> forgive me if I am wrong. what I can see from rudimentary search on IR35 is that it is meant to make people pay the same tax whether. employed or working as a contractor.
Yes, it is meant to, and that's perfectly reasonable as a starting point. That's how things are here in Australia AFAICT, without the need for this sort of legislation. If you are found to be inside the equivalent legislation in Aus, it mostly just affects what sort of expenses you can claim.
In the UK though, there is a legitimate question about why tax should be different if (for example) I go into business selling my skills and sell them to a client company vs IBM selling my skills to a client company. Why should the big firm get to pay its people a salary with a part of their fees, then give profits to its shareholders as dividends, if a one-person operation cannot do the same?
Also, as a contractor I am not an employee. I do not get employment benefits. I do not get pension contributions. I do not get paid leave or cover for illness. Does this mean I should pay less tax? Perhaps not, but it does mean that the concerns are different.
That all said, in general, I agree with you, the same rough tax rate should apply. I didn't do contracting/consultancy as a tax dodge.
The root cause of the issue that the government is addressing here, very badly, is that the tax rates are badly coded and favour investment income over earned income, something which I think is deeply wrong in UK society anyway. Normalise these and the whole issue goes away.
> so if a contractor just sets aside the same amount as they would have had to pay in a salaried job (including employers contribution) then all should be good?
No, as I called out in my comment above, the outcomes of status investigations are not "make up the difference", it's "pay all the tax without taking into account anything that's already been paid". And that's before we get into legal and accountancy fees, the fact that expenses incurred in doing business will be re-evaluated and likely denied as ineligible, and you won't get any of the benefits you would have been owed by the business or by the government as an employee. You'd have to put a lot more aside than the difference, it ruins people. And it costs a lot more people money - there are a variety of forms of insurance people take out to cover the costs of investigations, court proceedings and even the eventual liabilities.
As written elsewhere, I can appreciate the differencen between the tax codes in different countries.
When I contribute to my tax-exempt pension in Denmark, I can deduct that in whatever income I have, whether that is from an employment or profits of my own company.
> forgive me if I am wrong.
I think I need to defer to this one. I am completely ignorant on these things.
Yes, it is meant to, and that's perfectly reasonable as a starting point. That's how things are here in Australia AFAICT, without the need for this sort of legislation. If you are found to be inside the equivalent legislation in Aus, it mostly just affects what sort of expenses you can claim.
In the UK though, there is a legitimate question about why tax should be different if (for example) I go into business selling my skills and sell them to a client company vs IBM selling my skills to a client company. Why should the big firm get to pay its people a salary with a part of their fees, then give profits to its shareholders as dividends, if a one-person operation cannot do the same?
Also, as a contractor I am not an employee. I do not get employment benefits. I do not get pension contributions. I do not get paid leave or cover for illness. Does this mean I should pay less tax? Perhaps not, but it does mean that the concerns are different.
That all said, in general, I agree with you, the same rough tax rate should apply. I didn't do contracting/consultancy as a tax dodge.
The root cause of the issue that the government is addressing here, very badly, is that the tax rates are badly coded and favour investment income over earned income, something which I think is deeply wrong in UK society anyway. Normalise these and the whole issue goes away.
> so if a contractor just sets aside the same amount as they would have had to pay in a salaried job (including employers contribution) then all should be good?
No, as I called out in my comment above, the outcomes of status investigations are not "make up the difference", it's "pay all the tax without taking into account anything that's already been paid". And that's before we get into legal and accountancy fees, the fact that expenses incurred in doing business will be re-evaluated and likely denied as ineligible, and you won't get any of the benefits you would have been owed by the business or by the government as an employee. You'd have to put a lot more aside than the difference, it ruins people. And it costs a lot more people money - there are a variety of forms of insurance people take out to cover the costs of investigations, court proceedings and even the eventual liabilities.