When I write my modest blogs I do try to check any facts that I use with at least a couple of sources. This is the same meticulousness that I try and bring to my professional life. Therefore my heart sinks when I read an article or see a factual programme that includes obvious errors. If they can make a basic error like that on something on which I am well informed, what mistakes am I missing when reading about something I don’t know about?
For example a well-known and respected entertainment magazine recently used a picture of the wrong actress in place of the one who played the Danish PM in that excellent BBC4 drama “Borgen”. On the BBC I have seen poor Jon Anderson of Yes have his birthday on TOTP2 celebrated with a clip of The Strawbs purely because it included his erstwhile Yes bandmate Rick Wakeman (I am sure the “researcher” thought “well if it has got Rick in it, it must be Yes…”).
The reporting of the “civil service tax dodge” scam is a case in point . Yes the corporate tax rate for small companies is 20% but any income or cash extracted from that company can be subject to a range of potential further taxes. Therefore comparing this rate to the 50% top rate, which is only paid on any taxable income earned above £150,000, is a touch disingenuous.
There can be tax savings resulting from operating through a limited company. Depending on how much the company might have paid the contractor in question in salary there could have been some savings in national insurance. There is also the potential to deduct expenses and involve a family member in the company. However all cash taken out of the company as dividends above the £42,475 higher rate income tax threshold for an individual’s taxable income, would have attracted additional income tax at a rate of 32.5% (or 42.5% for taxable income above £150,000).
In short it is not straightforward, and considerably more detail is required in order to explain what tax savings, if any, resulted from the arrangement. For some lazy journalists though it was easier to subtract 20 from 50, thus leaving the reader to make the calculation on an income of £182,000 (£140,000 basic plus £14,000 bonus plus £28,000 pension) and become suitably outraged.
What really concerns me though is that these people would seem to be acting as employees in almost every respect and should have fallen foul of HMRC’s notorious IR35 regime. The fact that HMRC apparently did not question these arrangements is a slap in the face not only for genuine contractors but also those HMRC employees that do try to uphold tax law.
It should of course be noted that HMG itself would have made a considerable savings on its employer national insurance payments. Presumably it avoided other payments such as holiday and sick pay as well.
Highly skilled contractors working flexibly within Enterprise Britain, servicing a number of businesses through a limited company, and taking real financial risks, are going to play a key role in getting the economy moving again. Sadly it is they who are likely to end up suffering as a result of all of this inaccurate reporting and righteous indignation rather than highly paid civil servants or journalists. And don’t get me started on MPs’ expenses…..