How times changeth

With the 31 January self assessment deadline looming, a campaign group has highlighted statistics showing the ongoing unfair tax advantage available to self-employed business owners.

Figures from the Institute for Fiscal Studies (IFS) show that an employee earning £40,000 a year will pay £12,262 in tax. This is £4,556 more than a self-employed person who earns the same but has opted to incorporate as a self-employed company manager/owner. The overall rate of tax paid by self-employed manager/owners can be as low as 19%, far less than the 32% rate likely to be paid by an employee earning the same salary.

Ritchie’s gone from promoting such ideas in The Observer to condemning them now.

He used the system for far longer than he publicly approved of it, of course. In fact, he used until after he’d been paid to condemn it. Funny that.

18 comments on “How times changeth

  1. He’s not talking about self-employed people is he?

    He’s talking about owners of limited companies.

    And if the people he’s talking about have a tax rate of 19% then the deadline of 31/1 is irrelevant.

  2. Those figures allow, do they, for the worker not getting paid holidays, sick leave, maternity leave, or pension contributions?

  3. I’m so poor that HMRC actually gave me a 300 quid refund last month. I suppose Tuppence would demand I burn the cheque.

  4. He’s getting confused, poor thing. The self-employed pay the same rate of income tax but lower NI Contributions because they don’t get unemployment benefit.

  5. As noted above, the times changeth not. “Do as I say, not as I do,” has been the underlying mantra of the LHTD for some time.

    Of course, this is more than slightly hard, since he can barely manage to articulate a consistent message across a paragraph break, never mind across the distance of years and changes in (his) circumstances.

  6. “has opted to incorporate as a self-employed company manager/owner. ”

    Where to begin?

    If you incorporate, you’re not going to be self employed. You’re going to be employed by your company……..

  7. @Dearime,

    If you’re ruled inside IR35 and forced into using an umbrella company, you’ll be handing over PAYE income tax, plus employee’s NICs, plus employers’ NICs, plus the apprentice levy… and you will get not one single thing in return. No holiday pay, no sick pay, no employment protection, not even a single sausage.

    Which is why, when public-sector contractors were forced onto that scheme in 2017, there was an exodus before and a steady drain since, and why contract rates trying to find new hires leapt upwards (and still is struggling to attract the right skills).

    This caused particular issues since many of those contractors were the expertise; in at least one area, the permanent staff are a mix of a shrinking band of old-timers (small mortgages, near retirement, not eager to disturb their lives) and a steady churn of new graduates, who come in for a few years and leave for greener pastures; and the cracks were papered over with contract staff (often ex-employees bought back).

    But when your contract staff – brought in because they’re subject-matter experts in fairly specialised fields – can earn more as permanent staff in the private sector, than “well-paid consultants” in the public sector, is it a surprise when they leave?

  8. “Jason Lynch

    If you’re ruled inside IR35”

    Used to be that if you were ruled inside IR35 it was because you hadn’t taken decent advice (why waste money on professional help when you can google it?)

    But as you say, the changes to public sector contracting have fucked everything up and as could be anticipated, contractors don’t want to work for the public sector.

    Well done government.

  9. Out of interest, assuming one can avoid IR35 etc, roughly how much does one need to earn to make it worth going self-employed over PAYE?

    I presume self-employment has some costs (e.g. accountancy, no paid holiday), but also benefits (e.g. if you work all over the country, one can claim lots of expenses back).

    Asking for a friend, obviously…

  10. “a self-employed person who earns the same but has opted to incorporate as a self-employed company manager/owner.”

    Could somebody explain to me why that phrase is not complete bollocks?

  11. Ironman said:
    “Could somebody explain to me why that phrase is not complete bollocks?”

    Because it is written by Murphy, who is a tax expert, brilliant economist and Professor, don’t you know!

  12. @ theProle
    In theory £1 more than the cost of travelling from home to the office if you work at home for a substantial part of the time so that you can register it as your place of work.
    If you have to work all over the country you can claim the cost of travel from the office or home, whichever is the less, if you are on PAYE so that isn’t a significant factor – if you are lucky enough to have an employer who refunds your travel expenses you are better off as an employee because getting a tax break is only worth one-fifth of a total refund.
    Self-employed pay lower NI because they don’t get unemployment benefit so before your friend decides he/she needs to be confident he/she won’t run out of work any time soon.
    The big disadvantage is pension – no employer contributions to your pension. That is a *lot* of money in a DB scheme (which is one reason why some public sector employers like to hire contractors – the pension cost for a female loval government worker is getting on for *half* her salary).
    Paid leave – one have to factor that into one’s pay rates by making them 261/233 the day rates for an employee. I have always charged on the basis of an 8-hour day rather than the 7 hours that is typical for employees but I usually worked over 8 hours anyway.
    I don’t hire an accountant – that would be awfully infra dig – so the paperwork eats into my free time rather than into my earnings but we’re talking of hundreds of pounds if he’s doing the job properly so that nearly wipes out your 3% saving on NI contributions between the lower and upper threshhold.
    Big saving on Employer’ NI contributions of £4k a year for anyone who is making enough to consider the switch.
    So the answer is that *it all depends* on whether you’re in a DB scheme or not, and if not whether you can get a higher daily rate to offset the the lack of holidays and employer’s pension contributions – preferably higher enough to get a fair share of the saving on Employer’s NI as well.
    I should recommend anyone under £30k or in a DB scheme to stay put – for those already over the Higher Tax threshhold not in a DB scheme it’s likely to be worth it as they may need tax advice anyhow.

  13. People don’t get to decide for themselves between self employed and employee doing the same job.

    The circumstances decide.

    If you have someone requiring you to be in the job at 9am, if you have a uniform / dress code, if you have tools provided to you, if you have to arrange time off, if you have to stay to a certain time, if you cannot send someone else to do the job for you – you are an employee.

    Some people are claiming for unpaid holiday time for multiple years because some manager / employer decided to class them as self employed while treating them as employees for years.

  14. I’m currently an employee, but am allowed to:

    Work what hours I like
    Wear anything I like (within reason – I guess there might be problems it I turned up in a pair of speedos and nothing else)
    Primarily provide my own tools
    Take as much holiday as I like, when I like (although I only get paid for the first 33 days)
    It probably does have to be me that turns up, but that’s more because I’m one of probably only half a dozen people on the planet who could do my job without a couple of years training.

    If I was to be self employed, I could invoice at least 3 different companies. I work on multiple premises, and can do a reasonable chunk of my job from anywhere, providing I’ve a phone, Internet and a computer running Autodesk Inventor.

    I might have other reasons not to go self employed, but I’m not too worried about being done over by IR35

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