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Osborne plans crackdown on income tax loophole

George Osborne will target well-paid television presenters in this week’s Budget who use a scheme to help minimise their income tax bills.

Osborne plans crackdown on income tax loophole

George Osborne will target well-paid television presenters in this week’s Budget who use a scheme to help minimise their income tax bills.

The likes of the BBC’s Fiona Bruce and Jeremy Paxman have set up ‘one-man companies’ to exploit the loophole and cut thousands of pounds off their national insurance and income tax bills.

The schemes, also popular with sports stars and NHS and railway bosses, were designed to help freelance workers. However. the chancellor sees their abuse as ‘completely unfair’, according to a government source cited in the Telegraph.

It is estimated 20,000 public sector workers use these ‘personal service companies’, including state school headteachers and Bank of England staff.

The news comes after Osborne warned of fresh spending cuts on the BBC’s Andrew Marr show, saying the world was more ‘uncertain’ than at any time since the financial crisis.

The cuts would be the equivalent to 50p in every £100 of public spending.

‘My message in this Budget is that the world is a more uncertain place than at any time since the financial crisis and we need to act now so we don't pay later," Osborne said.

‘That is why I need to find additional savings equivalent to 50p in every £100 the government spends by the end of the decade, because we've got to live within our means to stay secure.’

9 comments so far. Why not have your say?


Mar 14, 2016 at 18:52

It's standard practice for all contractors. Set a business up, pay yourself the minimum wage or less. Take the rest as share dividends. Or team up with another contractor to form a multi-employee business and save even more tax.

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Mar 14, 2016 at 20:42

Unbelievable that such contractors are being paid from the public purse!

I'm aware of a practice in MoD, staff taking the early retirement on pensions paid out of HMG revenue, then being invited to continue in post on a contract basis, again paid out of HMG revenue, minimising the tax and NI take - but effectively being paid twice by the taxpayer!

Can't blame the staff, but I do blame the system for permitting it and the senior staff for promoting the milking of Joe Taxpayer!

I wonder if the cabinet pays its full wack?

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Seasoned cynic

Mar 15, 2016 at 09:18

Jonathan, That's a sweeping generalisation!

Some Limited Co. contractors have indeed maxed out as you describe but the change to Dividend Income tax in the next tax year will have an impact.

In any event, there are many contractors who draw a reasonable salary and pay full Tax & NI on that. As a contractor, you are not guaranteed anything beyond your (usually short & sometimes non-existent) notice period. No sick pay, no holiday pay, no pension. All that has to come out of the Ltd Company turnover just like a large employer.

'Celeb' sports presenters etc. probably pick up more money for one show than say, an IT contractor would for a month or more of work. There is no comparison with the vast majority of contractors who are brought in on a temporary basis to cover peaks of work that quite frankly, it would be daft to recruit permanent staff into as they would become surplus to requirements six months or a year or so down the line.

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Mar 15, 2016 at 10:15

Good old IR35 again! I wonder if HMRC will do any better this time. It has become a time waster and does not seem to achieve much extra revenue.

It is annoying, as a tax payer, that HMRC cannot produce more effective tax rules. We are paying for their mistakes and then for the corrections.

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Chris Powell

Mar 15, 2016 at 15:00

The Dividend Income tax was put in place to cover the reduction of corporation tax from 28% down to 18% soon to be. At last a government takes action.

However, NI is not paid by the employer so HMRC is missing out. When I was self-employed in the 80's my accountant told me I needed at least 3 different employers to be considered as self-employed. Seasoned cynic does have a good case for IT workers who have to move on every 6 months but I know for a fact that many IT workers have moved from being permanent to being contractor from the same employer to avoid NI for both parties. At the end of the day the tax avoidance (NI) is so big that maybe the old rules of having to show payments from many employers should be enforced.

I also think salary sacrifice should be scrapped accept for nursery costs.

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Seasoned cynic

Mar 15, 2016 at 16:08

Many IT contractors don't invoice for vast sums (in comparison to the real cost of Permanent Staff whose packages can include Holidays, Pensions, Medical Cover, Sick pay, Sharesave, Bonuses etc.) and work though 1 of 3 models:

1) their own Ltd Companies where both Tax and NI (Company and Personal) are paid on salaries drawn (excepting those that draw salaries below the NI threshold),

2) Managed Service Companies (changed in 2006/2007 to individual Cos.) but many of which still work on Minimum Salary with Max Dividend and blanket dispensation for expenses so pay no NI


3) an Umbrella arrangement where virtually all income is subject to tax & NI.

I've not come across a single one who is 'self-employed' in over 10 years of contracting myself. My husband was self-employed for many years and paid his own Self Employed NI contributions so I don't understand Chris Powell's comment above.

It's the high-end Consultants who charge £1000's per day that really get the benefit of IR35 at the moment by avoiding NI payments on the vast majority of their inflated income.

As usual, any change to IR35 will be like a sledgehammer and will adversely affect the many when really it's the few whose 'avoidance' costs the most.

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Chris Powell

Mar 15, 2016 at 16:23

Seasoned cynic- Dividend payments paid out and corporation profits do not incur national insurance. Being a limited company but only working for one employer should not mean you pay lower NI. Most of NI contributions are paid out for the state pension - maybe contractors should not get the state pension?

Most contractors of all types (including IT) have had the same employer for many years but don't pay their fare share of tax especially NI (hence, this is why the government is not happy- you don't have to be an academic to realise this). The new dividend tax was just the start. IR35 needs to change

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Seasoned cynic

Mar 15, 2016 at 16:35

Chris Powell - I agree!

Perhaps that's because I draw a decent salary, put a modest amount into a SIPP and try to put something aside for the fallow periods. Yes, I do benefit from dividends but I still pay a lot in both Tax & NI and have done for nearly 40 years,mostly as an employee.

I guess the problem is those contractor who take the p***.

It just feels a bit unfair that contractors take a risk: a project is cancelled and your contract is too. You can be out of work for weeks or months on end but, you cannot claim any benefits as you're not 'unemployed'.

It cuts both ways. If they want to change the rules, they need to look at the whole picture i.e. not just how much tax & NI isn't paid but how much they're saving because generally, we don't qualify for any state benefits except the Old Age Pension.

Anyway, that's enough from me.

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Chris Powell

Mar 15, 2016 at 17:24

I don't think it is all about the contractors.

If we make it less tax efficient for the contractors - the employers will have to start paying more per hour to compensate the contractor. The BBC and NHS are a disgrace.

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