If you're self-employed, do _you_ earn that in that year, or does you-as-a-company earn that in that year?
I would be quite happy for the self-employed who have an uneven income stream to make a couple million in revenue for them-as-a-company one year and pay themselves the salary cap over a couple of years to take it out of the company again.
(Or they can re-invest the bit they can't take as salary in tools etc, just as companies with more than one employee do...)
There should totally be a maximum amount that a person can earn in a year as in a maximum amount they can acquire for general unrestricted spending, whether they've had lean years before that or not.
There are undoubtedly issues around unscrupulous financial types being 'self-employed consultants' and claiming a lot of stuff as 'company expenses' to top up their capped salary, but at least having to do that slows them down a bit, rather than them actually being able to take home over a million quid free and clear every single year...
Very different legal situation. Self-employed means you're trading as yourself. No limited liability, you're not on salary, everything goes straight in and out of your personal accounts. Invest badly in plant (if, say, you're running a small business) and end up illiquid? You can be declared personally bankrupt. It's not a huge risk for a writer as long as they do due diligence on their research, don't plagiarize, and don't libel anyone, but it can happen. Flip side: you don't have the overheads of running a company.
There are a lot of folks who operate as a one-person limited company. "The company" does the work and pays them a wage. My accountant's advice was not to bother -- firstly, the company is taxed on any profits it makes, and secondly, you get to pay income tax on top, and thirdly, you have to file annual audited company accounts (yet more expense).
The reason it generally happens is because some employers insist that contractors work for another company so that they (the employer) can maintain the fiction that they're merely paying another company to provide a service and have no obligations to the contractor under employment law -- it's a work-around for the IR35 accounting regs (basically HMRC determined that if you hire someone to work in your office under your direction using your equipment, you just hired an employee, not a self-employed contractor -- the big cos then turned around and responded by paying a single-employee company to do the job, evading the obligation to recognize the employee's rights as well as paying their tax under PAYE).
I'm still convinced that a yearly earnings cap could be combined with some kind of smoothing mechanism to deal with irregular income streams, although it might turn out to be the case that it's more paperwork than it's worth for most people who could be affected (and they'd only find out after they fell foul of it that they should have set up the paperwork, of course...).
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andrewducker) wrote2012-02-09 01:22 pm
no subject
I would be quite happy for the self-employed who have an uneven income stream to make a couple million in revenue for them-as-a-company one year and pay themselves the salary cap over a couple of years to take it out of the company again.
(Or they can re-invest the bit they can't take as salary in tools etc, just as companies with more than one employee do...)
There should totally be a maximum amount that a person can earn in a year as in a maximum amount they can acquire for general unrestricted spending, whether they've had lean years before that or not.
There are undoubtedly issues around unscrupulous financial types being 'self-employed consultants' and claiming a lot of stuff as 'company expenses' to top up their capped salary, but at least having to do that slows them down a bit, rather than them actually being able to take home over a million quid free and clear every single year...
no subject
no subject
no subject
There are a lot of folks who operate as a one-person limited company. "The company" does the work and pays them a wage. My accountant's advice was not to bother -- firstly, the company is taxed on any profits it makes, and secondly, you get to pay income tax on top, and thirdly, you have to file annual audited company accounts (yet more expense).
The reason it generally happens is because some employers insist that contractors work for another company so that they (the employer) can maintain the fiction that they're merely paying another company to provide a service and have no obligations to the contractor under employment law -- it's a work-around for the IR35 accounting regs (basically HMRC determined that if you hire someone to work in your office under your direction using your equipment, you just hired an employee, not a self-employed contractor -- the big cos then turned around and responded by paying a single-employee company to do the job, evading the obligation to recognize the employee's rights as well as paying their tax under PAYE).
no subject
I'm still convinced that a yearly earnings cap could be combined with some kind of smoothing mechanism to deal with irregular income streams, although it might turn out to be the case that it's more paperwork than it's worth for most people who could be affected (and they'd only find out after they fell foul of it that they should have set up the paperwork, of course...).