Self employed

[Pocster]

2 minutes ago, Thedreamer said:

 

The 7 tenants should receive theirs wages as normal from their employer, it's the employer who will have the time delay in reclaiming. I would imagine although employees may be earning less, there day to day living costs should also be less (commuting, motoring, disposal income on nights out etc). 

 

My understanding for the self employed scheme was that you needed just to have the 18/19 year filed (assuming the other criteria are met) so they should be eligible if they have filed just 18/19. Depending upon their circumstances they may qualify for the government backed loan, grant, or be able to delay a VAT/Self assessment payment for example which might free up some cash for the rent before being able to reclaim the government funds in June.

 

The tenant that just left are you able to claim from his deposit. I'm not familiar with tenancy agreements.

 

I wouldn't panic just yet, worth having a calm chat with each tenant to see what help they are able to access. 

 

As mentioned before I would have a chat with your accountant to see if they have any further suggestions for you personally.

 

 

 

 

Oh I’m not worried . Never had any help from the government from redundancy to almost bankruptcy - so expecting nothing now . The tenant that just left I can and will claim his deposit . Problem is there’s no point trying to rent his room in the current situation. Be interesting to see what process HMRC use to choose which SE get help and which don’t .

[Thedreamer]

Just now, pocster said:

Oh I’m not worried . Never had any help from the government from redundancy to almost bankruptcy - so expecting nothing now . The tenant that just left I can and will claim his deposit . Problem is there’s no point trying to rent his room in the current situation. Be interesting to see what process HMRC use to choose which SE get help and which don’t .

 

I think in your case it would sound as if you might benefit indirectly from the government schemes.

 

I would assume from your posts that the majority of your taxable income has come via  property income. 

 

I would expect you have not paid class 4 national insurance contributions (and just a small amount of class 2). This would have saved you a lot of national insurance over the years compared to if your total income had been through class 4 as trading self employed or PAYE.

 

National insurance was designed to be safety net and those who contribution most to NI are those who stand to benefit most when in need! 

 

If your property income was say £40,000 and I earned the same amount as employee but had to pay significant more national insurance, how would this be fair and just on the employee?

[Pocster]

12 minutes ago, Thedreamer said:

 

I think in your case it would sound as if you might benefit indirectly from the government schemes.

 

I would assume from your posts that the majority of your taxable income has come via  property income. 

 

I would expect you have not paid class 4 national insurance contributions (and just a small amount of class 2). This would have saved you a lot of national insurance over the years compared to if your total income had been through class 4 as trading self employed or PAYE.

 

National insurance was designed to be safety net and those who contribution most to NI are those who stand to benefit most when in need! 

 

If your property income was say £40,000 and I earned the same amount as employee but had to pay significant more national insurance, how would this be fair and just on the employee?

Yes ; all my income comes from properties. Did read about classes of NIC and then got confused ?.

But I might be trading as class 4 - I’ve no idea until my accountant replies .

Equally before going SE I paid NI - I believe that historically that can count .

Appreciate your replies and understand no one really knows how anyone is treated regarding SE and property . Assume the worst and hope for the best .

[Thedreamer]

Just now, pocster said:

Yes ; all my income comes from properties. Did read about classes of NIC and then got confused ?.

But I might be trading as class 4 - I’ve no idea until my accountant replies .

Equally before going SE I paid NI - I believe that historically that can count .

Appreciate your replies and understand no one really knows how anyone is treated regarding SE and property . Assume the worst and hope for the best .

 

Your accountant can clarify, but I expect your national insurance bill has been less for many years compared to that of the same taxable income of a employee or self employed individual trading.

 

The less you pay into national insurance the less you benefit. As example if you paid £50 for property insurance you would clearly expect less from the policy than if you took out a policy for £500. It is a national insurance policy for the tax payer. 

 

National insurance contributions really serve two purposes, to help people as a safety net in the present but also to help in the future. Your prior contributions would provide qualifying years for a future state pension.

 

Unfortunately what you have paid previously won't make any difference to the present.

 

I don't think it is correct to say that no one really knows about SE and property income, most competent accountants would know how to deal with it on a self assessment and I have also applied some logic as to why it is not covered under the government schemes.

 

I have to go back to the books now! 

 

 

[Pocster]

13 minutes ago, Thedreamer said:

 

Your accountant can clarify, but I expect your national insurance bill has been less for many years compared to that of the same taxable income of a employee or self employed individual trading.

 

The less you pay into national insurance the less you benefit. As example if you paid £50 for property insurance you would clearly expect less from the policy than if you took out a policy for £500. It is a national insurance policy for the tax payer. 

 

National insurance contributions really serve two purposes, to help people as a safety net in the present but also to help in the future. Your prior contributions would provide qualifying years for a future state pension.

 

Unfortunately what you have paid previously won't make any difference to the present.

 

I don't think it is correct to say that no one really knows about SE and property income, most competent accountants would know how to deal with it on a self assessment and I have also applied some logic as to why it is not covered under the government schemes.

 

I have to go back to the books now! 

 

 

Sorry I meant property income , SE with the current situation I.e SE 80% salary scheme . I certainly am not relying on a state pension .

[Pocster]

@Thedreamer

 

“

If your property income was say £40,000 and I earned the same amount as employee but had to pay significant more national insurance, how would this be fair and just on the employee?”

 

It isn’t . Is it fair I’m taxed on turnover with a 20% discount not profit . Only profession / trade that has that . Swings and roundabouts ?

[ProDave]

You could also argue why do I as SE pay pretty much the same NI as a PAYE employee?  I don't get any SSP and in normal circumstances it is virtually impossible to go from SE to unemployed and claim any form of benefit.

[Pocster]

7 minutes ago, ProDave said:

You could also argue why do I as SE pay pretty much the same NI as a PAYE employee?  I don't get any SSP and in normal circumstances it is virtually impossible to go from SE to unemployed and claim any form of benefit.

Agree . It’s all pants quite frankly . I’ll just pay tax that every other (expletive deleted)er can claim while never getting a penny 

[Stones]

44 minutes ago, ProDave said:

You could also argue why do I as SE pay pretty much the same NI as a PAYE employee?  I don't get any SSP and in normal circumstances it is virtually impossible to go from SE to unemployed and claim any form of benefit.

 

But pretty much the same, is not the same...chancellor did say it was something that would have to be revisited, especially as you could argue that the current CV19 support is more generous (in that theoretically you could claim and continue to earn) If it means a levelling up on the benefit side, doesn't seem unreasonable, although the media commentators who scuttled the last chancellor's plans to do this would I'm sure argue otherwise.

[AliG]

They tried to fix this before and there was a backlash, but I think this time it will get sorted out.

 

Self employed pay less tax than  employed and often they argue that it is due to lack of holiday pay and sick pay. Holiday pay is paid by your employer and not the government so this argument is nonsense. Even SSP although it would be paid by the government, employees generally have better sick pay because their employer pays it not the government. The average person is only sick 4 days a year in the UK.

 

I am a partner in the company I work for so benefit from being classed as self employed so not paying employer's contributions on my wages. This is just bizarre that a partnership benefits from this.

 

The systems should be brought together so that people do not alter the running of their affairs for tax purposes. Self employed, partnerships, employees etc should all have similar tax arrangements.

 

I have a friend who works as an IT contractor. Because he works in IT he buys himself a top of the line computer to play games on every few years and claims it against tax. He was set up for years using an employee benefit trust and basically paying no tax at all.

 

An employed person earning £40,000 per year pays £3,764 in NI and £5498 in tax. Their employer pays £4,561 in NI.

 

A self employed person would pay the same amount of income tax, except they could probably get some deductions not available to an employed person. Their NI bill (Class 2 and Class 4) would be £2984.

 

So the total tax and NI on a self employed person making £40000 a year is £8482 versus £13823 for an employed person. In reality the self employed person would effectively be paid the employer's NICs and then pay some tax on them.

 

What do you get for your extra £5000+ a year -

1. The average UK person is off sick for 4 days a year - Let's call it a week £92 of SSP.

2. JSA - £73.10 a week if you have savings of less than £6,000. So for many people, nothing.

 

Another way of thinking about it is that the self employed benefit from probably roughly 98%(Other welfare is about 3% of government spending and self employed are still eligible for some of this) of government spending but pay considerably less tax than employed people. On top of the calculations above they can further reduce tax liability through the use of dividends and CGT.

[DamonHD]

Don't mix self-employed vs employed through own (eg Ltd) company.  Quite different things from a tax and other points of view.

 

Secondly, not all of us who used a Limited company are/were on the make.  I have never taken dividends for example.  And yes, I did actually consider myself on a day's notice with clients whatever the contract said.

 

I think tha mods should remove my post and yours as political and devisive, or maybe we should avoid making sweeping generalisations?

 

Rgds

 

Damon

[AliG]

Your point is well taken @DamonHD in that originally the tax system was designed for different kinds of business and what has happened is that some people have started to organise their affairs for tax purposes not business purposes.

 

I am not sure whether this was due to the tax difference getting larger over time or due to people just getting more creative with their taxes but I think it should be fixed in the interests of fairness. I would pay more tax so I am trying not to act out of self interest.

Edited March 30, 2020 by AliG

[Thedreamer]

4 hours ago, pocster said:

@Thedreamer

 

“

If your property income was say £40,000 and I earned the same amount as employee but had to pay significant more national insurance, how would this be fair and just on the employee?”

 

It isn’t . Is it fair I’m taxed on turnover with a 20% discount not profit . Only profession / trade that has that . Swings and roundabouts ?

 

I don't understand what you mean, how are you taxed on turnover?

[Thedreamer]

4 hours ago, ProDave said:

You could also argue why do I as SE pay pretty much the same NI as a PAYE employee?  I don't get any SSP and in normal circumstances it is virtually impossible to go from SE to unemployed and claim any form of benefit.

 

You will pay less NI as a self employed tax payer. 

 

SSP is not really a benefit to an employee, it's next to nothing same as statutory payment such as paternity pay.

 

At the end of the day it's your choice to be self employed.

 

I would like to have risks and rewards of being self employed but having a young family I prefer the safety of employment. 

[andyscotland]

4 hours ago, AliG said:

Even SSP although it would be paid by the government, employees generally have better sick pay because their employer pays it not the government.

 

This is an enormously common misconception.

 

SSP is mandated by the government, but paid by the employer. Unlike e.g. maternity pay, there is no option for an employer of any size to reclaim SSP (except under the emergency changes covering SSP for people self-isolating due to coronavirus).

 

Interestingly I vaguely recall seeing some research that small firms that made it clear any SSP comes out of the owner's pocket tend to see lower rates of sickness absence than elsewhere...

 

I think the argument about self-employed not getting SSP / holiday pay / job security / pensions etc is that an employee essentially gets these as tax-free benefits on top of the figure that's used to calculate their tax bill, where a self-employed person has to save for / pay for them from their taxed income. It's not an argument (or at least, it's not correct) that self-employed people cost the state less.

 

However this is also not really why the tax is different. The main motivation for taxing the self-employed/company directors differently is to encourage and reward risk-taking and entrepreneurialism which, when it works, boosts government coffers through job creation, innovation, economic activity, exports etc. If someone starts a small business and creates even a small number of jobs the tax take from those far outweighs the incentive to the business owner.

 

The problem really lies in the enormous companies - already beneficiaries of a whole range of tax incentives and state cash - that have forced people who should be being paid and taxed as employees into false self-employment/contractor status to allow them to drive down working conditions and save on the Employer's NI. This is where the "oh but they don't get the same benefits as employees" line of argument first started appearing, because these companies can't point to any genuine economic justification for why things as they are.

[newhome]

4 hours ago, andyscotland said:

Interestingly I vaguely recall seeing some research that small firms that made it clear any SSP comes out of the owner's pocket tend to see lower rates of sickness absence than elsewhere...

Conversely the amazing sickness policies in some companies seem to ‘encourage’ some employees to take full advantage of the policy often timing their time off sick to coincide exactly with the significant period for which they are eligible for full pay. 
 

4 hours ago, andyscotland said:

The problem really lies in the enormous companies - already beneficiaries of a whole range of tax incentives and state cash - that have forced people who should be being paid and taxed as employees into false self-employment/contractor status to allow them to drive down working conditions and save on the Employer's NI.

There are many however who choose to have contractor status (admittedly well remunerated ones). Until IR35 (was supposed to) put a stop to it we had contractors who had been with the company for years in some cases but never wanted to go permanent. IR35 persuaded many of them to convert to permanent but there were still several who decided to continue contracting via an umbrella company. That may not have been the smart move in the current situation as the expected economic downturn post coronavirus will undoubtedly lead to cost cutting, and in such circumstances contractors are generally the first to be let go. 
 

 

 

[SteamyTea]

I am sure I mentioned a few years back that we should just pay tax on every penny we receive, regardless of how we receive it.  So in effect a turnover tax.  We could, apart from a few 'sin' taxes, scrap all other taxation.

Then it is just an argument as to what the percentage tax should be.

I am sure no one would complain if it was 8%.

But 65%, would cause complaints.  But that is about the average tax burden that we currently pay.

 

[PeterW]

20 minutes ago, SteamyTea said:

I am sure I mentioned a few years back that we should just pay tax on every penny we receive, regardless of how we receive it.  So in effect a turnover tax.  We could, apart from a few 'sin' taxes, scarp all other taxation.

Then it is just an argument as to what the percentage tax should be.

I am sure no one would complain if it was 8%.

But 65%, would cause complaints.  But that is about the average tax burden that we currently pay.

 

Years ago (when VAT was 15%...) BDO did a paper on the 20/20/20 policy for taxation. It removed all personal taxes and charges such as NI and replaced it with a single flat rate 20% income tax from £0 with no limits. Likewise VAT and Corporation Tax pinned at 20% from zero upward.  
 

They calculated the country would be in the same position however the layoffs in HMRC and accountancy firms would be over 1m people ... 

[SteamyTea]

3 minutes ago, PeterW said:

Years ago (when VAT was 15%...) BDO did a paper on the 20/20/20 policy for taxation.

I think I read it, what made me think there was something to it.

I would go a step further and remove all other taxation.  We have trouble collecting some taxes, think corporation tax, so abolish it.

There would still be a need to police income, but like traffic wardens, people choose to work in a tax office.

[AliG]

7 hours ago, andyscotland said:

SSP is mandated by the government, but paid by the employer. Unlike e.g. maternity pay, there is no option for an employer of any size to reclaim SSP (except under the emergency changes covering SSP for people self-isolating due to coronavirus).

Thanks, I assumed the government paid it as people keep saying it is a benefit of higher employee NICs. I stand corrected.

 

 

[Ferdinand]

11 hours ago, Thedreamer said:

16 hours ago, pocster said:

@Thedreamer

 

“

If your property income was say £40,000 and I earned the same amount as employee but had to pay significant more national insurance, how would this be fair and just on the employee?”

 

It isn’t . Is it fair I’m taxed on turnover with a 20% discount not profit . Only profession / trade that has that . Swings and roundabouts ?

 

I don't understand what you mean, how are you taxed on turnover?

 

I think that is a reference to Osborne's 2015 budget where he stopped treating mortgage interest as a normal business expense for BTL landlords (though it is one), and did things to the calculation. Briefly, rather than mortgage interest being deducted before income is declared, it is in the calculation (potentially pushing lower rate tax payers into a higher rate bracket), and has a tax credit at basic rate applied afterwards. More info here:

https://www.which.co.uk/money/tax/income-tax/tax-on-property-and-rental-income/buy-to-let-mortgage-tax-relief-changes-explained-atnsv0j6j782

 

So a tax is applied to money which has been spent on a business expense, rather than the profit, which is a 'tax on turnover'.

 

"Taxed on Turnover" was one of the slogans used to characterise it, reflecting how that calculation was messed around with.

 

That and other changes, and consequent damage to confidence, pretty much stopped the PRS in its tracks.

 

F

Edited March 31, 2020 by Ferdinand

[SteamyTea]

If a landlord has a tenets that is claiming state benefits of any sort, part, or all of that money will end up in the landlords pocket.

Does that mean some landlords are living totally of state benefits? Many people in a street near me don't work, so the local housing association has a deal with the council to get paid directly (what knob though it was a good idea to directly pay tenets the housing benefit so that they can 'learn to manage money').

[Ferdinand]

1 hour ago, SteamyTea said:

If a landlord has a tenets that is claiming state benefits of any sort, part, or all of that money will end up in the landlords pocket.

Does that mean some landlords are living totally of state benefits? Many people in a street near me don't work, so the local housing association has a deal with the council to get paid directly (what knob though it was a good idea to directly pay tenets the housing benefit so that they can 'learn to manage money').

 

If you want t argue that that is living off state benefits then you have to apply the same standard to everything else bought with benefits - eg Sainsburys because they take the money for food, DVLA for Road Tax etc.

Edited March 31, 2020 by Ferdinand
Claim that it was Yvette Cooper removed - not 100% sure.

[Pocster]

21 minutes ago, Ferdinand said:

 

I think that is a reference to Osborne's 2015 budget where he stopped treating mortgage interest as a normal business expense for BTL landlords (though it is one), and did things to the calculation. Briefly, rather than mortgage interest being deducted before income is declared, it is in the calculation (potentially pushing lower rate tax payers into a higher rate bracket), and has a tax credit at basic rate applied afterwards. More info here:

https://www.which.co.uk/money/tax/income-tax/tax-on-property-and-rental-income/buy-to-let-mortgage-tax-relief-changes-explained-atnsv0j6j782

 

So a tax is applied to money which has been spent on a business expense, rather than the profit, which is a 'tax on turnover'.

 

"Taxed on Turnover" was one of the slogans used to characterise it, reflecting how that calculation was messed around with.

 

That and other changes, and consequent damage to confidence, pretty much stopped the PRS in its tracks.

 

F

Yes .

A mortgage to a LL is an expense - a working cost . To not be tax deductible ( except by 20% ) seemed grossly unfair . The argument to level the playing field with first time buyers seemed pathetic.

Anyway - before CV19 LL’s we’re leaving the market it droves . I can only assume CV19 will accelerate this . Not sure where everyone’s going to live !

[Pocster]

16 minutes ago, SteamyTea said:

If a landlord has a tenets that is claiming state benefits of any sort, part, or all of that money will end up in the landlords pocket.

Does that mean some landlords are living totally of state benefits? Many people in a street near me don't work, so the local housing association has a deal with the council to get paid directly (what knob though it was a good idea to directly pay tenets the housing benefit so that they can 'learn to manage money').

One way to look at it . A know a LL who deals only with DSS . Says now he’s glad as payments are guaranteed and effectively ‘immune’ to CV19 - unlike the rest of us .