Ltd Company: Entrepreneur or "White collar tax cheat"?

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#1

I have just answered a question in Reception about the difference between an Individual and their Ltd Company…Which got me thinking.

It seems to becoming accepted that if you start up a Ltd Company… than you are a Tax cheat.

I recall Norman Tebbit (Arguably the Father of Freelancers with his “Get on your bike” speech…if you are of the Labour persuasion do not click on this link) talking a few budgets back, when the Self Employed NI increase was scrapped within hours of being announced.

We should not penalise hard working white van man, but I have no sympathy with white collar tax cheats who hide behind the wrapper of a company

Unfortunately this view is taking hold. This case especially is being used by HMRC to hammer the above point.

People used to be proud of telling their friends and families “I have started my own business”. I am not so sure that is the case these days?

My reason for starting my first consulting company (or PSC as it is unfortunately now being called) 26 years ago was simple. I was a “hard working self employed”… hovercraft designer. Unlike the white van man mentioned by Norman, if I made a mistake… it was not a dent in the wing that needing fixing…but potentially millions of pounds to redesign and rebuild the vessel.

I can still remember being on the sea trials of a 20m Hovercraft of which I had been the CAA approved Chief Designer (Nerd alert! Video of said hovercraft)
And realising that as my contract with the German company (who had funded the project) was with me direct and not with a Company I had opened myself and my family up to losing everything.

I have to say it was stressful time! I set up my own business and amended the contract to be between my Company and the client and slept easier at night.

It had absolutely nothing to do with the tax advantages of providing my services via a Corporate wrapper vs being Self Employed

Which is why I got pissed off in 1999 when Gordon Brown called me a tax cheat when he launched IR35. I got on my soap box and founded the PCG… together with 2000 other pissed off contractors.

And why I still get pissed off when Norman…(who should know better) calls me a White Collar Tax Cheat.

F$#k you and the Bike you rode in on springs to mind, but then I have always been a tad confrontational.

I would be really interested in hearing your reasons for starting your own business


#2

Good morning @andy - I started my consultancy business for exactly the same reason as you. If the advice I give to company boards/directors is ever deemed to be at fault (not to date after 11 years :smile:) I did not want my family to bear the pain.


#5

I started my first contracting business with such a surge of pride that I even included my own name in the title, that was in 1989. How things changed 10 years later when Gordon Brown made it clear that establishing a personal brand was just the first of many indicators that I was not running a real business but that I was shamefully disguising my true role as an employee of my clients and cheating the Exchequer. My offence was so great that he wanted to penalise me through the tax system, way beyond the level I’d have been contributing if Id been a more conventional and compliant worker.

Either that or someone told him that I was doing rather well and it was all an excuse to plunder my pockets.

Explicit and implicit implications of tax cheating were a tactical necessity by the government to sell this licensed daylight robbery to the public and pre-empt the small resistance they’d expected. However it was short term thinking and they did not consider the long term damage that they were doing to a vibrant and growing sector of the economy.

Like many long term freelancers I’ve adapted and moved on, but I retain a simmering annoyance that I’ve had to adapt to a hostile government rather than one which recognises and nurtures the enormous potential of our flexible workforce. I’m especially annoyed that whenever I make a particularly good impression on clients, I cannot celebrate the prospect of repeat business until I’ve ensured that it doesn’t have the very dubious trappings of employment that will render it unacceptable.

The tax tail really should not be allowed to wag the business dog.


#6

The growth of little acorns seems to be a missed feature in the thinking of the govt to be honest. My company started in 2005/6. I’ve been an on site contractor and I’ve been running for the last 10 years bringing work to my own office. We peaked at 4 engineers, but due to a clients new management, after 10 years service, and their deciding to pull everything in house we now find ourselves back down to just the one overseas client and essentially one full time engineer. We are looking for more work, we don’t intend to have only one client, it’s not our choice, but it’s the way business has turned. We find it very hard to find help as a small R&D services company in locating clients who would consider UK based remote development services. The agencies don’t want to know, they have little understanding of multiple heads through a limited company interface, it’s ridiculous really. The govt grants and R&D tax assistance only help those who own the R&D and don’t assist UK domestic companies providing R&D services. The universities throw PhD students on the cheap at anyone willing to take them, so undermining the business case of small expert development specialists. It is almost a perfect storm… unless you have the spare cash and unrestricted IP to go out and actively market your activities, challenging when you don’t own the IP and it’s truly novel!

The other aspect that undermines the position I think is that the UK employment market doesn’t publicise the true cost of employment. Permies know they are on 45k. They don’t seem aware of the true cost of their employment including pensions, benefits, rent, services, tax, agency fees, etc. So I have found whenever a contractor goes on site there is the inevitable conversation about how loaded you must be. The concept that you are travelling the length of the country on a weekly basis to just be there, (generally for no other reason than a management desire to see you occupy their chair) and fact you have all the overheads to come out your rate is just alien to the typical permanent worker, this allows HMRC some degree of liberty… popular opinion doesn’t engage. The electorate never listen in.

However, I have worked with some classic IR35 corpses. Folks who have been in the company permie, hit the pay ceiling, or fallen the wrong side of a political wall and been laid off. then come back as contractors to essentially the same job, in this case I know the pay increased. I’m undecided on my feelings about that one…