[NiceWayToDoIT]

Startup scene was already good before Brexit. So, some additional startup boom will not happen because one other issue, parallel with Brexit and pandemic UK government decided to kill (predominantly) IT contacting by creating some changes to IR35 law (basically increasing taxes significantly to that specific group).

All those combine will have strong impact on UK, I live in London, and finance is probably 80% of how UK makes money. Most of the goods are imported, we do not produce anything (I am exaggerating but not far from truth). Just to remind, people voted pro Brexit because of a red bus with a large text saying that each week £350 million goes to EU (which was wrong but hey...) that is £18.2 bn a year. Meaning Morgan Stanley is shifting permanently, with one swift move, 6.5 years ... and heaven know about how many jobs... All that also have combined effect as each person working there feeds many others (builders, bakers, creditors...)

"Remain" side was warning about all this, but unfortunately, people have not listened.

[arethuza]

Perhaps worth noting, at least as I understand it, that IR 35 has nothing to do with the EU?

[HatchedLake721]

Correct. It’s UK’s own income tax legislations designed to tackle tax avoidance of mostly IT contractors being paid via dividends in single person companies.

[NiceWayToDoIT]

It is not tax avoidance if you have limited company. Why should single person companies be different than large corporations? Rules should be the same for all, single person or multi person company ... so Amazon, Google, Microsoft and everyone else should instead paying dividends pay full PAYE... meaning each share holder should pay 60% and more taxes.

One more reason why is harder to succeed with startup... heavy taxes are for those that are at the begining.

[matthewmacleod]

It is exactly tax avoidance. It is a method of structuring employment such that single-person contractors who are employees in all-but-name get to pay less tax.

Single-person companies are still free to exist, like other companies. What's no longer permitted is employees pretending to be single-person companies.

[NiceWayToDoIT]

By the pattern of your answer I can conclude that you have never been contractor, so you do not know enough about IR35. But fair enough you have huge karma so you can downvote my answer. IR35 has existed for very long time and has relied on determination of who is in or out, liability before was on Limited companies to determine status. Now, government shifted that liability to employers as for the past 10 years they have not got more than handful of cases in the court against those single-person companies. So, employers in fear of heavy fines, are using blanket approach and placing everyone Inside IR35 regardless of their real practices.

IR35 is advertised as fair but in fact it is not as on example of Amazon https://www.theguardian.com/technology/2020/sep/08/amazon-uk...

Those really big are exempted of taxes, you just need to have enough money and good leverage.

Now, why was contracting good in UK? Because short rotation of contact was helping to increase "salaries" (rates). Permanent employees do not negotiate salaries on regular bases, and what I have experienced that they sitting on the same level for years. Natural tendency in capitalism is to maximize profit for shareholders and minimize all expenses in process. Salaries of permanent employees are expense column.

Why is this bad news for all companies, regardless of higher rates, it is easier to discharge contractors. Having very strong unions in UK, that will not go easy with permanent employees. Meaning startups will have issue to find people on short term bases.

And many more things to cut the long story short... Nothing to do with fairness but as Jean-Baptiste famously declared “the art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.”

That new IR35 changes are bad proof is decision to delay it for one year because of pandemic...

[tonyedgecombe]

Why should single person companies be different than large corporations?

Why should directors be taxed differently from employees.

IR35 is a mess but there was undoubtedly a problem with disguised employment.

[arethuza]

Are directors taxed differently from employees? I've not been a director of a single person company but from what I recall (it's been a while) I didn't pay anything other than normal PAYE for being an employee/director. Of course as a shareholder you may be subject to other taxes but you can be a shareholder without being a director and vice versa.

[tonyedgecombe]

You are correct, I should have said shareholders.

[HatchedLake721]

I know having a limited company is not tax avoidance.

I'm talking about IR35. The sole reason it was created is to fight "a tax avoidance loophole" (not my words) where without the intermediary (limited company) the single person would be an employee instead.

[lmm]

The single person is avoiding tax in the same way and to the same extent as any shareholder in a limited company. If they wanted to fix the "loophole" they should tax dividend income the same as employment income for everyone in the UK. Singling out individual contractors is arbitrary and complicates the tax system for everyone.

[youngtaff]

One of the answers to this problem would be to roll Employees National Insurance into Income Tax

At the moment NI is only paid on 'earned income' - Salary & Benefits

Merging it into Income Tax would mean it's also applied to 'unearned income' – savings interest, dividends etc

Would also remove the anomaly that people who reach the state pension age don't pay NI even if they carry on working