Self employed people virus payments

[JPCain86]

Really? I don't know anyone who is in that position who doesn't. Most pay themselves £12,500 salary, avoiding any tax and paying minimal NI. The rest is paid as dividends. Then they claim back tax on literally everything they can. Coffees in the morning, breakfast, dinner, lunch everything seems a taxable expense. Some even throw there non working wife in there from an additional £12,500 of tax free income.

Their argument is usually that they have no security in the work they do. But more often and not (from my experience) they have just as much and their day rate is 2 or 3 times that as an employee.

So use the £55k example the OP used. On £55k a PAYE emloyee would pay £5,064 NI per annum against £464 of a self employed.

Tax wise a PAYE employee would pay £9,496. Difficult to calculate the tax a self employed would pay but from my experience on £55k you would be looking at half of that.

I'm not an accountant and I'm sure I won't be right in all cases just speaking from my friends group point of view.

I don’t know anyone in my position (owner and sole director of a small business) who avoids paying tax. I pay both corporation tax and income tax (including on dividends drawn) and don’t actually see why I should be stuffed whilst others receive assistance.

Its barely any more tax efficient these days, and certainly doesn’t justify the government’s present position.

[Agd47]

Really? I don't know anyone who is in that position who doesn't. Most pay themselves £12,500 salary, avoiding any tax and paying minimal NI. The rest is paid as dividends. Then they claim back tax on literally everything they can. Coffees in the morning, breakfast, dinner, lunch everything seems a taxable expense. Some even throw there non working wife in there from an additional £12,500 of tax free income.

Their argument is usually that they have no security in the work they do. But more often and not (from my experience) they have just as much and their day rate is 2 or 3 times that as an employee.

So use the £55k example the OP used. On £55k a PAYE emloyee would pay £5,064 NI per annum against £464 of a self employed.

Tax wise a PAYE employee would pay £9,496. Difficult to calculate the tax a self employed would pay but from my experience on £55k you would be looking at half of that.

I'm not an accountant and I'm sure I won't be right in all cases just speaking from my friends group point of view.

I certainly never had as much as 55k and I paid far more than the half you estimated. Then theres personal dividend tax, accountancy fees, ppe, tools/supplies, van/vehicle, holiday pay. I've been put off site on a Tuesday afternoon to keep work for employees and not had work for weeks till theres been enough work again. I'm not in the same bracket as your friends you've used as an example and theres plenty more like me.

Why do I do it? If could be on the books I would, the company I do regular work for wont take on anymore employees as it doesn't suit them!

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[JPCain86]

I certainly never had as much as 55k and I paid far more than the half you estimated. Then theres personal dividend tax, accountancy fees, ppe, tools/supplies, van/vehicle, holiday pay. I've been put off site on a Tuesday afternoon to keep work for employees and not had work for weeks till theres been enough work again. I'm not in the same bracket as your friends you've used as an example and theres plenty more like me.

Why do I do it? If could be on the books I would, the company I do regular work for wont take on anymore employees as it doesn't suit them!

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That's the trouble with trying to put a little context around things. Everyone is quick the take it as you are talking to them personally.

Please understand this is purely from my experience. Most of my friends earn much more than the £55k and pay less than the figures I've highlighted. It was just an example.

[Peck]

Really? I don't know anyone who is in that position who doesn't. Most pay themselves £12,500 salary, avoiding any tax and paying minimal NI. The rest is paid as dividends. Then they claim back tax on literally everything they can. Coffees in the morning, breakfast, dinner, lunch everything seems a taxable expense. Some even throw there non working wife in there from an additional £12,500 of tax free income.

Their argument is usually that they have no security in the work they do. But more often and not (from my experience) they have just as much and their day rate is 2 or 3 times that as an employee.

So use the £55k example the OP used. On £55k a PAYE emloyee would pay £5,064 NI per annum against £464 of a self employed.

Tax wise a PAYE employee would pay £9,496. Difficult to calculate the tax a self employed would pay but from my experience on £55k you would be looking at half of that.

I'm not an accountant and I'm sure I won't be right in all cases just speaking from my friends group point of view.

Your acquaintances are gaming the system. Breakfast, lunch and dinner are not legitimate expenses. Their non-working wife should not be receiving £12,500 pa tax free.

However please try your best not to tar us all with the same brush; I, and many others, pay our way legitimately and do not do what your pals are doing. And if you’re trying to do comparative tax payments please try not to forget corporation tax, which adds 19% to your calculations which brings things back to near parity. Thanks.

[JPCain86]

Your acquaintances are gaming the system. Breakfast, lunch and dinner are not legitimate expenses. Their non-working wife should not be receiving £12,500 pa tax free.

However please try your best not to tar us all with the same brush; I, and many others, pay our way legitimately and do not do what your pals are doing. And if you’re trying to do comparative tax payments please try not to forget corporation tax, which adds 19% to your calculations which brings things back to near parity. Thanks.

Wait a minute. I'm tarring no one with any brush. I'm purely stating this is from what I know from work friends and colleagues. If anything it is them who is doing the tarring.

Dividends, corporation tax, either way. From my experience it is income. That they pay after expenses.

I honestly think the people who play it by the books are the minority here.

Tell me why you pay yourself minimum wage? Minimal national insurance payments but you will still draw the same state pension.

To be honest my points are more around higher earner £100k plus. The figures at that range show a real difference.

[Peck]

Dividends, corporation tax, either way. From my experience it is income. That they pay after expenses

I don’t really understand what you mean here but, just to be clear, dividends are not tax free expenses. We pay corporation tax on them AND then personal tax on them.

Your PAYE vs ltd company director tax comparisons are incorrect and unfair.

[JPCain86]

I don’t really understand what you mean here but, just to be clear, dividends are not tax free expenses. We pay corporation tax on them AND then personal tax on them.

Your PAYE vs ltd company director tax comparisons are incorrect and unfair.

I didn't know dividends were tax free sorry. Probably pay a bit less tax then.

My point is that most (yes I said it) won't pay 19% corporation tax on the remaining £42.5k.

They will chuck expenses at it and get it right down.

[Peck]

I didn't know dividends were tax free sorry. Probably pay a bit less tax then.

My point is that most (yes I said it) won't pay 19% corporation tax on the remaining £42.5k.

They will chuck expenses at it and get it right down.

You’re really not getting this are you!?

[JPCain86]

You’re really not getting this are you!?

I am clearly stating the situation that most of the people I know work too and that is that they pay very little tax for what they earn and in fairness a lot have come out and said well we can't have it both ways.

I am not saying this is the case for everyone but feel free to put me in my place and say I earned £x and paid £x NI and £x tax. Which is in-line with what someone from PAYE would pay.

I can give examples of many people who earned.£100k last year and paid less than £10k tax.

[Omegamanic]

I don’t really understand what you mean here but, just to be clear, dividends are not tax free expenses. We pay corporation tax on them AND then personal tax on them.

Your PAYE vs ltd company director tax comparisons are incorrect and unfair.

Plus accountancy fees, incorporation and company return fees, employers NI on salary amount, as well as employee NI.

There really isn’t much difference for a lot of people running their own company. At least once you add everything in. Yes, some people are playing the system, but most of them are clearly breaking the rules that are already in place.

[aa388]

I don’t really understand what you mean here but, just to be clear, dividends are not tax free expenses. We pay corporation tax on them AND then personal tax on them.

Your PAYE vs ltd company director tax comparisons are incorrect and unfair.

I think the probable problem is that most don’t understand the ins and outs of it.

As you’ll know It’s your company that has the liability for the corporation tax on profit and you as an employee or director of that company have the personal tax on PAYE and dividends you take.

So taking a Divi saves the company money by not paying the employers Ni liabilities. And someone taking them about 12.5% tax on up to the basic tax limit.

Well that’s how my accountant sold it to me. The expenses thing is another kettle of fish, I couldn’t even claim for mileage as it was in the eyes of HMRC commuting.



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[Mr Curta]

I've worked alongside independent contractors who have openly flaunted their minimal tax liability through declaring low incomes. One of them didn't half complain when his fairly modest mortgage application was refused.

[MB2]

Then they claim back tax on literally everything they can. Coffees in the morning, breakfast, dinner, lunch everything seems a taxable expense.

I would agree that it can look like this to an outsider. I run a Ltd with employees and have been worried about keeping them in work and paying their salaries. There is also an important difference - if I buy lunch for myself when I am traveling to viisit a client then that is a legitimate, tax deductible business expense as it is a cost incurred for me to do my job - just like HMRC and many companies allow their employees to incur costs when away from the office.

Entertainment of clients - so a nice lunch is not a legitimate business expense so VAT is not recoverable, and cannot be used to offset company profits either.