I am quoted in the FT this morning in an article on how to reduce tax bills:
Recent dramatic falls in the corporate tax rate – from 28 per cent in 2010 to 20 per cent today, with plans for a further fall to 17 per cent by 2020 – have made companies a popular vehicle for tax planning. When it comes to avoiding tax, Richard Murphy, a professor at City University who campaigns for the closure of loopholes, says: “The big options are incorporation, incorporation and incorporation.”
I did indeed say that: I remember doing so when waiting for a plane in Copenhagen recently. Why did I do so? Three reasons.
First, NIC avoidance using companies is now rampant. It's costing the country literally billions a year for no economic gain.
Second, the corporation tax rate is now falling below the income tax rate. It's as if the government wanted to promote tax avoidance for anyone who has money left over at the end of the week. All they have to do is put it in a company and they're virtually bound to win.
Third, with company regulation so poorly enforced in the UK there is little impediment to undertaking this tax abuse.
But as the FT notes, I made these points for a reason. I want the loopholes closed. I am not promoting them. It's my hope they will be soon. It's an obvious test for this government's real willingness to beat tax abuse and deliver a fair society. But will they rise to the challenge?
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Indeed.
Just paid my Wife’s first ‘real’ bill following one full year of trading – so one full year of tax for 15/16 plus 1st installment for 16/17. Plus NI of course.
It is, I have to say, very tempting to consider incorporation!
Only just found this blog and, while I don’t agree with every view, I very much appreciate the effort that goes into expressing these views.
The problem here is becoming truly acute. As a member of an LLP, I pay additional rate tax on a decent proportion of my earnings. I don’t exactly enjoying paying tax, but I don’t really have any major issue, at least in absolute terms, with paying almost 50% to the government. In relative terms, however, I do have an issue because while income tax is 47%, CGT is just 20% and corporation tax is heading toward 17%.
The tax regime just screams for us to convert the business from an LLP to a Ltd and to setup something like a Family Investment Company. I’d like to say that I’m not doing this due to some higher morality but in reality it’s more a combination of inertia, fear of later tax changes etc. I suppose I just don’t see how it’s sustainable for this tax regime to persist. But I’ve been wrong about that for a long time; corporation tax and CGT just keep falling.
Bottom-line is that in the tax “arms race”, I’m losing out badly by earning income. At some point I’ll just have use companies like everybody else seems to be doing.
I am sure you are not paying 50% via an LLP
As an overall rate that just won’t be the case
I agreee the differentials are completely wrong