Be Excellent To Each Other

If your on PAYE do you sometimes feel that you are the only people paying any tax?

The rich and big companies just appear to be able to legaly avoid paying, now this

http://www.bbc.co.uk/news/uk-20157878

The IT contractors I employ at work, (because the same city bankers that got us into the recession will be negative about the share price if we have too many “employees”) all go through offshore umbrella companies and get 80-85% of gross earnings. The rest goes to the umbrella so the state gets nothing.

Cuts would be a lot easier to take if the goverment(s) collected tax from everyone.

Speaking as an IT contractor, the use of offshore umbrellas is quite rare. The umbrellas set up by most agencies do pay PAYE, Corporation tax etc etc. Also the contractors are paying income tax (admittedly reduced) and tax on dividends.

I always find it awkward to complain about companies not paying tax when I'm self-employed and therefore paying less than a full time permanent staff. I rationalise thus:

1. I can be kicked out at the drop of a hat for no reason.
2. No work, no pay. So any sick days, holidays etc come directly out of my wallet.
3. The situation is such that if I want to be a self-employed IT guy (which I do, I am lucky that my hobby is my job) then the system forces me to set up this way.
4. I could exploit the system far more than I do. For example, I'm on the flat rate VAT scheme. I could have gone offshore when working in Ireland. I could put a fortune on "expenses". No real point because at the end of the day, it is "my" money I'm spending.
5. When I am in a position to avoid paying £2bn, then you can complain at me for tax evasion/avoidance. Comparing my tax rate with Voda, Google, Starbucks etc is unfair. Hell, lets make it so you can shout at me for avoiding £1m in tax.

So it isn't that cut and dried, unfortunately. I'm not that keen on umbrella companies as they do feel like a tax dodge, but when you are a one man band starting up, it seems quite attractive. I've got a proper Ltd company, no umbrella, with all the associated invoicing and accounting hassles. I pay an accountant each year. Probably costs me a bit more than being an umbrella, but it feels better.

One of my previous guys was really into these and would find the best paying ones and then tell the others, He was getting 90% back and holiday pay from the last one. It was offshore and involved loans as a pose to dividends.

I've no issue with it and would do it myself if I could, the thing that did piss me off with this was that none of them had any sort of pension provision yet would all have their hands out when they turned 65.

It's "disguised remuneration" and could be subject to being closed down and the contractor being liable for the income tax / NIC they should have paid whilst paid through the scheme.

There's tales of many of these schemes going pop and owing the contractors a fair wedge of cash so it's a fairly high risk endeavour.

Also as an umbrella employee you're actually worse off than your full time equivalent on the same rate unless you are hammering your expenses as you also get stung for 13.8% employer NIC which the umbrella has to pay.

If you're a limited company contractor that's deffo the way to go if you can be arsed with the paperwork - you get some flat rate VAT scheme benefits and you can remunerate yourself through dividends (if you're not caught under IR35 legislation) to make the best use of the available tax breaks.

Yeah, I wouldn't touch offshore umbrellas with a bargepole. The "loans as dividends" thing is something being cracked down upon by HMRC - it is, after all, what did for Rangers FC. Also I don't have much time for those who go chasing the best umbrella/tax deal - first it is so much effort for little reward and second, I find they don't make good workers...

My limited still pays the NIC and I can also take on a range of clients (which gets you well away from IR35) and is much more hassle to do under an umbrella. I would suggest that a Ltd is much more likely to avoid IR35 than an umbrella.

(Although apparently the HMRC has given up on IR35, having won a very small number of cases and lost far, far more.)

I've had a pension since I was 18 - and I keep paying that. Next financial year, we should be debt free (no mortgage, loans or credit cards), so all profits are getting invested in the pension, ISAs etc.