Which means it’s essentially going away. I first encountered it in 2005 when I first contracted & it has never affected me. It nearly affected me with my previous contract a couple of years ago as the business really didn’t understand it and was “playing safe” by trying to go “inside IR35” for the role, but that’s utter nonsense for a 3 month engagement such as the one I was doing. I’ve always paid employers NI etc. I don’t understand why they don’t change Ltd company dividends & up the %age for the first £100k or so - it’d effectively solve the problem they’re trying to fix (lost tax/NI revenue), without all the messing about.
Even with the current tax rates, it's not clear to me that it's a net tax gain for HMRC to push contractors to being permanent. A contractor typically charges VAT - which can more than make up for other taxes - especially if their day rate is higher than it would be on an employee salary.
I think most people forget that when contractor pays itself a dividend, that money comes from the profit which they also pay corporation tax on.
Then it's very much like PAYE. Only difference is that the client does not have to pay Employers NI, which is fine, because they are not an employer.
But taxes on dividends got higher and higher in recent years.
You can still work for years in the UK, accumulate money (or real estate / other investment) in the company - then you move to Dubai and withdraw dividends tax free.
You end up paying 19% corp tax rate on your income that you can access only after you're done with the UK - which is not great compared to lower taxed countries in Europe (Malta at 5% being the best), but you get access to the London only jobs which pay a bit more (even if now that's not really true in a post remote working world).
Definitely better than getting equivalent salary and being forced to stash money in a pension you'll see when you're 60 or pay 40% taxes
The majority of IT contractors are going to be bringing in over £85k/annum, which means they're going to be registered for VAT, which means they will be providing VAT invoices to their client, which means their client is going to claim the VAT back from HMRC.
So what? The company still generated the VAT revenue.
The customer gets a refund, but has to charge their own customer VAT on the full amount of the goods they are selling, so the VAT accumulates until it is paid by someone who cannot claim the VAT back
That's why it's called "value added tax" - each supplier in the chain generates VAT on the value they add.
