They are well and truly going after those who abuse self employment using Ltd Companies and especially who choose to pay themselves a large chunk by dividends.
The £2000 NI credit will no longer be allowed to be claimed by Ltd companies where the director is also the sole employee.
The dividend tax credit (which reduces the amount of tax paid on income from shares) will be replaced by a new £5,000 tax-free dividend allowance for all taxpayers from April 2016. Tax rates on dividend income will be increased. Only the first £5000 of dividends paid will be “tax free” so those who pay themselves mostly by dividends will pay more tax.
Also consulting to see how to go after those using the increasingly abused rules about disguised employment where people are working through a personal service company (aka umbrella).
I wonder how long it is before the abuse of the flat VAT scheme comes under scrutiny.
HMRC budget increased by £750 million in order to recoup £7.2Bn of tax avoidance and evasion. Looks like the gravy train is about to arrive at the station.
Can’t se them targeting the flat rate VAT scheme tbh, why would they? Put it this way, the Ltd Co bod charges haulier X £100 VAT, he then gives half of that to the vatman and keeps half for himself, so the Govt receive £50. If he wasn’t registered for VAT he wouldn’t bill that £100 and the Govt wouldn’t receive their cut.
There’s no mileage in it for the Govt, and it would in essence decrease their revenue.
the maoster:
Can’t se them targeting the flat rate VAT scheme tbh, why would they? Put it this way, the Ltd Co bod charges haulier X £100 VAT, he then gives half of that to the vatman and keeps half for himself, so the Govt receive £50. If he wasn’t registered for VAT he wouldn’t bill that £100 and the Govt wouldn’t receive their cut.
There’s no mileage in it for the Govt, and it would in essence decrease their revenue.
Sorry monster but you are wrong here
Ltd co bod charges his customer £100 in vat as per your example.
Customer pays bod the £100 and recovers said £100 from the Chancellor in his next vat return.
Ltd co bod then receives his extra £100 vat from his customer but only passes £50 in your example to the vatman.
Net result
Customer £100 in and £100 out so no net difference
Revenue £50 in but £100 out so £50 out of pocket
Ltd co bod £100 in and only £50 out so £50 up
And you don’t think that the Chancellor will have a problem with this?
Not quite as simple as that I’m afraid. Ltd Co bod not on VAT scheme charges AGENCY £1000, agency them charges haulier £1200 (inc VAT), haulier then offsets £200 VAT.
Then an agency bod who is VAT registered charges agency £1200 (inc VAT), agency then charge haulier £1200 as they cannot recharge VAT again, haulier still offsets £200 against VAT.
I realise these figures cannot be accurate as I haven’t factored in the agencies mark up, but I hope you get my drift?
Had a quick scan through the budget and can’t find the information that you are quoting.
You can get the full budget, if you are really interested, HERE: Summer Budget 2015 - GOV.UK, do a search for ‘National Insurance’ and you’ll find the relevant sections Conor mentions.
The way I see it regarding Flat rate scheme, as it stands most drivers are not obliged to even be vat registered, as most will have a turnover below the vat threshold. Therefore, surely, 50% of something for the govt is far better than 100% of nothing? My average invoice charges £120 vat, of which HMRC gets £60. If they changed the vat rules against us, we can deregister for vat full stop as we are below the threshold anyway. At the moment its beneficial for HMRC and the driver to be VAT registered as both are receiving an income.
Im more concerned about the dividend tax changes as that could be a deal breaker, have still to talk to my accountant about it.
Swordsy:
The way I see it regarding Flat rate scheme, as it stands most drivers are not obliged to even be vat registered, as most will have a turnover below the vat threshold. Therefore, surely, 50% of something for the govt is far better than 100% of nothing? My average invoice charges £120 vat, of which HMRC gets £60. If they changed the vat rules against us, we can deregister for vat full stop as we are below the threshold anyway. At the moment its beneficial for HMRC and the driver to be VAT registered as both are receiving an income.
No it isn’t because the company you invoice claim the full amount you charge.
You charge £120 VAT and you give HMRC £60. The VAT registered company you charge claim the £120. HMRC are down £60.
Honestscott76:
Less employers N.I, less Corporation tax, Less employees tax, increased hourly rates… Try before you cry!
No right to be paid on time or paid at all, no holiday pay, no sick pay, no compensation if you injure yourself unless you intend on suing yourself, being liable for any damage you cause to the vehicle or load, always looking over your shoulder waiting for the tax man to pounce or the chancellor to announce the next way they’re going to shaft you, inability to get a decent mortgage or loan…
I read in the week they’re going after the people who pay themselves the minimum wage then the rest as a dividend. I used to do that about 10 years ago and paid ridiculously small amounts of tax. Surprised it’s took em this long.
the maoster:
Can’t se them targeting the flat rate VAT scheme tbh, why would they? Put it this way, the Ltd Co bod charges haulier X £100 VAT, he then gives half of that to the vatman and keeps half for himself, so the Govt receive £50. If he wasn’t registered for VAT he wouldn’t bill that £100 and the Govt wouldn’t receive their cut.
There’s no mileage in it for the Govt, and it would in essence decrease their revenue.
Sorry monster but you are wrong here
Ltd co bod charges his customer £100 in vat as per your example.
Customer pays bod the £100 and recovers said £100 from the Chancellor in his next vat return.
Ltd co bod then receives his extra £100 vat from his customer but only passes £50 in your example to the vatman.
Net result
Customer £100 in and £100 out so no net difference
Revenue £50 in but £100 out so £50 out of pocket
Ltd co bod £100 in and only £50 out so £50 up
And you don’t think that the Chancellor will have a problem with this?
The flat rate scheme encourages honest practices though. If you can get + 10% of the invoice value as an Ltd Co driver, it helps and there is less incentive to try for a little cash in hand and don’t tell the government work.
As for the dividend, I pay myself 10600 a year, so I pay a little NI and no tax. I pay tax free allowances which almost double my weekly income. I then pay myself an annual dividend of £4999 and pay no tax on that. The company then pays 18% corporation tax on what is left after purchases. That would be a work around the new rules.
Honestscott76:
Less employers N.I, less Corporation tax, Less employees tax, increased hourly rates… Try before you cry!
No right to be paid on time or paid at all, no holiday pay, no sick pay, no compensation if you injure yourself unless you intend on suing yourself, being liable for any damage you cause to the vehicle or load, always looking over your shoulder waiting for the tax man to pounce or the chancellor to announce the next way they’re going to shaft you, inability to get a decent mortgage or loan…
[emoji23] “A right to be paid on time” [emoji23] “Can’t insure yourself against injury” or Driver neg [emoji24] “Frightened of Tax man and Chancellor” [emoji23] “No mortgages” It all sounds horrifying, I better get a ‘proper job’! [emoji23][emoji23][emoji23][emoji23][emoji23][emoji24][emoji24][emoji24][emoji24][emoji24][emoji24]
Honestscott76:
Less employers N.I, less Corporation tax, Less employees tax, increased hourly rates… Try before you cry!
No right to be paid on time or paid at all, no holiday pay, no sick pay, no compensation if you injure yourself unless you intend on suing yourself, being liable for any damage you cause to the vehicle or load, always looking over your shoulder waiting for the tax man to pounce or the chancellor to announce the next way they’re going to shaft you, inability to get a decent mortgage or loan…
[emoji23] “A right to be paid on time” [emoji23] “Can’t insure yourself against injury” or Driver neg [emoji24] “Frightened of Tax man and Chancellor” [emoji23] “No mortgages” It all sounds horrifying, I better get a ‘proper job’! [emoji23][emoji23][emoji23][emoji23][emoji23][emoji24][emoji24][emoji24][emoji24][emoji24][emoji24]
Why wouldn’t i get a decent mortgage or loan? When I can prove income by the payslips my employer, (me) provides. NINE56 Ltd and Nick Smith are two completely separate legal entities. I am not Nick Smith Trucking.
nsmith1180:
Why wouldn’t i get a decent mortgage or loan? When I can prove income by the payslips my employer, (me) provides. NINE56 Ltd and Nick Smith are two completely separate legal entities. I am not Nick Smith Trucking.
The one where it is minimum wage and probably may even below the lower NI threshold?
Hi Mr Bank Manager I’d like a mortgage for £150,000.
No problem Mr. Smith, can I see your last 3 months wage slips?
Here you are Mr. Bank Manager.
Ah I see you only earn £138 a week. I’m afraid you’ll need to earn a lot more than that. We can only lend you £20,000 on that income.
But I pay myself £30,000 in dividends.
Well I’m afraid we don’t accept that as income for mortgage purposes as its not guaranteed however I know a company that might.
“Hello and thank you for calling Sub-Prime Mortgage Company how may we help you?”
Don’t believe me? Google for yourself. Virtually all the good rate lenders who will accept dividends won’t take all of your dividends into account as income so you’re left with those who do who have either high arrangement fees or interest or both.
nsmith1180:
Why wouldn’t i get a decent mortgage or loan? When I can prove income by the payslips my employer, (me) provides. NINE56 Ltd and Nick Smith are two completely separate legal entities. I am not Nick Smith Trucking.
The one where it is minimum wage and probably may even below the lower NI threshold?
Hi Mr Bank Manager I’d like a mortgage for £150,000.
No problem Mr. Smith, can I see your last 3 months wage slips?
Here you are Mr. Bank Manager.
Ah I see you only earn £138 a week. I’m afraid you’ll need to earn a lot more than that. We can only lend you £20,000 on that income.
But I pay myself £30,000 in dividends.
Well I’m afraid we don’t accept that as income for mortgage purposes as its not guaranteed however I know a company that might.
“Hello and thank you for calling Sub-Prime Mortgage Company how may we help you?”
Don’t believe me? Google for yourself. Virtually all the good rate lenders who will accept dividends won’t take all of your dividends into account as income so you’re left with those who do who have either high arrangement fees or interest or both.
Even without dividends I can prove income of £433 per week, week in, week out. thats £1732 per month or 20784 per year. Based on that Barclays would advance £92k which will get me a three bed house in Sheffield.