And, try as you might, someone working as a senior civil servant will always come out as an employee using this test.
Hmm, I wonder here, I really do.
What actually is the effect on govt finances of paying people through such service companies?
As far as I can see there are three major points.
1) On the taxes paid by the individuals. The combination of corporation tax and taxes on dividends, or income tax if they pay themselves a wage from the company, this is pretty much a wash. There\’s an NI loss if they pay themselves dividends, true, but then that can\’t be what is complained about because Ritchie did that himself. Indeed, published an article explaining how to do it.
2) The government doesn\’t have to pay employers\’ NI on those wages. This would be a fair old whack too: 14 % of so of total wages (for someone on £150 k a year the NI free allowance is almost irrelevant). That\’s money the government would get straight back of course. So the nett effect on govt finances is exactly zero. They don\’t collect it, true, but then they don\’t have to pay it out either.
3) And this is where it gets murkier. If they are civil servants, paid through PAYE, then I very much assume that they accumulate pensions at the normal civil servants\’ rate. If they\’re paid in service companies they won\’t. And while I don\’t know I would bet that this saving on subsidy to pension plans far outweighs the loss of NI in 1).
I think I would be right in saying that such a payment method, the service company, reduces, on nett, the cost to government of employing such people. The income tax being pretty much a wash, the pensions savings being greater than the NI losses.
And if that\’s true, then what\’s the problem?
And I do recommend reading the comments to Murphy\’s piece. Several dig up the pieces he wrote for the G back when he was advising people how to run service companies.