The self employed don't pay enough tax!

[WishfulThanking]

On the sticky post about the Pregnant and Screwed campaign, lots have posters have said they absolutely do not support the demand for self employed people to be allowed access to paternity leave. On questioning, it is because people believe that the self employed don't pay enough NI/tax. I asked somebody to show me their sources for these beliefs and I received the following as a reply:

Here is the national insurance contributions for the self employed: www.gov.uk/self-employed-national-insurance-rates

Here are allowable expenses: www.gov.uk/expenses-if-youre-self-employed

Here are capital gains taxes: www.gov.uk/capital-gains-tax/rates

So a self employed person making say £100k a year is able to deduct expenses such as travel costs including the cost of a car, which are significant costs that employees have, and pay a max rate on national insurance of 9% and 20% capital gains tax.

Meanwhile an employee making £100k a year is paying tax on $88k and the blended income tax is about 30%. Then the employee and employer portions of national insurance are also much higher with the government collecting 13.8% with employees paying about 5%.

So I would hope this illustrates just why the self employment tax is unfair. The rates should be the same. Why should someone self employed pay 29% while an employee making the same money is paying about 45%.


Can anybody on here report if this is accurate?

[ChildofASD]

Missing VAT at that kind of turnover

[LewisThere]

The problem with travel cost is that it doesn't include just your going to work thing.
People are thinking of their desk job where they just have to go there. Self employed people will usually have to use their cars (to see customers/suppliers/go to meetings), all of which would be paid by your company if you had to do that as part if your work. You can claim it back if it's your car or you use a taxi/rental car paid by your company.
Im not sure why you would have an issue with self employed having the sam opportunity.

[LewisThere]

Taxes are lower (government wanted to i crease not that long ago) BUT self employed don't have paid hols. If they are ill, they atentvearning etc..., which are all advantages given when you are employed.

So in effect you can't compare directly the sums earnt.

[Kazzyhoward]

The self employed CAN'T claim normal commuting costs - it's just the same rules as employees.

They CAN only claim the travel costs from their main base to other places, such as client premises, suppliers, courses, etc., JUST LIKE employees can if they have to use their own car.

The self employed have to adjust their tax returns for private mileage, so if they do 50% mileage for business and 50% for private, they only claim half the costs.

In reality, not that much different to employees.,

[karriecreamer]

I think there's a lot of misunderstanding about what can be claimed.

If a sole trader has an office, then he can't claim travel costs from home to office, in exactly the same way an employee can't claim travel costs from home to office. Same if s/he works from a workshop or other "permanent" workplace. There are court cases of sole trader doctors not being allowed to claim travel costs when they work regularly at different hospitals or consulting rooms. A case where a milkman couldn't claim travel from home to his depot to pick up the milk float etc.

As for tax/nic., NIC rates are historically lower due to historically lower levels of benefits, i.e. no SERPS, no S2P, no statutory sick/pat/maternity pay. Tax rates are exactly the same.

For other costs, yes, they're claimable, because they're costs that an employee wouldn't have to pay because they'd be provided by the employer, such as equipment, tools, office supplies, telephones, premises, subscriptions, training, etc. Such costs are claimable by the employer in an employee/employer situation. If employees are bound by their employment contract to pay that kind of cost, then they are usually allowable as a tax allowable deduction.

Things are a lot more similar than people think. Trouble is, you have a load of "pub talk" by people claiming to put holidays through their books, claiming for costs of nannies & gardeners, etc - but most of that is rubbish.

[delilahbucket]

I am self employed. I earn around the same amount as my other half and I pay the same tax as him. I don't get anything beyond statutory maternity pay (no six weeks at 90% for me), I don't have job security, it is harder for me to get a mortgage, I don't get sick pay, I don't get holiday pay, if I have a family emergency or a funeral or a sick child, I can't just ring my customers and say"sorry I'm taking the day off". Who are these people who think I get a great deal financially??

[karriecreamer]

Who are these people who think I get a great deal financially??

Usually pub talk nonsense by people who don't know what they're talking about. As an accountant in practice, I hear a load of tripe so often from new clients who are really badly misinformed by their "friends" about what they can claim. One prospective new client was confident that she could claim all VAT she spent (personally and business) on her VAT returns including VAT on her family christmas presents, house repairs, weekly family meals in mcDonalds, etc. She was very disappointed when I pointed out to her that it was all bollocks!

[Notreallyarsed]

Self employed people can’t claim expenses such as travel time, don’t get paid sick days/holidays, and also don’t have the security/pensions/union etc that non self employed people have.

[Notreallyarsed]

Also don’t have a guaranteed hourly rate/salary. DP is paid per job, not per hour. If that job is 300 miles away, or 2 miles away the rate is the same.

[PoppyPopcorn]

Huge amount of misunderstanding.

There is a general perception that if you're self-employed you're either raking in hundreds of thousands and employing an accountant to set you up with offshore trusts and clever dodges to avoid tax (like pop stars and comedians) or flogging aloe vera shite to your friends. No middle ground.

Those of us who ARE self-employed know that the same rules apply to us as they do to everyone else. We all do our tax returns, there are no separate tax brackets for self-employed people. Yes you can claim expenses but all rhe self-employed people I know are scrupulously honest and live in fear of HMRC appearing to perform an audit. Most self-employed people are childminders, plumbers, hairdressers, graphic designers, writers, crafters and other "one man band" operations. Those sorts of businesses don't hit the headlines though, it's all Gary Barlow and his offshore accounts or BBC talent offering their talents on a freelance basis rather than going on the payroll.

Oh and yes - no holiday pay, sick pay etc.

[Notreallyarsed]

In DPs case as well there are significant outlays in order for him to work too, which wouldn’t be the case if he was employed. Tools (not cheap), fuel (often 1000 + miles p/w), materials, van and associated costs. He pays tax on his income, the same rate as anyone else, so I’m really unsure where the envy comes from?

[whitehorsesdonotlie]

If you're self-employed you get no maternity pay, no sick pay, no holoiday pay, no pensions paid by their emoployer... you have to make all that up yourself.

[Parker231]

Those who are an employee of their own Limited Company do currently have some tax advantages - draw low salary and then dividends but carry the risks - no sick pay, holiday pay, maternity or paternity pay and most importantly at the end of a contract - no work and no income. I’m an employee of my own company and it’s great when you get a long contract (I charge a day rate and the longest contract is for six months) but when a contract is coming to an end I worry about when I’ll get the next contract. You don’t have that problem as a PAYE employee.