Why limited company contractors are not tax dodgers
Posted Mar 26, 2012
There is worrying trend in Britain today: the need for hate figures. It has become de rigueur in recent years to openly abuse bankers, for example, a tendency encouraged and underlined by the habit amongst a number of popular entertainers and comedians of securing cheap and easy laughs from a crowd by witlessly barracking and insulting people from the banking industry.
And it will not have escaped the attention of most contractors that the media spotlight is increasingly turning towards contractors and other freelancers fuelled by a number of high profile stories relating to high ranking civil servants.
The most concerning aspect of this media attention is the uninformed and painfully simplistic nature of the debate with the majority of discussion given over to floating generalities about "morality" and a marked absence of any awareness of the tough reality of contracting in a depressed economy, and an acknowledgement of the implicit risk/reward nature of contracting.
The media has the ability to exert a pernicious influence of the future of contracting and it is something that contractors and other freelancers should challenge at every opportunity in conversation with colleagues, friends, and family and particularly with any contact with the media, and through representative bodies such as the Professional Contractors Group (PCG).
The next time that you encounter the lazy might-is-right logic that says that contractors are either "stealing from the state" or "tax dodging" from a permanent employee then why not pose some simple questions to stimulate some real thought and debate?
- Does your employer give you sick pay? How much is that worth over the entirety of your career? (Contractors don't receive sick pay.)
- Does your employer give you maternity or paternity pay? How much is that worth over the entirety of your career? (Contractors don't receive sick pay.)
- What is your notice period with your employer? What financial security does that give you? (Contractors typically work on immediate or short term notice which reduces their financial security.)
- Does your employer organise your PAYE? (Contractors typically pay a lot of money each year for an independent account to manage their accounts, and they often devote countless un-billable hours in early mornings, late nights, and weekends to managing all of the paperwork associated with the running of their business including timesheets, invoicing, expenses, VAT, corporation tax, etc.)
- Does your employer pay for your training? (Contractors pay for their own training, and they do not earn money while they are training which makes it doubly expensive.)
- Does your employer provide a pension? (Contractors have to make their own arrangements for future financial security, and they receive no additional contributions.)
A lot of permanent employees never stop to think about the overheads of contracting, and the high degree of self motivation and high degree of risk involved. The reality is that contracting requires a specific mindset that is simply alien to a lot of permanent employees. The debate at a ground level needs to be moved away from fuzzy and ill-defined notions of "morality" and towards a sensible analysis of a tax system that requires urgent simplification.
This article was written by Peter Roy,a freelance project manager and productivity consultant.
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