Micro business or limited companies with one director are increasingly coming under the spotlight for HMRC in its continuing efforts to catch out tax avoiders. With the new dividend tax rates being one example of this in practise, the impression that some limited companies are set up simply to avoid paying tax and NIC is something that is being given out by the government in no uncertain terms.
However, the government should remember it was they who stopped self-employed contractors from operating as self-employed in their own right some time ago and in many cases virtually insisted that they form limited companies. The problem might be due to the fact that the take up of this was slightly higher than expected, as the FT recently reported that some 4 million incorporated companies that have don’t have any employees.
While many contractors choose to use the services of umbrella companies to simplify their tax affairs, there is no getting away from the fact that the entire contracting sector is no facing more red tape than ever before.
With small business and the self employed been acknowledged as vital elements to the recovery of the wider economy, some are asking why, rather than discouraging these workers, the government should in fact be making moves to encourage more of them.
But what should be done about the workers abusing these vehicles and not paying tax at all? Agency reporting is now mandatory every quarter, so HMRC will have the intelligence to maximise wins from tax enquiries in the future.
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