19% Income Tax.

UK PROFESSIONAL DRIVERS FORUMS THE UK PROFESSIONAL DRIVERS FORUM (INTERACTIVE)
1

Now that I’ve got your attention, how many of you have seen the ads in the trucking trade press from companies offering 19% income tax?

THIS IS A CON.

They’re mainly targetting agency drivers with the promise of 19% income tax. How it works is that " due to a new government scheme" (A LIE!! - Corporation Tax has been on the go for a while) you in effect become part of a company and only pay corporation tax on any income. The Small Companies rate is 19% hence the rate in the adverts. These “tax saving” companies do your books, handle the invoicing, pay your tax and pretty much do everything for a “small weekly fee”.

YOU ARE NOT SAVING ANYTHING. The lowest “small weekly fee” I’ve seen is £16 and the highest £30 so lets do the maths and compare this so called “saving” against paying the standard PAYE rate assuming the lowest weekly admin fee.

Current PAYE rates are:
Starting rate 10% £0.00 to £1,960
Basic rate 22% from £1,961 to £30,500
Higher rate 40% over £30,500

To make this easy we’ll discount the Starting rate and work with the basic rate of 22%.

Assume you earn £400 top line.
To make sorting the percentages out and make it easier to illustrate…
We then divide this by 4 giving £100.

On PAYE you pay 22% or £22 in ever £100.
On this “saver” scheme you pay 19% or £19 in every £100.

Following so far?

Now the best bit…
BUT YOU PAY a £16 “admin fee” on anything you earn.
So if you divide that £16 equally over the £400 you pay £4 per £100 or 4%.

So we now have 19% corp. tax plus 4% which is the weekly admin charge. Doesn’t that add up to 23% which is actually 1% MORE than PAYE? AND IF YOU EARN LESS THAN £400 IN A WEEK YOU ARE EVEN WORSE OFF THAN THAT!!!

But there’s another twist. You actually pay 19% ON EVERYTHING YOU EARN so you miss on the 10% you pay on the first £20 a week.

I’ve not done the sums but I reckon the break even point on this scheme versus PAYE is around £600 a week. But remember you’re self employed so that’s £600 a week after all deductable expenses which means it could easily be £750 a week top line.

And just to add more fuel to the fire, if the “Small company” you are a part of goes under and your tax bill isn’t paid then even though they’ve been deducting tax from you, you’ll still end up having to pay the Inland Revenue full PAYE on everything you’ve earned including the 19% this scamming company has been deducting.

Sadly last night I overheard one of our drivers saying his mate had signed up to one of these companies. They’re getting drivers who haven’t done their homework and think doing the tax when being self employed is a black art. It isn’t. It is dead simple to do yourself. Simply keep simple records of income and expenditure and all receipts then give them to an accountant once a year who’ll charge you £200 to check them out, work out your tax and file your tax return. A good accountant could actually manage to work it so you pay no tax or very little in the first year.

I phoned one of these companies and asked a few questions basically outlining what I’ve just shown you above. I think they KNEW they’d bee sussed. Lots of vague answers.

A few links…
inlandrevenue.gov.uk/employe … mits.htm#3
inlandrevenue.gov.uk/rates/corp.htm

I hope to God this post stops at least one person from signing up to these con merchants.

2

Conor, well sussed. I’ve made it a Sticky so that we can keep it near the top for a few weeks. (It may even attract a journalist to do an item on it)

3

Its sad that I did figured it out just doing a “rough estimate” whilst driving back to my Depot at 3am this morning. The first time I saw those adverts was last night. I don’t know why but something just started the alarm bells ringing.

The difference is I’ve done the self employed route before which alot of agency drivers won’t have done so I know how to do Tax/NI etc and can do rough calculations in my head - I just needed to confirm the percentages and earnings levels with the Inland Revenue website today.

Its worrying; it really is. Even if you don’t earn anything in a week, such as when you’re on holiday, you still have to pay the “admin fee”.

The sad part is that unlike an accountant, they probably won’t advise you on everything that you can count as deductions such as a percentage of your mortgage/rent equal to the percentage of the house the room you use as an office is. For example, you pay £500 a month rent for a 5 room house and use one room as an Office. You can claim £100 a month for Office Accommodation. Unless you tell these companies things like this, they won’t use it when working out the tax so you’re still paying more than you need to. Alot of people aren’t fully aware of everything that can count as expenditures however a decent accountant is and would bring to your attention such things.

Sadly with more agencies in particular trying to pursuade drivers to sign on as self employed so they can continue doing long hours once the WTD comes in, I suspect there’ll be alot more companies that set up trying this.

I’m not saying some people won’t save money. Some will. Those earning over 30,500 which puts them in the top tax bracket definitely will but you’re paying someone for something you can do yourself very easily and there’s not many drivers earning that kind of money. At least if you do it yourself, you’ve not got the worry of wondering whether they’re actually paying your tax or whether they’re just going to run a year then disappear leaving you explaining to the tax man how you’ve been supporting yourself for the last 12 months.

I’m also worried about the legitimacy of it all. I’m not saying its dodgy but I don’t know enough about Corporation Tax and whether any income you receive from that company is also subject to PAYE. I do know someone who is very knowledgeable about it all but they’re not available until tomorrow but you can be sure I’ll ask.

The thing is though if it is such a good idea, and Corporation Tax has been around for a very long time, individuals or groups of people would’ve been doing it themselves for years. Strangely you don’t hear of any apart from those earning serious money.

Don’t take this as the definitive answer about it all. Talk to the companies and get the figures from them IN WRITING then do some maths yourself. I would definitely suggest running it by an accountant if you’re thinking of going Self Employed and see what they make of it. If it is above board then they themselves can offer you the same service for a one off annual fee when they do your books. THe advantage is that they’re local, you’ll know how long they’ve been there and you can ask people about them and how good/bad they are.

There’s just too many unknowns in it all for me personally to say I’d be quite happy letting them invoice directly for £400+ of my hard earned cash per week.

4

Hmmm. How come I managed to make an extra £40/week take home when working for an agency via NOVA on tramping work approx a year ago then :question:

The bumpf that they send you is very comprehensive and explained everything and how it worked and I also checked with the tax office that my contributions were being paid (which they were).

The way you get your money up isn’t on the taxable side, it’s on the allowances which you do to death. You get generous travelling to/from work allowances, additional “night away” and food allowances, uniform allowances etc etc. I don’t know how they do it and don’t really care as long as my take home is fatter and my contributions are paid.

I was on it for approx 6 months before I got permanent work and put roughly an extra grand in my pocket in that time. Now that’s not to be sniffed at.

For my experiences I would (and do) recommend it to anyone that asks.

5

i am with Rob k on this one. I worked for about 6 months going through Nova and for doing exactly the same job as my mate I was taking home an extra £30 a week. As you say it is the allowances you get.I lived 10 miles nearer work than him. :smiley:

6

Right, I’ve looked into this further.

THere are two ways of doing this.
Number 1 involves you setting up as a company and using a scheme introduced two years which is taking advantage of the £10k free tax band. HOWEVER the Inland Revenue have realised they’ve made a big mistake and are looking to close it next week.

THe other way is as Rob K has illustrated and doing it the standard Self Employed route. They were merely deducting everything that normally would be done by any self employed person. What they’re doing isn’t rocket science but you could probably have saved even more.

Rob K, TBH savings of £1000 over 6 months isn’t alot. Yes it is nice and is money you wouldn’t have had so it is definitely a bonus but it could be more. Also you need to be aware that you cannot do more than 9 weeks work for the same company, either directly or invoicing them, otherwise as far as the Inland Revenue are concerned you then become an employee.
I would also seriously care how they do it. If they’re not doing it right and legitimately, at worst the Inland Revenue can come knocking on your door. You can plead whatever you like but you can be damned sure they’d tell you exactly how much you owed and would push for it with interest being added on the amount until it is paid as well as any fines and they have a tendency to use County Courts, in particular bankrupcy proceedings, to get their money if you decide not to pay. Prison is also an option for either you or the company if the IR decide its been a deliberate fiddle.

So, for the moment it is legitimate although option one -setting up as a company and using Corporation Tax breaks - is likely to end next week and from Rob K’s post, they might not be saving you as much as could be saved.

So there we have it. Personally I’d steer well clear and work Self Employed having direct control over things myself, however this suits me and may not be everyones cup of tea. Also I would hold out doing it until the Inland Revenue have come to a decision regarding ending this scheme.

So my advice? DO YOUR HOMEWORK. Look into this extremely thoroughly and SEEK THE ADVICE FROM A SPECIALIST such as an accountant.