Post by Teddy Bear on May 3, 2012 22:41:45 GMT
Could those idiots at Newsnight please do some research? We pay them enough
By Tim Worstall
Note to Newsnight: income tax and national insurance are different
That licence fee we pay, that compulsory dip into our pockets for the BBC, it would be nice to think that it paid for people who knew what they were talking about, wouldn't it? Sadly, we get drivel instead:
Actually, nobody is dodging income tax through these schemes. Something that you would hope those reporting would be able to work out.
There is a bit of shenanigans going on with national insurance – or at least potentially there is, depending upon exactly what people are doing with their little companies. And there definitely is some shenanigans over NI from the Government itself. But income tax, no, really not.
Weirdly, the best description of how these service companies work was written by that well known tax expert and campaigner, Richard Murphy. It's here in the Observer archives. Ignore the bit about the first £10k of profits being tax free, that's not true any more. Other than that you can see that the savings come from paying oneself a dividend; dividends don't pay NI and that's what the saving is.
The income tax bill is no different in any way that matters. For the system is deliberately set up so that income tax through PAYE is the same as corporation tax plus extra tax on dividends.
So, no one is dodging income tax, not if they take the full amount in the year they've earned it.
Although the Murphmeister wrote the canonical article, these days he campaigns against such tricks. Indeed, has referred to it all as "tax abuse" in a "report" for the TUC. Previously when I've upbraided him for this change he's said that actually the Observer piece was written to show how awful it was and get the Government to close it off. Which is amusing, as research at Companies House has shown that Murphy was using this, entirely legal and to my mind entirely moral, tactic himself at least until 2007.
One thing that Newsnight did get right, though: the big tax dodger here has been the Government itself:
By paying people into personal services companies, it is not necessary to pay employer's national insurance (13.8% with no cap) as they would if the staff had been on PAYE. If we take the 2,000 people number being bandied about, assume £100 k each, then that's a saving on the government wage bil of £25 to £30 million.
Overall this isn't important, of course. One side of government not paying out and another not collecting in doesn't make any difference: the net position is the same. Except that the amount not being paid out is not being paid out of departmental budgets, thus giving those departments the incentive to offer these sorts of contracts.
But back to our BBC reporters and knowing about income tax and NI. They really should know about it – and, if they didn't, research wouldn't have been hard. They could have just asked around the office:
Or they could have just phoned Lord Birt, who used such a scheme for part of his time as the head of the BBC.
Seriously, don't any of these people we're forced to pay for know how to do research?
By Tim Worstall
Note to Newsnight: income tax and national insurance are different
That licence fee we pay, that compulsory dip into our pockets for the BBC, it would be nice to think that it paid for people who knew what they were talking about, wouldn't it? Sadly, we get drivel instead:
More than 2,000 public-sector workers could be avoiding the full rate of income tax through special contracts, government research has found.
An investigation was ordered after a civil servant was found to be getting paid £182,000 without deductions for tax or National Insurance.
Actually, nobody is dodging income tax through these schemes. Something that you would hope those reporting would be able to work out.
There is a bit of shenanigans going on with national insurance – or at least potentially there is, depending upon exactly what people are doing with their little companies. And there definitely is some shenanigans over NI from the Government itself. But income tax, no, really not.
Weirdly, the best description of how these service companies work was written by that well known tax expert and campaigner, Richard Murphy. It's here in the Observer archives. Ignore the bit about the first £10k of profits being tax free, that's not true any more. Other than that you can see that the savings come from paying oneself a dividend; dividends don't pay NI and that's what the saving is.
The income tax bill is no different in any way that matters. For the system is deliberately set up so that income tax through PAYE is the same as corporation tax plus extra tax on dividends.
So, no one is dodging income tax, not if they take the full amount in the year they've earned it.
Although the Murphmeister wrote the canonical article, these days he campaigns against such tricks. Indeed, has referred to it all as "tax abuse" in a "report" for the TUC. Previously when I've upbraided him for this change he's said that actually the Observer piece was written to show how awful it was and get the Government to close it off. Which is amusing, as research at Companies House has shown that Murphy was using this, entirely legal and to my mind entirely moral, tactic himself at least until 2007.
One thing that Newsnight did get right, though: the big tax dodger here has been the Government itself:
The government, as employer, could potentially have to meet the extra costs of National Insurance and pension payments, as well as various statutory employee rights.
By paying people into personal services companies, it is not necessary to pay employer's national insurance (13.8% with no cap) as they would if the staff had been on PAYE. If we take the 2,000 people number being bandied about, assume £100 k each, then that's a saving on the government wage bil of £25 to £30 million.
Overall this isn't important, of course. One side of government not paying out and another not collecting in doesn't make any difference: the net position is the same. Except that the amount not being paid out is not being paid out of departmental budgets, thus giving those departments the incentive to offer these sorts of contracts.
But back to our BBC reporters and knowing about income tax and NI. They really should know about it – and, if they didn't, research wouldn't have been hard. They could have just asked around the office:
Millions of pounds earned by more than 3,000 freelancers working for the BBC, who channel their income through personal service companies, do not have income tax and national insurance contributions deducted at source.
Or they could have just phoned Lord Birt, who used such a scheme for part of his time as the head of the BBC.
Seriously, don't any of these people we're forced to pay for know how to do research?