I could not resist this small play on words. The title could just as easily have been “to or for?” Let me ask you a question. Is it just part of human nature that we tend to react positively to things being done “for” us, but negatively when we think things are being done “to” us.
The problem here is that they are probably the same thing and we are being guided by our perceptions. Perception is a funny thing. It comes from our own past experiences, our inbuilt likes and prejudices and is then influenced by how the thing or action has been sold to us.
None of us like paying tax and yet we all want what the taxes pay for. We want the best from our schools, our roads, our public services. And yet we all go out of our way to avoid paying for these facilities. So, why is that? We perceive that tax is something done “to” us. It is an imposition.
Politicians go out of their way to explain as best they can why they need that money. We know they need money. Yet, we don’t want to pay it over. It’s maybe not so bad if you are on PAYE but if you are self employed or you have your own company, then you have to make an actual payment. At least under PAYE you never had the money in the first place.
The government tried to increase National Insurance rates a few years ago but they were forced to do a U turn. They are now trying to introduce the Health and Social Care Levy, which will be part of the National Insurance take in due course. Yet there are voices calling for a reversal and this new tax not to be imposed upon us.
I don’t think it even matters which political party is running the country. Our attitude is just the same. Politicians are seen as doing things to us.
We operate through a company. Like so many small businesses we pay ourselves a small salary and then take dividends. That means that I must actually make a bank transfer every year to HMRC along with my tax return. If I took it all in salary, so that it was all on PAYE I would not need to make that payment. The company would have paid it over for me but the cost would be much higher. However, that would avoid the trauma of actually having to make that payment.
As it happens, I have found a compromise in that I now make monthly payments which at the end of the day more or less clear my tax liabilities each year, so it is like a self-imposed form of PAYE. It is a direct debit so it does not feel quite so bad.
The Corporation Tax rate is set to rise in 2024 so that companies with profits above £50,000 will be into a 25% Corporation Tax regime. If you pay yourself in dividends, these are not tax deductible and so you may well find yourself with profits above £50,000 for Corporation Tax purposes. This feels like another “to” rather than a “for”.
On top of this there is the Health and Social Care Levy which will add 1.25% to both the National Insurance take and the tax rate on dividends. Will this mean that more of us start taking larger salaries and dividends shrink to the level of the dividend allowance of £2000 per annum.
At this stage, I would not like to predict. There is such political uncertainty. Given the recent “Partygate” revelations from Whitehall, who will be Prime Minister, which party will be in power, will Scotland have another independence referendum, will there be a trade war with the EU, will there be actual conflict in Eastern Europe. Who Knows. I certainly don’t. But all this uncertainty makes it hard to plan for the future. So in these uncertain times how do you plan the way ahead for your business.
I think there is a good maritime analogy. We know our desired destination, or at least we should do. We need to cross a wide ocean to reach our desired destination. There may be storm clouds on the horizon but they may come to nothing. There will be times of fine weather and calm seas, with the occasional squally shower, and then there will be the occasional storm that might temporarily blow us off course. But we make course corrections and plot the revised course to our destination. Things like tax rises and the effects of Brexit are headwinds slowing our progress but we will get to our destination eventually if we don’t give up and find a nice calm sheltered bay in which to drop anchor.
I wish you a safe journey. Bon voyage!
By the way, these articles and indeed all of our services are “for” you. Isn’t that the true nature of business?
If you want to carry on this discussion but you are not sure where to find us, go to our website where you will also find some interesting reading – www.thelongpartnership.co.uk.
Alan E Long
The Long Partnership