Reply to post: Re: Why is it expected that lower tax rates should compensate for lack of benefits?

It's happening, tech contractors: is pushing IR35 off-payroll rules to private sector in Finance Bill

Dr. Mouse Silver badge

Re: Why is it expected that lower tax rates should compensate for lack of benefits?

The lower tax is more of a side effect of the way that we are made to work

Spot on.

The owner of a private business, whether that is a bakery, a corner shop, or an IT contractor, can chose how (and whether) to distribute funds from their company. The current tax rules make it advantageous to draw the majority (of what is distributed) as dividends.

Running a limited company takes effort, and brings responsibilities. However, it's the only way companies will engage contractors. It's also the only sensible way to be a contractor: If you are working for a client who makes millions an hour through their website, and you accidentally screw something up which takes the site down for an hour, the client could legitimately sue you for the lost sales (something you don't have to worry about as a permie). If you were not working through a limited company, you could very well end up bankrupt for a tiny mistake.

for me its the loss of travel expenses thats the issue - I pay 500+ a month to get to my client

I've been in contracts where it cost me ITRO £2k a month in travel and accommodation, and increased my day rate by about £100 to cover it. If I needed to take that from PAYE income this would have been around half as much again, or a £3k/mo bill to the client. This is part of being a contractor: we are a flexible workforce, we go where the work is and get compensated for it. Businesses can find the expertise they need to complete a project, no matter where they are and where the contractor is. If these *legitimate business expenses* have to be taken out of post-tax earnings, businesses will either have to pay much higher rates to get the skills they need or find they can't get them.

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