Only the employed seem to pay tax?

[Taxevasion]

This is annoying me. Met a person recently that owns a lot of property (multi-million) that is let out in various ways but doesn’t pay any tax. Whatever they do is legal but the fact is they don’t pay tax so don’t contribute to the costs of running the country.

So am I being unreasonable in thinking this is very unfair? It seems that only those of us who are employed and pay tax paye fully contribute.

@sst1234

You’re not wrong OP, PAYE people seem to spy more than most. Big business may not pay a lot of corporation tax but pays a fair whack in employers NI and other employee related taxes as well as VAT. Consumer pay VAT too. The biggest problem is with some traders and small businesses, they are pulling every dodgy trick in the book.

What tricks do you think small business owners or freelancers are pulling exactly? And I'd really like to understand how these people are getting away with paying less tax than Amazon, Google, Facebook etc.

Could you put me in touch? I own a company and I pay an eye watering amount of tax. I don't know how the math seems to be done that I pay a damn sight more tax than I do wages to myself.

@MoonbeamSprinkles

Ok

So.

I pay 20% VAT on everything that comes into my business. They say the customer pays that but it’s not actually true because I am competing with non bay registered businesses, there’s only so much I can charge so it’s coming out of my pocket not the customers in reality,

Then I pay national insurance on all my employees wages.

Then I pay national insurance on my wage, both as an employer and an employee.

Then I pay cooperation tax on all my profits.

Then I pay tax on my dividends.

I pay a lot of tax.

I don’t mind paying tax, it’s nice to have hospitals and a welfare system.

However I do really hate it when people who have no idea about the British tax system claiming I pay no tax.

Yes exactly. Well put. Sick of small business owners being treated as the enemy.

@Haffiana

Why isn't tax taught at schools? Why do we have so many thoroughly ignorant people who really seem to actually believe that self-employed pay no tax? They cannot all be stupid - it must be that pps are simply ignorant. They have not learned about tax.

This should be taught in schools. I see it again and again on the relationship boards - a wife is told by her soon to be ex that he will become self employed in order to avoid paying maintenance for DC. And the wife BELIEVES him and doesn't chase for CM but put up with the odd £50 here and there.

The same ignorant people who think the self employed got money thrown at them re covid grants and are in denial about the millions who were excluded.

Why isn't tax taught at schools? Why do we have so many thoroughly ignorant people who really seem to actually believe that self-employed pay no tax? They cannot all be stupid - it must be that pps are simply ignorant. They have not learned about tax.

This should be taught in schools

Half of school leavers wouldn't be able to tell you want 10% of 40 is without asking their phone. I can't see the income tax treatment of dividends from offshore companies making it to key stage 4

@Lochroy

Your ignorance is showing. The way the ‘forgotten freelancers’ were treated by the government during lockdown was disgusting.

Small business owners who structure payments via dividends are working within the perfectly legal tax system set up by HMRC. Any accountant who did not instruct their clients to structure their payments via threshold salaries + dividends would be in dereliction of their professional duty.

And has been pointed out again and again, once corporation tax, NI (employers’ + employees’), PAYE (if applicable), VAT (if applicable) and dividend tax is paid, the difference between the tax paid by an employee and a PSC Ltd company director is negligible.

However, the risk both financial and personal is much greater to the company director. And before anyone starts on about ‘it’s their choice’, quite often it isn’t. The industry I work in is entirely driven by a freelance workforce; I would certainly prefer to be employed with all the benefits and protections that confers.

When everyone was laid off in the first lockdown because the rules prevented us from working (site work, non essential) I don’t know anyone who didn’t wish they were employed. This idea that they’re all tax-dodgers is nonsense.

There are plenty of calculations online that show the exact figures at various levels of earnings; have a look and stop wringing your hands in glee at others’ misfortune. Many good people had a very tough 2020.

DB used to be employed as a contractor & was moved to payroll. It's certainly hit his pocket.

@Bingbangbongbash It's not ignorance it's frustration. I know it's allowed.

I'm also aware that the business pays tax, but so does my employer. I regard it as moot. Ultimately the system allows some people to derive an income subjected to lower tax than others.

I don't think the tax system should reward risk. The rewards should, IMHO, come from things like higher take home pay and the flexibility of being one's own boss.

I will add, I am sorry for my flippant comment about furlough. I know it was hideous for many.

Were Starbucks and other companies not getting away with paying practically no tax?

Something to do with offshore accounts and payments in dividends has helped many too I think.

Basically if you’re minted you can pay expensive accountants to legally do all they can to minimise your tax bills.

The regular people can’t do that.

@lochroy

It isn’t moot at all.

I’m in an industry where there is primarily a freelance workforce. The HMRC has deemed my role as outside IR35, meaning companies will not employ me PAYE (as it costs them more in NI, pension contributions and holiday pay).

My choice is to operate as a sole trader, leaving my family, home etc at risk were I to be deemed negligent or similar.

So I protect my family & assets by operating through a Ltd company.

I bring in the entirety of income to company, so any tax the company pays is tax I am paying. Your employer might pay tax but you yourself are not paying it.

So in my case, CT + IT + DT + VAT is the equivalent of you paying IT - and the figures are roughly the same (we’re talking a few hundred pounds difference, if that).

And of course the tax system should reward risk. Or another way of thinking about it would be to reward endeavour.

There are precious few advantages to being freelance. The idea that you are happily picking and choosing work when you fancy is a fantasy and as for higher take home pay - rates in my industry have barely changed in 20+ years. Even if some industries offer higher take home pay for contractors, that is at the expense of rights you take for granted - like holiday entitlement, sick pay, job security, maternity pay (after certain lengths of employment).

Added to that, our money doesn’t go as far - we aren’t given as favourable rates for borrowing for example.

You don’t understand the nature or reality of small businesses.

Imagine the properties are in a trust, which the trust pays taxes on the income/profits made. Distributions made to the beneficiaries are then subject to no further tax. This has probably lead to the statement 'I pay no tax' because they personally do not, the trust does.

If you earn £50k per year, PAYE employee, and contribute £3k to your pension per year, you'd finish with £35k net pay.

If you do the same as self employed, via your own Ltd co', you might pay yourself £12k salary and have £38k gross profit left from which to take dividends.

After corporation tax, £3k pension and employer's NI, that £38k would leave you with £28k.

If you take the £28k as dividends, you'd have £26k net

So, in total, from being self employed you're potentially £3k better off. However under standard PAYE you'd have been entitled to employer's pension contribution which would probably mean there's £1k in it overall, if you're lucky.

And of course the SE person has no holiday pay, only statutory sick pay, and all the risk of being SE with no security, to cover with that £1k per year.

It's baffling to think that some people truly believe the self-employed are "getting away with paying no tax".

(I'm not SE myself, by the way.)

@SofiaMichelle

If you earn £50k per year, PAYE employee, and contribute £3k to your pension per year, you'd finish with £35k net pay.

If you do the same as self employed, via your own Ltd co', you might pay yourself £12k salary and have £38k gross profit left from which to take dividends.

After corporation tax, £3k pension and employer's NI, that £38k would leave you with £28k.

If you take the £28k as dividends, you'd have £26k net

So, in total, from being self employed you're potentially £3k better off. However under standard PAYE you'd have been entitled to employer's pension contribution which would probably mean there's £1k in it overall, if you're lucky.

And of course the SE person has no holiday pay, only statutory sick pay, and all the risk of being SE with no security, to cover with that £1k per year.

It's baffling to think that some people truly believe the self-employed are "getting away with paying no tax".

(I'm not SE myself, by the way.)

This "SE pay no tax" narrative suits HMRC so they can do stupid measures like IR35 that actually don't raise any more tax, but ensure that rich friends of the government get all the work. In the meantime it's business as usual for big corporations and their tax dodging, rich people (see Panama papers etc) and us peasants (Self employed or PAYE) are left to have petty squabbles.

Also UK tax is stupidly stupidly stupidly stupidly stupidly stupidly complex. It doesn't need to be, it's just that HMRC, Lawyers and Accountants (and therefore the government) prefer it that way.

I must have hallucinated self-employed DH large tax bill.

How do they get around it?

But no you’re not correct, SE pay tax too

I’ve done both

@Elieza

Were Starbucks and other companies not getting away with paying practically no tax?

Something to do with offshore accounts and payments in dividends has helped many too I think.

Basically if you’re minted you can pay expensive accountants to legally do all they can to minimise your tax bills.

The regular people can’t do that.

“Regular” people who are self employed don’t pay expensive accountants. Many have no choice but to trade via a limited company. The “dividend” situation has been well known throughout internet fora for 20 years ever since Gordon Brown changed the tax rules to encourage self employed to trade via limited companies. No specialist/expert tax knowledge needed - it’s all very basic stuff.

[quote Lochroy]@Bingbangbongbash It's not ignorance it's frustration. I know it's allowed.

I'm also aware that the business pays tax, but so does my employer. I regard it as moot. Ultimately the system allows some people to derive an income subjected to lower tax than others.

I don't think the tax system should reward risk. The rewards should, IMHO, come from things like higher take home pay and the flexibility of being one's own boss.

[/quote]
The tax system is deliberately set up to reward risk in many ways such as the very beneficial tax relief for risky investments such as venture capital trusts, capital allowances for business asset purchases, investment in film productions, etc. They’re not loopholes, they’re deliberate governmental policy and there’s been similar for decades.

@SofiaMichelle

If you earn £50k per year, PAYE employee, and contribute £3k to your pension per year, you'd finish with £35k net pay.

If you do the same as self employed, via your own Ltd co', you might pay yourself £12k salary and have £38k gross profit left from which to take dividends.

After corporation tax, £3k pension and employer's NI, that £38k would leave you with £28k.

If you take the £28k as dividends, you'd have £26k net

So, in total, from being self employed you're potentially £3k better off. However under standard PAYE you'd have been entitled to employer's pension contribution which would probably mean there's £1k in it overall, if you're lucky.

And of course the SE person has no holiday pay, only statutory sick pay, and all the risk of being SE with no security, to cover with that £1k per year.

It's baffling to think that some people truly believe the self-employed are "getting away with paying no tax".

(I'm not SE myself, by the way.)

Well said, there’s a lot of rubbish spoken on this thread.

I'm both employed and self-employed and I pay tax on both my jobs. One is done by my employers and the other is via a self-assessment.

You are talking like other forms of taxation, that are not direct Income Tax, do not count towards the balance of state collected tax revenues.

That is blinkered, to say the least.

You advocate a wealth tax.

So, what?
One earns money, pays income taxes, saves, buys a nice house and you think the tax authorities should be dipping into the value of that nice house till the owner is either bankrupt or dead. How about the government helps itself to 25 percent of rich people's savings account annually, even if they already paid tax on the money before it got put in the bank?

I think your desire for these policies might be anchored securely in a massive steaming pile of envy.

I have never been wealthy in my entire life. More often than not, have barely had a pot to piss in. I have felt envy when I see people with more. That's natural. I can honestly say that I have never wished the state should take more of a percentage from people better off than me just because they have more than me.

Here here @Bingbangbongbash

Sorry nothing more productive to say except I agree with every word you say.

[quote Lochroy]@Bingbangbongbash It's not ignorance it's frustration. I know it's allowed.

I'm also aware that the business pays tax, but so does my employer. I regard it as moot. Ultimately the system allows some people to derive an income subjected to lower tax than others.

I don't think the tax system should reward risk. The rewards should, IMHO, come from things like higher take home pay and the flexibility of being one's own boss.

[/quote]
I disagree. The tax system (the government) should reward risk. Without that risk being taken jobs wouldn't be created.

Dividends for example can only be taken if there is reserves in the company - ie the company is profitable. So if no profits and no reserves then no dividends can be paid. The company can still trade, and often still pay salaries to other employees while the owner director gets very little. Why should they not then be rewarded for that risk when the company is in profit?

@daimbarsatemydogsbone

This "SE pay no tax" narrative suits HMRC so they can do stupid measures like IR35 that actually don't raise any more tax,

Yes, I agree, and HMRC, The Treasury and Rishi Sunak used the same argument to "divide and rule" about the 3 million self employed/freelancers who were unfairly excluded from the covid support schemes.

Like Rishi's famous "the average self employed person earning more than £50k earns around £200k" as his crazy illogical justification for excluded those earning over £50k. Can anyone with at least half a brain explain why someone on £51k got nothing, when someone on £50k got £7,500, and why it's relevant that some others earned £200K? It's just nonsense.