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9 hours ago, PaulWarning said:

of course the elephant in the room with the self employed claiming loss of earnings is that very few of them actually declare their full earnings on their tax return.

I think myself ( and I would imagine a lot of other self employed people ) who give an honest account each year to HMRC would prefer the use of ‘some of them...’ than ‘very few of them...’ . 🤨

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3 minutes ago, casapete said:

I think myself ( and I would imagine a lot of other self employed people ) who give an honest account each year to HMRC would prefer the use of ‘some of them...’ than ‘very few of them...’ . 🤨

who knows? I've known quite a few self employed people and the ones I came into contact with all did a bit of cash in hand business, maybe that's changed or maybe the ones I knew were disproportionately using creative accounting

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2 minutes ago, PaulWarning said:

who knows? I've known quite a few self employed people and the ones I came into contact with all did a bit of cash in hand business, maybe that's changed or maybe the ones I knew were disproportionately using creative accounting

‘Who knows?’ indeed. But then what about ‘innocent until proven guilty’ ? Without real evidence your assumption does seem unfair, especially on a site with a fair number of self employed people. To use your method of personal experience for making the claim, all of the musicians (mainly pro) and tech people I know and work with regularly declare their full earnings.

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7 minutes ago, PaulWarning said:

who knows? I've known quite a few self employed people and the ones I came into contact with all did a bit of cash in hand business, maybe that's changed or maybe the ones I knew were disproportionately using creative accounting

I knew of a guy that was self employed until his death, had property and mortgages but never ever paid a penny income tax

I reported him several times to HMRC

HMRC did nothing

I am convinced that as in many areas of British life that HMRC chose the easy targets - the guys that do things 90% right - declare 90% of their earnings 

And completely miss many of the guys that do not declare any of their earnings 

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2 minutes ago, gareth said:

I knew of a guy that was self employed until his death, had property and mortgages but never ever paid a penny income tax

I reported him several times to HMRC

HMRC did nothing

I am convinced that as in many areas of British life that HMRC chose the easy targets - the guys that do things 90% right - declare 90% of their earnings 

And completely miss many of the guys that do not declare any of their earnings 

That is the way it works (unfairly). When resources are stretched it is more cost effective to hit the easiest target.

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58 minutes ago, Steve Browning said:

That is the way it works (unfairly). When resources are stretched it is more cost effective to hit the easiest target.

Another easy target and resources being squandered 

 

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My daughter is a self employed Yoga and Pilates teacher in London. She started from scratch last January 2019 having returned to the UK after working abroad. Needless to say she has not got the 3 years accounts nor profits to qualify for the Self Employed assistance and because she saved £8,000 abroad, does not qualify for Universal Credit. She's now teaching online ( which is not ideal) to create an income stream. However there are others much worse off with huge outgoings, she has very few living at Chez Yorks5stringer.

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4 minutes ago, yorks5stringer said:

My daughter is a self employed Yoga and Pilates teacher in London. She started from scratch last January 2019 having returned to the UK after working abroad. Needless to say she has not got the 3 years accounts nor profits to qualify for the Self Employed assistance and because she saved £8,000 abroad, does not qualify for Universal Credit. She's now teaching online ( which is not ideal) to create an income stream. However there are others much worse off with huge outgoings, she has very few living at Chez Yorks5stringer.

One year’s tax return would suffice, per hmrc advice.

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1 minute ago, Daz39 said:

One year’s tax return would suffice, per hmrc advice.

She did submit one in April 2019 having only turned over a couple of £1000. She intends to do another one now but given how she is still building the business, profits are still low. But thanks for the advice.

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Just now, yorks5stringer said:

She did submit one in April 2019 having only turned over a couple of £1000. She intends to do another one now but given how she is still building the business, profits are still low. But thanks for the advice.

Yeah - I think the initial speech just said 3yrs then they quickly had to clarify with 1 or 2 would do. This tax year 19/20 ends on Sunday so you could submit reeaallly early and have 1 and a bit to go on. Like you say though - if profits are low it won't be worth much, and savings go against UC so it's a bugger for anyone who dares to save a few quid.

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Posted (edited)
2 hours ago, yorks5stringer said:

My daughter is a self employed Yoga and Pilates teacher in London. She started from scratch last January 2019 having returned to the UK after working abroad. Needless to say she has not got the 3 years accounts nor profits to qualify for the Self Employed assistance and because she saved £8,000 abroad, does not qualify for Universal Credit. She's now teaching online ( which is not ideal) to create an income stream. However there are others much worse off with huge outgoings, she has very few living at Chez Yorks5stringer.

It’s our system 

Savings will count against you 

You’d think government would encourage people to save but they reward savers with low interest rates and penalties when they try to claim means tested benefits 

Anyone would think that they want people to be dependent upon the state

Who knew

Edited by gareth

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17 hours ago, yorks5stringer said:

Interesting because when Labour came in they enthusiastically took on board what the Tories had started..PFI. This built a load of schools and hospitals but hid the true cost from the balance books and we are still paying for it now. One wonders why the Govt then could not be more open about these costs, was it the electorate would not have stood for it?  Nowadays when Boris says he is building 40 new hospitals we all know we will be lucky to see 4 or 5. Is it the bar has been lowered considerably re expectations? Actually, when the current sh*tstorm is over we may not see any new hospitals....?

At least we got the health service we need - the difference between the approach then and now is the finance was put into the operational costs (ie the cost of running and staffing the new hospitals or roads or whatever) - the operating costs have been constantly squeezed meaning badly maintained roads, a lower service at GP surgeries and hospitals etc etc. The reduction in revenue as against capital budget (government funding and borrowing in the latter) also affects the ability to pay interest fees attached to operating costs (the Govt pays such fees usually whether PFI or not). PFI at a time of relatively high interest rates is clearly going to create costs going forward but the Govt could easily take those costs into centralised costs rather than use them as a political stick to criticise Policies 25 yrs ago that actually gave us a well functioning health service rather than focus on decisions taken which created the cash strapped one we now have - anyone tried to get a doctor's appointment recently?! 😕

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16 hours ago, PaulWarning said:

of course the elephant in the room with the self employed claiming loss of earnings is that very few of them actually declare their full earnings on their tax return.

Interesting that I know of a number who set up a one person limited company and pay themselves in 'dividends' rather than salary (it's far more complicated but this is the net result). This attracts capital gains tax at a much lower rate!!! Not sure if you can claim Govt assistance against that. 

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29 minutes ago, drTStingray said:

Interesting that I know of a number who set up a one person limited company and pay themselves in 'dividends' rather than salary (it's far more complicated but this is the net result). This attracts capital gains tax at a much lower rate!!! Not sure if you can claim Govt assistance against that. 

 I did this when I had a newsagents, it's a way of paying less tax, you pay yourself a salary up to the tax allowance then pay yourself a dividend on top which as you say attracts a lower rate of tax, they got me in the end though I had to pay more tax when I sold it because I was a limited company, serves me right you would probably say, well I say the same to these self employed people who've been using this tax dodge and now can't claim the full amount from the Government.

But at the end of the day it's the Tax system that's at fault for created these unintended loopholes, you do them on the advice of your accountant without realising the unintended consequences.

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1 hour ago, drTStingray said:

Interesting that I know of a number who set up a one person limited company and pay themselves in 'dividends' rather than salary (it's far more complicated but this is the net result). This attracts capital gains tax at a much lower rate!!! Not sure if you can claim Govt assistance against that. 

Not CGT

You save NI

You can also time your earnings to minimise your income tax

Example 

Year 11 Profits 10000

Year 12 Profits 80000

Total                   90000

As sole trader - zero tax Y12 - pay higher rate tax Y12

As Ltd Co - Y11 take 45000 - all at basic rate tax - Y12 take 45000 all at basic rate tax

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57 minutes ago, gareth said:

Not CGT

You save NI

You can also time your earnings to minimise your income tax

Example 

Year 11 Profits 10000

Year 12 Profits 80000

Total                   90000

As sole trader - zero tax Y12 - pay higher rate tax Y12

As Ltd Co - Y11 take 45000 - all at basic rate tax - Y12 take 45000 all at basic rate tax

it's corporation tax at 19% (soon to go up to 20%) but as @gareth says you don't pay NI, and also if you''re lucky enough to go into the higher rate  income tax band the savings on Tax really kicks in, as I understand it

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3 hours ago, PaulWarning said:

it's corporation tax at 19% (soon to go up to 20%) but as @gareth says you don't pay NI, and also if you''re lucky enough to go into the higher rate  income tax band the savings on Tax really kicks in, as I understand it

Difficult to a degree, and I am not crying foul , but the tax implications/savings are very limited nowadays , but the NI is a saving .

it is however,  a perfectly legitimate, legal and (formerly) deliberately attractive way of arranging pay for a business owner designed by the exchequer 

if someone wants to put his neck and his money on the line to build a business then he needs a reward , and I’ll be honest , there isn’t that much in it , if I was to be starting again , I would not be building a business employing 14 people , I would have a van and a mate , more nett income and a lot less hassle.

This tax arrangement is now the only obvious short straw in the whole employment relief arrangement, in that employees or self employed get help to a figure of about £30K earnings , I may get help to £12k , and I generate and pay income tax for 13 employees plus pay HMRC around £80K a year in vat .

not forgetting the legal stinky poo, employment law and I still have directors responsibilities so I have to work on that and thus not sure I can even claim 80% of the PAYE element , while also funding my employees wages until I can get it back from the govt .

i am lucky , I was brought up to save, so the business should be good , but there is a large part of the economy that is being ignored , and the fact that a lot don’t realise it , shows how little many understand the sharp end of small business. 

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19 minutes ago, lurksalot said:

Difficult to a degree, and I am not crying foul , but the tax implications/savings are very limited nowadays , but the NI is a saving .

it is however,  a perfectly legitimate, legal and (formerly) deliberately attractive way of arranging pay for a business owner designed by the exchequer 

if someone wants to put his neck and his money on the line to build a business then he needs a reward , and I’ll be honest , there isn’t that much in it , if I was to be starting again , I would not be building a business employing 14 people , I would have a van and a mate , more nett income and a lot less hassle.

This tax arrangement is now the only obvious short straw in the whole employment relief arrangement, in that employees or self employed get help to a figure of about £30K earnings , I may get help to £12k , and I generate and pay income tax for 13 employees plus pay HMRC around £80K a year in vat .

not forgetting the legal stinky poo, employment law and I still have directors responsibilities so I have to work on that and thus not sure I can even claim 80% of the PAYE element , while also funding my employees wages until I can get it back from the govt .

i am lucky , I was brought up to save, so the business should be good , but there is a large part of the economy that is being ignored , and the fact that a lot don’t realise it , shows how little many understand the sharp end of small business. 

I used to advise businesses and many discovered what you said - that they could earn more money by downsizing their business to its owner and just a few (if any) employees

I saw many which employed staff like you where their staff earnt more than they did -  which is just not right

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Posted (edited)
On 27/03/2020 at 21:59, Newfoundfreedom said:

Yeah I suppose there would be. There has always been dregs of society that think the world owes them something. But I think the nation generally knows how truly lucky they are to have a national health service. Hopefully even more so given the current situation. 

Having been to the USA and suffered through a medical emergency I can attest to how brutal  a system other than the NHS can be

Edited by Geek99
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People seem to conflate legitimate Ltd company structures with the sort of opaque tax avoidance schemes used by multi-national corporations. I’m both a Ltd company director and self-employed and declare every penny of my income, a do have done for almost 15 years.

Ltd liability is there to encourage people to take risks and to be entrepreneurial. You may find the idea that someone should profit from that abhorrent, but businesses generate a significant proportion of the taxable income that pays for, well, everything. The money we may save being paid in dividends is compensated by the wealth we create for the country, in many cases a large number of times over. It’s also a fair way of managing payments when profit is variable.

I find humorous the people on here happily sat at home whole possibly being paid by an employer to work but using that time to explain to me why my perfectly legitimate company structure should ensure that I don’t receive a penny in Government support for me, my family and my business. 

Everyone knows a ‘Dodgy Dave’ who has never paid tax, does everything cash in hand and never declares his income. That’s morally wrong and indefensible. But the vast majority of Ltd companies are small business that are, like most of you, trying to make a living and struggling. When we’re done with this, the idea that we can demonise Ltd companies and increase their tax burden but somehow expect them to power our economic recovery is misguided.

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The dividend 'scheme' is tax avoidance, pure and simple. So are the Virgins etc of this world. It's all perfectly legal and no-one can blame anyone for adopting it - the Duke of Westmoreland (or was it Westminster) case concluded that people can arrange their affairs so they pay the minimum tax.

As you say, it's a fair way of managing payments when profit is variable and it is very variable at the moment so you should be carrying on using the surplus you have built up.

One question though. How much more do you earn from your employees than you pay them? Personally, I find it humorous when people trot out the old 'I am creating wealth' argument. Your employees also generate wealth in other businesses and the regional multiplier effect amplifies this too.

My own thought is that companies should be taxed in a similar way to people. Income tax is paid on a sliding scale, ranging from zero tax to 40%. I reckon that Corp tax should follow the same model. It seems daft that an individual can pay 40% tax on a salary of 60k but a company pays far less on a profit of millions.

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4 minutes ago, Steve Browning said:

The dividend 'scheme' is tax avoidance, pure and simple. So are the Virgins etc of this world. It's all perfectly legal and no-one can blame anyone for adopting it - the Duke of Westmoreland (or was it Westminster) case concluded that people can arrange their affairs so they pay the minimum tax.

As you say, it's a fair way of managing payments when profit is variable and it is very variable at the moment so you should be carrying on using the surplus you have built up.

One question though. How much more do you earn from your employees than you pay them? Personally, I find it humorous when people trot out the old 'I am creating wealth' argument. Your employees also generate wealth in other businesses and the regional multiplier effect amplifies this too.

My own thought is that companies should be taxed in a similar way to people. Income tax is paid on a sliding scale, ranging from zero tax to 40%. I reckon that Corp tax should follow the same model. It seems daft that an individual can pay 40% tax on a salary of 60k but a company pays far less on a profit of millions.

It really isn’t tax avoidance, it’s a variable share of profit. It’s a different way to pay tax, but to class it as tax avoidance is based on the assumption that there is somehow a fair baseline that we’re undercutting, when there isn’t. If we take the moral high ground here, then there are probably a fair few tax avoiders on here who fail to declare the profit they make from buying and selling huge amounts of gear when they’re knowingly acting as traders. Failing to declare this is a much more egregious abuse of the rules, surely?

My business is myself and my wife plus assorted freelancers. We all earn the same, industry-standard day rate. My business is helping to support a handful of people, protecting them from the need to claim benefits, so I can take pride in that. The risks I have taken haven’t made me wealthy (I earned more money as PAYE for example) but have contributed more than I had sat behind a desk for someone else.

If your sliding scale worked I’d probably pay even less tax than I do, with my business generating minuscule amounts in the wider scheme of things - so how would you square that?

My point wasn’t that Ltd companies should pay less or no tax, it’s that many of us are tiny businesses that contribute what we are asked to, which is commensurate with the risk we take and the investments we make. The reason I run a Ltd company is that we contract to the NHS and with other organisations like universities who won’t employ a freelancer or self employed person, so we were ultimately forced to create a Ltd company to trade from.

Like pretty much everyone else I find aggressive tax avoidance abhorrent, but to assume that all companies act without integrity or use ways to screw the taxman is just wrong. 

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Nah @Burns-bass is spot on.

@Steve Browning

Only the first 2K of dividends is tax free, anything else you pay yourself gets taxed normally. If you have another job and run a Ltd. Company any dividends you take are added on top of you other salary (after the £2k but even this can be hit) and are taxed at whatever rate you are at and it bumps you to.

You really have to differentiate these massive large corporations compared to your average guy who has a small company legitimately set up as Ltd. Or you get a massively skewed view of the situation.

These normal people companies are employing people via PAYE and contributing to NI, possibly pensions as well.

All this tax break stuff that people assume is also rubbish. Yes if you need a computer for your business it can be declared as a legitimate expense, and offset against your final tax bill, but you still have to earn the money to be able to buy it.

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3 minutes ago, Burns-bass said:

It really isn’t tax avoidance, it’s a variable share of profit. It’s a different way to pay tax, but to class it as tax avoidance is based on the assumption that there is somehow a fair baseline that we’re undercutting, when there isn’t. If we take the moral high ground here, then there are probably a fair few tax avoiders on here who fail to declare the profit they make from buying and selling huge amounts of gear when they’re knowingly acting as traders. Failing to declare this is a much more egregious abuse of the rules, surely?

My business is myself and my wife plus assorted freelancers. We all earn the same, industry-standard day rate. My business is helping to support a handful of people, protecting them from the need to claim benefits, so I can take pride in that. The risks I have taken haven’t made me wealthy (I earned more money as PAYE for example) but have contributed more than I had sat behind a desk for someone else.

If your sliding scale worked I’d probably pay even less tax than I do, with my business generating minuscule amounts in the wider scheme of things - so how would you square that?

My point wasn’t that Ltd companies should pay less or no tax, it’s that many of us are tiny businesses that contribute what we are asked to, which is commensurate with the risk we take and the investments we make. The reason I run a Ltd company is that we contract to the NHS and with other organisations like universities who won’t employ a freelancer or self employed person, so we were ultimately forced to create a Ltd company to trade from.

Like pretty much everyone else I find aggressive tax avoidance abhorrent, but to assume that all companies act without integrity or use ways to screw the taxman is just wrong. 

And he has put it nicely again - thank you

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