IR35 was in the Budget on 9 March 1999 - some 6 months before action on personal service income in Australia was /recommended/ by the Ralph Review in its report in September 1999. The IR and ATO talked to one another but I don't think the ATO or Ralph would want to claim parentage of the (very different) IR35 legislation ;)
Indeed, and IR35 neatly transfers all the taxation responsibility to the worker and away from the employer. Next they want to move the decision making process as to whether a contract is "caught" to the employer. The unscrupulous will have a field day, the workers will get shafted along with the small businesses.
That may be true, but IR35 is part of the problem, not the solution.
The problem, as others have outlined, is you're taxed far less if you don't work for your income. When NI (employers and employees) is paid on all income then we'll have a level playing field.
Unless things have changed, you get a higher degree of cover from NI when PAYE, than when self employed. Hence the differing rates.
The difference in entitlement used to come close (well, close enough for politicians) to justifying the lower contributions from the self-employed. But that's over the decades with
(a) increases in contributions from employers and employees (eg remember increases in NHS spending after David Frost's ambush?)
(b) reduced differences in entitlement: eg contribution based JSA is now limited to 6 months
The IFS are a good source of impartial analysis:
You think they're impartial? I notice they don't explain their calculations of NIC contributions in that article. "The tax differences are small at lower earnings levels but substantial for higher earners. For example: At £15,000 (employer cost), tax on employees is £631 a year higher than if the income was earned by a self employed person and £818 higher than if earned by a company owner manager." How do they work that out?
And BTW why "at employer cost"? If we are comparing the fairness of the tax system for employees versus self-employed, why would we compare them "at employer cost" rather than at the same gross salary?
Could you clarify what you mean by "don't work for your income"?
The detailed calculations would take rather a lot of space and be of no interest to most readers. But yes, I think they are impartial. That doesn't mean I agree with their recommendations in all cases. But they don't fiddle the figures.
Can you cite any serious commentator who claims they do or that they're biased?
Leaving aside the fact that "gross salary" doesn't capture all an employer's cost and is a meaningless term for payments to the self-employed or companies....
The point they are making is that if someone wants a job done and has £15,000 to spend on it there's big diffidences in tax between them spending the money on an employee, a self-employed person, and a company.
Because employers have to pay employers' NI contributions on the salary of their employees, while the director of a limited company can take part of their pay as a dividend, on which NI is not payable and some allowable expenses. However, for most small businesses, directors don't get holiday or sick pay (part of the latter can be claimed back from the tax man by companies), so it is a case of swings and roundabouts. There is not so much tax advantage now in not being an employee, while all of the downsides and risks remain.
SteveW
Also remember there is now a banded dividend tax on annual dividends over £2K (at 7.5% for basic rate), and that dividends are paid out of company profits after they have been taxed. (companies pay Corporation tax (19%) on profits).
(Remember when Gordon Brown introduced a 10% band for corporation tax, and it caused a flood of small businesses to incorporate since it was a much better deal than Schedule D PAYE - needless to say he reversed that rather quickly)
I know they do. But why does that mean we should compare tax/NICs at the same "employer cost" rather than at the same gross salary (or rather, pace Robin, gross income)? The IFS says it is comparing the fairness of the tax system for *employees* versus *self-employed*. The employer's costs have got nothing to do with that.
Quite. No sick pay, no paid holiday, no parental leave, no employment protection, no redundancy pay. And no dole, although that barely counts now because they have made it so hard to claim even for former employees.
Do we conclude he was a useless Chancellor?
You may well think so but it's the stock approach used by governments, representative bodies, academics, et al when looking at employment taxes. See "tax wedge"
If you start with income then you need to add back like employers' NICs. So for a given income you end up with different full costs.
If you start with the "employer cost" the comparison is like with like - and highlights the choices facing customers.
Eg suppose Robin wants John to make some tuits. Robin has £1,000 to spend. He can either:
a. try to employ John which means John ends up[1] with a net £510
b. try to engage John as self-employed which means John ends up with a net £580
[1] with oversimplistic use of only the marginal rates rather than the average, assuming above upper limit and 40% rate; and rates from 17/18 as I'm too lazy to update my spreadsheet just for thisNo one is saying those differences should not be taken into account when deciding how much NICs the self-employed should pay. (Along with things like the different expenses rules and the ability to set off losses.) It's matter of the balance - which has shifted enormously since the welfare state was introduced. See eg Ch 9 of the Taylor report
If one were being gracious, you could say he could have been worse... However he never seemed to learn the laws of unintended consequences when making decisions.
You mean instead of spending more money than he could borrow he could have spent money he couldn't borrow and just printed it instead?
Owain
His predecessor, Nigel Lawson made the same mistake when he gave several months' notice of his intention to end multiple mortgage tax relief, fuelling a sharp rise in house prices.
The decision whether to recruit to an employed or contract position is made by the employer and based at least partly on the relative costs to themselves.
SteveW
no, he did all that, but never quite reached the level of financial and taxation perversion that comrade corbyn is now suggesting.
This may be so, but they then also need to accept the implications of that choice. i.e. if they want and employee, then they need to run PAYE and provide employment benefits, or if they want a contractor, then they can't expect the level of control they would exert over an employee.
The complications comes when even after both the engager and the worker have settled on terms they are both happy with, HMRC can come along and reinterpret the relationship in whatever way they decide will yield them more revenue.
Define "define your own working hours"...
A freelanceer has a choice to accept or decline an offer of work. An employee does not have that choice.
The freelancer defines when they work not the employer.
HomeOwnersHub website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.