I was browsing the BBC site to catch up on the latest news and I happened to see this article where a "Head of Taxation, ACCA" explains how a PSC can be used to get paid and it can actually cost you more in tax than being paid through PAYE rather than save you tax.
http://www.bbc.co.uk/news/business-19846152
I was surprised by the simplistic way that this topic was addressed and even more surprised by the BBC publishing this!
It is suggested that someone that has £160,000 retained profit in the PSC would take everything out as dividends in one go. I would think that if somebody bothers to create a PSC to be paid through it then they would be a bit smarter than that and go for the "usual" small salary + big dividends and take out only the amount of dividends that would take their income to the threshold of the 40% tax rate so that there is no tax to pay on the dividends at all. The rest of the retained profit would be taken out of the PSC using the same approach over a number of years, thus taking everything out of the PSC completely tax free. And I'm sure there are other "schemes" that I know nothing of (but big-shot power accountants do know!) that may allow the shareholder to get all the money out right away perhaps in a more twisted and elaborate way than just taking dividends.
It seems that the author chose a very extreme and unlikely example to justify how a PSC can actually cost you more than being paid through PAYE. In my opinion this may give a misguided idea of a PSC to the average person that knows nothing about taxation.
Also there is no mention of IR35 at all. If you get paid £200,000 by the BBC then it is likely that you are working full time for them and have no other client (as a licence fee payer I would certainly hope that you were not just an occasional consultant pocketing £200k! I know, I know...last famous words...). IR35 lurking in the shadows? I used to work for the BBC (as an employee on PAYE) and I was working in the same office as other people quite high in the hierarchy (being paid £150k+) and I can confirm that they were in the office all day every day (putting in quite long hours).
I'd be interested in hearing what everybody else on here thinks about the article. Just as a healthy conversation, nothing too political.
Fabs
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Pre 1997 it was a term used to refer to the businesses of women of ill repute. Post 1997... Well, shows what the Government think that we are.
The idea was that the concept of a limited company was too wide and so a sub division was created.
The reasoning behind this was the governments usual taking of a specific case and applying it to everyone. Namely the person who leaves work on a friday as an employee and starts on a Monday doing the same job through their own business.
The Government missed out all of the downside ad made out that people were making a lot of money by cheating the system.
The reality is that people lost holiday pay, sickness entitlement, training, job security, employer pensions, expenses, etc. Whilst gaining the employers N.I.
The Government was not interested in that though. All they were interested in was getting a larger cut for themseves.
PSC's were sold to the people as being a choice that people made but many in the IT industry would love to be self employed. Only problem is that companies and agencies would only deal with limited companies so people went down that route without either the option of self employment OR the option of employment with a company for which they were deemed employee's.
Whole things as big a Government revenue raising con as safety enforcement camera's.... which ironically are never in accident black spots but usually on dual carraigeways with new 30mph limits (There's a mobile one that sits on the outskirts of Cannock that must be making a fortune).
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Can I pick your brains, Shaun? Why was IR35 needed?
There was a framework for employment, tests for self employment and millenia of contract law. Sure, there was a change in work patterns but contested cases could have gone through the courts. No comprehende.
Thanks.
Re. speed cameras, I'd thought Staffs. were phasing out half of them but leaving the yellow boxes in place. Didn't stop us being caught by hand-held police cam on the Uttoxeter Rd, though :/
IR35 was something that HMRC had wanted for years and really gave a common framework to policies that had been used unofficially for a long time.
I'm thinking here of the HMRC tests where they would view the amount of salary taken to the amount of set outgoings that one had and if you could not afford to pay your basic outgoings such as mortgage from salary then all of your income was deemed as salary.
The viewpoint was always that people were paying less than they ought to even though they were paying more than they would had they been permanent employees of the company.
IR35 was one of new labours first policies and it had to be seen to be a success. The fact that the target was small business owners who were deeemed not to be traditional labour voters was really the icing on the cake as it kept the labour old gaurd happy, and it attacked a group that it was felt could not defend itself.
Over the years IR35 has given successive parlaiments nothing but issue as always happens when policies are introduced on the back of half truths, misinformation and personal vendettas.
The conservatives promised to repeal it on getting to power but IR35 is still here where my trust for the conservatives is not (Boris Johnson excepted).
That said, would we have had a better Government if they were not trying to appease the wishy washy business hating liberals all of the time? (Vince Cable, business minister... Shakes lowered head).
Looking on the bright side at least now Osbourne and Cameron seem to have grown some and are basically telling the liberals to just shut up and stay out of the way... Then again, they're having to do that with some of their own ministers as well at the moment.
As for the original question. It was never needed. Just more crap from a Government still in shock at finding that they were in power and wanting to quickly change everything without thinking through anything.
Sorry to hear about your run in on the Uttoxeter road.
Yes, they are winding down the yellow boxes but the speed camera vans seem to be breeding.
All the best,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I'd never understood so it will be an education to look some of that stuff up. All very political, and makes me wonder why the government aren't throwing these failed policies back in labours face. I'm thinking IR35, Small Companies Zero Rate band - the 10p income tax band - and the denial of dividend tax rebate to those on the very lowest income, who shouldn't even pay tax. I couldn't believe that last one.
My cousin is a local Liberal and repeatedly comes up with further ways to tax - Mansion tax, Robin Hood tax (purleeez) - Isn't it generally accepted that a country can only take up to 40% in various taxation before it becomes detrimental to the economy.
