Freelance work and tax?

Mr Raygun's has fully explained how much tax we pay, in reply to this same post.

OK. When all taxes are considered, we pay taxes equivalent to 40% of our income.

but if you are "freelance" using a Ltd you will also have paid close to 20% EE/ERNI

tim

Actually basic rate is 20% these days.

Yes, the marginal rate of combined EE/ERNI is just over 21%, or just under 39% if income tax is included.

But still, for someone earning the maximum amount while not being in the higher rate bracket, the total combined income tax and NI deduction is still just under 33.5% of (pre-ERNI) earnings.

Someone instead freelancing as self-employed would only be paying a marginal C4NI+IT rate of 28% (and for a maximum non-higher rate earner the actual rate is 24%), so anyone using a Ltd and drawing all their personal income as salary, is *choosing* to pay far too much tax.

Better if Ltd to take income as dividends. If you take all your income as dividends, the marginal tax rate comes down to the corporation tax rate of 21%, and so does the total rate. The total rate will come down a bit if you pay yourself a small salary, just enough to give you NI qualifying years but not enough to pay any actual NICs.

"Derek Geldard" wrote

Well, *all* tax regimes are unfair to some people... If you are going to have a tax system, it is (by definition) unfair.

Do you think that we shouldn't have a tax regime at all, just because all possible tax systems are unfair?

"Derek Geldard" wrote

How can they possibly do that? [See above.]

Also, who can possibly decide what is "fair"?

Let's take a hypothetical annual salary of £20000.

Income tax and NI are £4275.80.

Road tax for my car is £160 a year.

Insurance for said car is £273 (of which £13 is IPT).

Buildings and contents insurance for my home is £252 (of which £12 is IPT).

Council tax here is £1358 a year.

My car (used purely for travelling to and from work) does 8,000 miles a year @ 37mpg........that's 216 gallons at something like 66p fuel tax plus VAT per litre (the actual figures are strangely very hard to track down, I wonder why?)......but it's about £650.

Gas and electricity cost me £88 a month (£83.80 pre-VAT) so that's another £51 in taxes.

So......off the top of my head, thats something like £6600 out of £20k straight back into the coffers of HMG before I've put a glass of water on the table or eaten a single piece of bread, put a shirt on my back or bought anything that attracts VAT.