Re: Why is it expected that lower tax rates should compensate for lack of benefits?
Yes and no.
The lower tax is more of a side effect of the way that we are made to work.
So for me to get professional indemnity insurance to cover me to work on the financial systems for a client turning over 22m per day (and to ensure that I personally dont get sued and lose every thing) I have to work through a limited company - I have literally never seen a role offered where the client would consider hiring a sole trader.. its just not going to happen.
The thing is the limited company acts as a buffer, the money paid for your time doesnt belong to you, its the companies money - this is where the problem creeps in. As the money belongs to the company and you own the company you can take the funds as dividends and salary which means you can LEGALLY reduce your tax liability.
Its that *LEGALLY* that is important. Not all contractors choose to to this, you could if you wanted take all profit as PAYE salary and pay the same tax rate as permies, this would reduce the companies corporation tax bill to pretty much zero.
To be honest I think tax reform is needed, but I dont think IR35 is the right way to go about it, for me its the loss of travel expenses thats the issue - I pay 500+ a month to get to my client, the only reason thats acceptable is that my company can offset some of that against corporation tax.