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Maximising income isn’t just about saving on your tax bill

Limited company contractors are on the government’s radar. Through supervision, direction and control directives, anyone operating through what the tax man considers a personal service company is making a bigger ‘blip’ on the screen than most. But are MPs about to shoot themselves in the foot?

Since the 2014 Autumn Statement, genuine "umbrella companies" have had to shelter their members and reputation from a deluge of misinformed and often inappropriate media coverage. TV documentaries on tax avoidance and the comments of permies to online articles both defending and arguing the government's case for radicalisation of tax have propagated the propaganda without the government having to lift a finger.

But it's not only media coverage worrying the independent professional; it's that machine driving the changes that concern them.

Are the blind leading the blind?

When a government has to call in experts to help its cabinet understand self-employment in the UK, one has to ask how that government can make informed decisions about how they tax such individuals.

That's the problem of having a house full of career politicians. They've formed their vision of 'working class' from text books endorsed by Departments of Education down the years.

Few politicians today have ever clocked on as an employee (or ever had to); their concept of being self-employed is daddy funding them, their party and their campaign while they vie for office.

Laughable as it seems, that's the reality of what freelancers, contractors, solopreneurs and sole traders face. And so big a deal has been made of impending changes to IR35, SDC and personal service companies that 'tax' - or avoiding it - has become the major factor contractors and their accountants consider when submitting end-of-year self-assessments.

You can understand accountants worrying about keeping their clients compliant. Ensuring that their clients are safe from recourse from the tax man is, after all, what guarantees continuity of that relationship.

You can also say the same for Umbrella Companies, even though it's perhaps more difficult to create a one-size-fits-all tax planning strategy for all of its 'employees'. This, in itself, is what the government is arguing:

true contractors have a unique tax status due to their individuality or brand.

The only generic tax planning strategy HMRC wants to see alive and well in the UK is PAYE.

The message coming out of umbrella companies, stating that they're not the bad guy in all this, is echoing down the corridors of Westminster and away down the Thames without reaction.

The saving grace for contractors may yet be the very expenses that the government is proposing stops for umbrella employees, i.e. subsistence and travel. Once MPs realise that the expenses they bill are no different than those they're trying to stop umbrella employees claiming, they may see the hypocrisy in their actions.

If MPs are employees, then the rule that such expenses don't apply must surely cover them, too. If they decide that they're self-employed, what is the government if not one big umbrella company, offering MPs the facility to carry out their constituents' will through its burrows of departments?


Image credit:

"walker-on", Marco Monetti, Flickr; license: CC2.0