI. If I'm working for my own ltd I will pay £10871 as a combination of personal tax and corporation tax. The difference is not enormous. I think the IR35 stuff was to stop employers avoiding their NI contributions which is an extra £6155 tax on the £50k salary.

View on HN

That's not how it's been used:

You set up an umbrella company with yourself as a shareholder

You pay yourself minimum wage, thus paying little income tax and national insurance

You then pay yourself and any other shareholders a dividend based on profits but this is taxed at a much lower rate than employee income and without national insurance

Advanced players set up their umbrella company in another country where the company taxes are even lower

As far as I can tell, employing yourself via a limited company being cheaper is no longer true, contrary to what the turnkey company industry would like you to believe. With the higher rate for dividend tax being 33.75%, dividends that lead to a total income over 37700 are taxed at ~47% (dividend tax+corporation tax).

What's wrong with that?

Basically it works out £6000-12000 cheaper to employ a contractor for a business which results in higher rates (some of that money ends up in the pockets of contractors). The actual IR35 changes (that are repealed) meant the contractor pays that £6-12k which makes “inside” contracts ~12% less valuable. I think despite the small reduction in tax the idea I’m paying both employers and employees NI is quite frankly taking the piss and I refuse to do it.

Personally I think all tax breaks businesses get should be available to individuals; corporations have long campaigned for the rights of the individual like liable and so on with a fraction of the tax burden, surely it should be available the other way around. Particularly when it comes to paying any tax if you haven’t earned enough to feed and house yourself.

>Particularly when i>t comes to paying any tax if you haven’t earned enough to feed and house yourself.

Looking at it another way: companies pay tax on profits, we pay it on revenue.

When IR35 was first introduced dividends weren't taxed the same way and it really was a big tax advantage to work through a Ltd. That was arguably a reasonable situation if you really were running your own business with your own costs and risks as well. However it was definitely exploitable by people whose clients were really employers offering them the same perks as permanent employees anyway.

But that hasn't been the situation for quite a few years now so the financial arguments to "justify" IR35 don't really make much sense any more.

About 5 years ago, the BBC started clamping down on star presenters who were employed through private companies. Previously they were encouraging it; if you asked for a pay rise, they'd suggest you'd be better off setting up a company.

Your numbers don’t sound correct. Are you including the employers side of national insurance?

Reply on news.ycombinator.com