Could individual tax be reduced if multinationals paid more corporation tax?

underbank said:

Because some other countries have reduced their CT rates since then too!

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The UK would still rank lower than many leading industrial nations, around the middle of European corporate tax rates rather than near the bottom and still the lowest in the G7.

Bletchleyite said:

I thought IR35 was being tightened up very shortly to avoid this?

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The problem is proving that the self-employed person is actually an employee without affecting genuine contractors.

Bletchleyite said:

I thought IR35 was being tightened up very shortly to avoid this?

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IR35 only affects personal service companies and partnerships, not sole traders, so next year's changes won't affect most uber/amazon drivers etc as they're usually sole traders.

There are different rules re employment versus self employment for sole traders, which are evolving over time, but the recent court cases have been more to do with giving "pseudo" self employed workers rights rather than dealing with the tax situation, i.e. there's a new "worker" definition imposed by the courts which gives some self employed workers rights, i.e. holiday/redundancy pay/H&S etc, without making them an employee. Yet another fudge that ducks the real issue.

IR35 was another of Brown's foul ups. It never worked and it's taken 20 years to start getting it right. The original plan was to make the end client/engager responsible for determining IR35 status. Brown changed it to make the contractor responsible for "self assessing" it. Obviously a tiny few self assessed themselves to be caught and Brown was re-organising/merging the tax authorities which meant huge numbers of senior tax inspectors were made redundant, so the new HMRC didn't have the resources/experience to challenge thousands of contractors, hence why it failed as a policy. It's only the last few years that The Treasury has started taking it seriously, hence last years public sector changes and next years private sector changes to it. There is also the fundamental flaw in IR35 in that the contractor has to pay both employee and employer NIC - that made a massive difference between whether someone self assessed as caught or not and meant a PSC could end up paying hugely more tax than a self employed sole trader contractor. At the very least, there should have been an exemption from Ers NIC for one man companies, or a law that required the end client to pay EErs NIC on all payments to workers, whether employed or self employed or personal service companies.

Even next years' changes won't solve the issue. This is the kind of long term foul up caused by "bag of fag packet" law making, just like the child benefit tax and the removal of personal allowance on income over £100k which is having a ruinous effect on the NHS as their doctors, dentists, etc reduce working hours to avoid the punitive 62% tax rate it caused. We desperately need some real knowledge, intelligence and experience in tax law making.

EM2 said:

The UK would still rank lower than many leading industrial nations, around the middle of European corporate tax rates rather than near the bottom and still the lowest in the G7.

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Many remainers seem to consider the UK a basket case with or without the EU. Maybe the UK needs lower corporate taxes just to keep what we've got?

underbank said:

Employers NIC is one of the reasons why firms are reluctant to take on staff and engage "self employed" instead, i.e. Amazon and other van drivers, uber drivers, personal service companies for IT consultants etc. The BBC didn't engage presenters on self employment contracts for the fun of it - it was to avoid employer costs such as employers NIC! Before any changes are made to penalise employers, you need to find ways of stopping the "abuse" of false self employment, otherwise more and more firms will try it.

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And the fundamental problem there is that effective total tax rates (after you add up all forms of tax, including income tax, corporation tax, NIC, dividends, etc.) turn out to be somewhat different depending on whether you are employed or self-employed - which is what gives people the incentive to arrange to be self-employed if at all possible. One obvious solution would be to fix that discrepancy - to ensure that someone on a certain income pays the same amount of total tax regardless of the source of that income (employed or self-employed/own business) - then the IR35 problem immediately goes away. The trouble is, that would probably require a huge reform of virtually the entire income tax system - not an easy task. I also wonder (genuinely don't know on this so just putting it out for debate) if slightly lower tax rates for (genuine) self-employed might be justified on the basis that (a) genuine self-employment is to be encouraged because it can lead to businesses growing and creating more jobs for others, and (b) self-employment income tends to fluctuate more heavily, so - compared to conventional employment - a high income one year is much less likely to imply a high income the following year.

Lots of difficult questions in there.

The problem with tax is that everyone wants to reduce their liability albeit individuals or companies.

It's normally a case individuals want higher levels of public spending as long as someone else pays for it. Ah yes "The Rich" or "Tax dodging Corporates"

The plain truth is the only way to raise serious amounts of revenue is to hit those in the middle who make up the vast majority of the population.
Naturally this is "Electoral Suicide" to be avoided at all costs along with telling the truth.

All this nonsense about "cleaners paying more tax than their bosses" et al - in absolute terms it is arrant nonsense.

Strange that Bankers are villified for so called excessive earnings when Entertainers and Sportsmen earning far more seemingly slip under the radar.

The public profess empathy with the poor but unfortunately when they get into the Polling Station this feeling turns out to be ephemeral, particularly if their own wallets are in danger of being accessed to improve the lot of their fellow citizens.

The idea that the self employed should pay less tax because they don’t have steady income, or that they don’t get paid holidays etc etc annoys me.
That isn’t the taxman’s problem - the individual should be getting paid more to cover that (and contractors in the finance industry certainly do!)

Meerkat said:

The idea that the self employed should pay less tax because they don’t have steady income, or that they don’t get paid holidays etc etc annoys me.
That isn’t the taxman’s problem - the individual should be getting paid more to cover that (and contractors in the finance industry certainly do!)

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Trouble is that the customer (you and me) doesn't want to pay the self employed person more. In fact, many actively go out of their way to find, say, tradesmen who'll work for cash to avoid VAT, or buy duty free booze and fags from a bloke with a van.

You're also missing the point that it's not "tax" where the big difference arises - it's NIC. Self employed pay a lower rate of NIC because they get poorer state benefit entitlements.

As for the like of finance contractors, when you factor in the loss of employer benefits (gym, health insurance, life insurance, pensions, season ticket loans, holidays, duvet days, training, redundancy, profit related pay, bonuses, enhanced sick and maternity pay/leave, etc etc), there's not actually that much difference - these people are mostly working for "big" firms, often multinationals, etc., so the "benefit package" of the permanent employees is often pretty spectacular.

I've had IT contractor clients who've moved from contractor to permie rolls in such places (Hiscox insurance, Deutsche Bank, etc) - and when you compare the "total" package under both ways of working, they're pretty similar in terms of cost/benefit. I had one female contractor client who "went permie" and then went onto maternity leave a couple of years later - she was tens of thousands of pounds better off by being an employee than she would have been if she'd remained as a PSC contractor due to the maternity pay/maternity leave, etc. Another client was a bloke in his 50s who likewise went permie, took a pay cut obviously, but then was diagnosed with cancer - the employer fully supported him during 2 years of treatment with enhanced sick pay, part time working, time off for treatment, etc - if he'd been a contractor he'd only have been paid for the hours he worked which again would have been tens of thousands of pounds less.

It's easy (and naive) to superficially compare an employee's hourly rate against a self employed hourly rate, but you need to bear in mind all the other factors. People need to appreciate that when you're self employed you don't get paid when you don't work, you have to pay your own pension, life insurance, "benefits", etc., you don't get redundancy, you often risk your personal assets, and sick/maternity pay/benefits are but a fraction of what a good employer would provide and state sick/mat pay isn't as good for self employed either.

The contractors hourly rate for actual work is higher because they spend so much time in the office discussing how to avoid tax!