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back to article UK taxmen turn heat on tax-swerving big biz, hope to smoke out £1bn

HM Revenue and Customs (HMRC) has increased its focus on international businesses it suspects of using profit shifting techniques to avoid taxes in the UK, according to figures obtained by Pinsent Masons, the law firm behind Out-Law.com. A freedom of information (FOI) request made by the firm showed that the department's large …

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So...

"If the Government followed through on the calls by MPs and campaigners to change unilaterally tax laws governing multinationals, the UK's reputation as a stable place to do business would be put at risk."

In pretty much all these cases, the business is here because this is where the customers are and they are simply fullfilling a demand in the market not creating the market. If multinationals don't want to do business under rules which allow us to extract revenue from the profit they make here their departure will just open a market to local business to fullfil the same latent demand the multinationals used to be fulfilling... only doing it with local employees and entirely within the local tax regime.

I don't see that as a bad thing.

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Re: So...

They probably don't give nice dinners in nice places and give $50,000 for turning up to have an after dinner chat.

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Anonymous Coward

Lower the tax rate

Come in half a percentage point under Ireland and not only will all the business based here pay tax here, but we'll also slurp up all the tax from businesses across Europe engaged in 'tax reduction'.

We don't seem to be doing a very good job of beating them, so we might as well direct the money they do pay our way.

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Facepalm

Re: Lower the tax rate

So with Amazon, Google and others paying somewhere between 2-5% on their profits, how will lowering corporation tax to 12% help out?

And that is before you consider that Dell left Ireland (corp tax rate 12.5%) for Poland (corp tax rate 19%).

I look forward to the answer with (a-ha!) interest.

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Re: So...

But if the government increased tax then Starbucks would move it's operations out of the UK and employ cheap chinese labour to drink it's burnt coffee

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Meh

Boll.......ocks

They will make gentlemanly agreements with the rich to pay back their taxes on the understanding that there will be no prosecutions.

The little people, who are easier to go after will be convicted for anomalies of £10 or less.

That's how it works, one rule for the rich one for the working man.

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Re: So...

Is there any real loss to employement if we change the tax gathering methord to ensure these multinationals pay their fair tax contribution, such as a point of sales tax?

At the moment national companies who cannot evade & pay their taxes are at a real price dissadvantage. Is this a contributary factor in the failures of Comet (despite their awful customer service experience) , Jessops, HMV and to the many other unmentioned SMB's that have gone to the wall against the likes of free loadering tax dogers like Amazon, Starbucks ect.

Many of these multinationals are in the service industry, and only offer the minimum legal wage at best, this means those employed have to claim a raft of benifits to survive, therefore we the tax payers are contributing to their bumber corporate it profits & wholescale distortion of the free market.

If they left the country with a small tax rise, so what!

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FAIL

VAT = Turnover tax!!

"There is already a tax on turnover in the UK, and it is called VAT."

No it isn't. VAT is a sales tax, paid by purchasers, collected by sellers and paid to HMRC after the seller deducts their own sales tax paid to other companies.

There is a growing claim by tax lawyers and companies that when we assess their tax liabilities we should take in to account all the taxes that they pay to HMRC whether or not they are actually paid by the company.

The only companies in Britain that pay VAT are financial businesses since they cannot reclaim VAT in the main.

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Re: VAT = Turnover tax!!

"There is a growing claim by tax lawyers ..."

Slippery people put forward slimy arguments. This is to be expected and must be treated with the contempt it deserves. As you say, VAT is a sales tax, only paid by the final consumer (you and me) and is _collected_ by companies, on behalf of government.

"... financial businesses ... cannot reclaim VAT in the main."

That's because they provide services which are not only intangible and not immediately recognisable, but are also often imaginary and unbelievable (see recent history).

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Re: VAT = Turnover tax!!

"The only companies in Britain that pay VAT are financial businesses since they cannot reclaim VAT in the main." is quite simply wrong.

The vast majority of businesses are required to act as unpaid tax collectors for HMRC, paying the VAT they collect from customers minus the VAT they pay to suppliers. This applies to all businesses having a turnover greater than the current VAT threshold.

If a business is making a profit, it is inevitably charging more VAT to customers than it pays to suppliers, hence there is usually an amount of VAT to be paid.

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Re: VAT = Turnover tax!!

You have missed the point Neil. It is us, THE CONSUMERS, that pay the VAT. THE SELLER collects the VAT we pay, subtracts the VAT they paid to their supplier, and hands the rest to the government. But at no point does the seller add to the VAT pool. That comes entirely from us consumers...

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Stop

Re: Sellers paying the VAT

This actually seems more philosophical to me than anything else. In practice, the price of things is exactly how much consumers are willing to pay for it. The company ultimately receives an amount which is slightly smaller. Whether the difference between the two is VAT paid by the consumer, collected by the business and transferred to the state, or whether it is a turnover tax paid for by the business is hardly more than a matter of semantics. Just change the variables in the equations and give them a different name, but the effect on the economy, actors, business incentives etc. remains the same.

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FAIL

And tradesman (Re: VAT = Turnover tax!!)

And tradesman who charge over £77k per annum for their labour.

This leads some teams of such tradesmen on one project to bill the customer several times separately under each tradesman's name. It leads others to turn work down once they near that limit.

It also leads a l LOT of small bushinesses, e.g. hotels and guest houses,. to close for a while once they get near the magic £77k turnover figure, because they don't even want the hassle of registering for VAT, never mind putting up their prices (and then become uncompetitive compared with Travelodge et al) to cover it.

The UK tax system must be the outcome of some sort of economic death wish.

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Anonymous Coward

Re: VAT = Turnover tax!!

"It is us, THE CONSUMERS, that pay the VAT."

There's only one problem with that argument. It's HORSESHIT!

What happens in reality is that sellers set a price that their customers are willing to pay. This price has to include VAT. If you add VAT to the price customers are willing to pay, you've got a price that customers aren't willing to pay.

Therefore what IN REALITY is ACTUALLY happening, is that SELLERS are giving a percentage of their TURNOVER.

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Re: And tradesman (VAT = Turnover tax!!)

Remember the VAT limit is on turnover not fees.

If you are the sort of business with lots of stock but low fees you pay VAT, if you are the sort of business with no stock to buy but all the money goes into fees then no VAT (if you are happy earning 77K)

I wonder how many lawyers and accountants were involved in the drafting of the law - and how many builders ?

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FAIL

Re: VAT = Turnover tax!!

@AC - Sorry but you're talking bollocks. Any company that manufactures or sells something sells its products at a particular level of profit that allows them to make a living (i.e. pay other costs such as rent, employee wages, etc.). VAT is then added on to this and that is the MINIMUM price offered to customers.

There are no companies that sell at below this point unless its being done for a specific reason (to run the competition out of business (usually through illegal dumping), to act as a loss leader where peple then buy things which earn a profit (supermarkets are a good example - milk is sold at a loss, but then people buy the rest of there groceries and the profit from these covers the loss on the milk), or to try and break into a market (short term discounting). Ignoring these particular special acts, the basic rule is that if you are selling your things at below your overall cost trade off, you will go out of business. You would never include VAT in this calculation, as its not a cost for you.

Now there are some companies that can sell things for higher then their costs (Apple I'm looking at you), and perhaps for these companies you could say they set their overall price at what customers are willing to pay and then subtract VAT, but this is far from common. The reason why this is uncommon is that any company that can sell its products for a very large profit margin will soon find that it has competitors that are willing to sell the same products for a very much reduced margin and so will under cut their prices and lose the original company sales. Apple may be getting away with it (for now), but they"re a re very few others that can...

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Speaking of VAT this not necessarily need be paid to the UK government even when dealing with British customers. With Technet subscriptions for example you're charged at the Irish level of VAT unless you can supply a valid VAT number. This presumably means any VAT revenue from me is going to Ireland despite me being in the UK when I buy a subscription. And where Amazon is concerned it's not just corporation tax that their avoiding when they're selling DVDs, but VAT too.

I wonder what Margeret Hodge and Lord Myners would consider a reasonable course of action if even VAT is leaking outside of this country to other places around Europe?

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Anonymous Coward

EU law does not allow the UK to create new turnover taxes

"EU law does not allow the UK to create new turnover taxes."

This is bullshit. UK can, and has happily shown the EU middle finger on some legal issues, because it was in the UK's interests (or UK politicians' interests, take your pick) to do so, regardless of what the EU said.

"If the Government followed through on the calls by MPs and campaigners to change unilaterally tax laws governing multinationals, the UK's reputation as a stable place to do business would be put at risk."

ah, yes, this is the true reasons, jerk-knee reaction to the "we could re-locate, to Frankfurt, you know...". Yes, they COULD and then, ouch, it would hurt, but equally, it could be a bluff, and business has used it successfully to blackmail UK for years. Nobody has ever called this bluff anywhere in the world, have they? Well, I guess the communists did, post-WW2 ;)

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HMRC and HM Government should be careful

If they push too hard on this then the companies concerned may decide it is worth fighting back. They have a number of options open to them, not least of which is pointing out that HM Government sets the rules which HMRC enforce so how come it is suddenly the multi-national companies to blame?

This will be the government made up of MPs who shattered the rules on expenses (the purpose of which is to recompense them for costs incurred as a result of being an MP, quite why this requires a family house in London still escapes me), and HMRC who were involved in a sale-Leaseback on their building and which were (and may still be) owned by an 'offshore' company.

Neither body is in a position to claim the moral high ground with regards to fair/honest financial activities and I am sure that if they keep harping on about a 'moral need to pay tax' then this may well start to dominate the discussion.

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WTF?

£1 Billion

Sounds a bit like pocket change. I suspect most of the profit making companies have a real pre tax profit in the 20% range e.g. coffee shops, burger bars and supermarkets, rather than 0.001%

The transfer pricing on beef burgers or coffee is surely fairly easy to resolve both ingredients are publicly traded, assuming the companies are efficient they are paying less than the publicly traded price. Assuming what they are claiming is less than 5% more then allow it if not cap it.

More sophisticated

Stop them reclaiming VAT and other taxes against things like royalties.

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Anonymous Coward

Everyone down the tony restaurant for Martini's @ Lunch

That's the Yodaphone way to have £6B written off from collection.

Oh we could purge some of the human detritus from the country sucking off the government test and gain a few more back but that wouldn't be acceptable to EUHR.

Hic, pass the Martini's please James and be quick about it!

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Set your targets low enough ...

... and it doesn't look too bad when you miss them.

> investigating tax worth £1 billion

The government collects over half a TREEELLION pounds in tax every year. So the odd "bil" will neither make much difference, nor be difficult to squeeze out of the system without to much complaint. However, for the populace it makes a nice headline. A billion pounds sounds like a lot, and indeed it is to an individual. But in terms of what it would buy: given how good the finance people are at jacking up the cost of public projects, it's a drop in the ocean.

Fortunately that oceanic drop also means it won't be missed when the bean counters discover that the tax accountants hired by corporations are cleverer and more motivated to save their bosses dosh, than some under-motivated government clerk is at collecting it.

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Unhappy

Re: Set your targets low enough@ Pete 2

"The government collects over half a TREEELLION pounds in tax every year. So the odd "bil" will neither make much difference, nor be difficult to squeeze out of the system without to much complaint."

There's reason to believe that they could get as much as £5bn extra if they weren't as useless at enforcing existing rules, so it's a bit poor if they're targeting a mere £1bn. But as you say, that's not much. The context, however, is not the circa £580bn of tax receipts, but rather the £120bn that they spend above that, and the accumulated £1.1 trillion of public sector debt (debt interest is now greater than the entire defence budget). Week after week we hear people whining about austerity and government cuts, but in essence there haven't been any, and cust proposed are insignificant (and ill planned).

There are only three choices open to the UK:

1. Tax rises of 20% all round to raise at least £120bn. So that's 5% extra on everybody's income tax rate, another 20p per litre of fuel, 20% higher council tax, 4% extra on VAT and corporation tax, 3% extra on employer's NI.

2. Stop spending the £120bn we don't have. Personally I'm all for this, but nobody in government can comprehend a world in which they stop spending my money.

3. Inflate our debt away and keep spending ("the Italian Solution"). This in practice amounts to stealing from savers and subsidising debtors, and has a lot of bad effects, although popular with many who think they are winners. It also doesn't really form a long term solution, particularly for a country that depends on imported goods.

None of those look very tasty recipes, and nor do composite solutions (like a 7% increase in taxes, a £40bn cut in public spending, and running high (6-8%) inflation for five years). Even at the end of five years, this unpleasant recipe still means that we would still have the better part of £1 trillion of public debt that the pols have amassed on our behalf, and our balance of trade would be a major problem, because imports would be far more expensive (circa 15-20%) due to the exchange rate impacts of the inflation.

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Re: Set your targets low enough@ Pete 2

Nah, I prefer the current solution. Ignore the main issue, blame the poor and the disabled, and try to save billions by cutting after school clubs.

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Re: but in essence there haven't been any

There certainly have been, I take it you just don't know anyone who has been affected. They've just had no positive affect, and in many cases making things worse.

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Re: but in essence there haven't been any@vic 4

Perhaps I should have used "in aggregate" rather than "in essence". At a personal level my household has been affected, but the personal incidence of changes that have been made wasn't the issue I was raising. Either way, government spending has increased, every month they spend £10bn more than they have. If we want to solve the problem, then we ain't seen nothing yet, and everybody is going to have to give something up.

Asking a few tax avoiding businesses to pony up a few bob doesn't raise enough to make a difference, and neither does soaking the rich. Those who have been unfavourably affected so far will need to accept that they were simply first on a list that has (or should have) everybody's name on it.

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Re: Set your targets low enough ...

Starbucks is a drain on the UK tax payer, not only evading corporation tax but from welfare benifits that effectively is a subsidy on the wages paid to there employees on legal minimum. I object to being forced to contribute to their profits when I have & never will patronise their shops (I believe there is a small moral responsibility to only buy from those who trading practices I are fair). Add to this the small coffee/tea shops put out of business because they do pay tax & have to pass the cost on with higher but honest prices.

Overal the Uk tax system is as much to blame, being an unholy an ever growing bloated monster which needs radical simplication, prehaps single income tax rate, point of sales/transaction tax in place of the unworkable corporation tax?

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Stop

Here's another tax evader

How the Vatican built a secret property empire using Mussolini's millions - Papacy used offshore tax havens to create £500m international portfolio, featuring real estate in UK

Read all about it! < http://www.guardian.co.uk/world/2013/jan/21/vatican-secret-property-empire-mussolini >.

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Coffee/keyboard

Re: Here's another tax evader

Jesus wept!

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Tax expert?

Oh no, so "Tax expert Heather Self" says we cant possibly close the tax loopholes via which she makes her money so we shouldn't even bother trying. We can make whatever laws we want, that's the point of society! The EU argument is a load of rubbish put up so that her opinion gets validated by Anti-EU types.

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Re: Tax expert?

We can't make whatever laws we want. We lost that right when we gave away our sovereignty to a supranational government. The EU makes laws in a range of areas called (ironically) competencies. Parliament has to accede to the laws made by the Commission, but that's just a formality.

These include agriculture and fisheries, trade and VAT. There are moves to harmonise VAT across the EU. See untechnical Wiki article below:

http://en.wikipedia.org/wiki/European_Union_value_added_tax

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Re: Tax expert?

It's like you saw my point about validation by anti-EU types and thought, wait! that's me!

I'm sure everyone likes a bit of EU bashing, but that shouldn't be used to mask a rubbish argument. As has been pointed out above, VAT is not a turnover tax. The EU may be trying to harmonise VAT rates, but that doesn't stop you introducing something different. Additionally we're part of the EU, we can change laws there too, that's the point of MEPs.

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Anonymous Coward

Re: Tax expert?

"Tax expert Heather Self"

Not to mention the conflation between VAT being a "turnover tax" and a sales tax borne by the end purchaser.

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Anonymous Coward

Re: Tax expert?

We can't make whatever laws we want.

Unless the government really wants the laws.

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FAIL

Re: Tax expert?

It's like you know nothing about the way the EU works. MEPs can't introduce laws, or change them. MEPs sit in the Parliament. The Commission is that bit that does the lawmaking.

Look, here:

http://europa.eu/youreurope/business/managing-business/paying-taxes/index_en.htm

From the Commission website, it states:

"Under the Treaty on the Functioning of the European Union, the EU has competence to harmonise indirect tax, including the tax base and rates, to avoid distortions in the EU market."

"VAT

The EU has a common system of VAT. However, EU countries have a certain amount of flexibility including the setting of VAT rates."

"Excise duties

The EU has harmonised the structure and established a number of minimum rates for excise duties - indirect taxes on the consumption or use of certain products - on alcohol, tobacco and energy."

And that's just tax, of course.

So we can NOT - as you claimed - make "Whatever laws we want", no matter how many times you downvote my post.

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Stop

Re: Tax expert?

Bla bla bla, saying the same thing again doesn't make it true.

The key point in the above paragraphs being "minimum rates" If they can raise tax on wages, alcohol, cigarettes, fuel, pasties etc they can do it on this. The regulations above are to stop countries lowering rates to tax haven levels not making new taxes.

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Facepalm

Re: Tax expert?

Wait, I thought you said we could make whatever laws we want. Now we can't? But you said...

I'm saying the same thing again because it was true before, and it's still true, and you not understanding how the EU works isn't my fault.

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It makes sense to tax the rich

After all, they are the ones with the money.

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Re: It makes sense to tax the rich

Only so long as they stay around to tax

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Mushroom

Evade the taxes

Far as I'm concerned , every UK company and every UK citizen has a moral duty to avoid paying any tax whatso ever

Am I trolling for the outraged responses?

Nope

Whats brought on my attitude?

I have worked for 30 yrs, duely paying my taxes, on time, without complaint

In November last yr I was diagnosed with a serious and fatal heart condition... No problem with the NHS

picking up the tab for curing me, but it takes 4 months to recover from the surgery

4 months with no income.

But because I saved money and paid for my own home, I dont qualify for ANY benefits, no housing benefit, no income support, no help with perscription charges.. no home help.... nothing... because I have too much money

Well fuck you UK government... you've got too much money as well so we're not paying any more

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Anonymous Coward

Re: Evade the taxes

Oops.

Sounds like someone did not keep up their class 2 and class 4 NI contributions.

Otherwise you should be eligible for things like Working Tax Credits and Statutory Sick Pay.

What did your accountant tell you?

You did talk to an accountant, right?

Anon because this is not going to sound sympathetic and you won't be the first person I've heard this complaint from.

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Evade the benefits

> you should be eligible for things like Working Tax Credits

There's an online calculator at:

http://www.hmrc.gov.uk/taxcredits/start/who-qualifies/quick-questionnaire.htm

For people who have no kids/partners living with them and with a half-decent income you quickly arrive at the answer

Sorry, because your total income is more than £13,000 a year, you probably don't qualify for tax credits.

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Anonymous Coward

Re: Evade the taxes

Well my guess would be that he paid up everything, but that because he has earned more than the limit he wouldnt be eligible for WTC. It is based on your income to date in a given tax year, not what you are earning now.

He may be eligible for SSP or not. Although I would say that the idea is that the government will only support you when you have nothing of your own. That is the idea behind the benefits system. If you have your own house they would expect you to use that capital to support yourself.

However I would say that it does seem ridiculous to do so, as the market is so poor at the moment, etc. Therefore it should be income based to the point of the value of your house, and you should be given the income based JSA, and then expected to pay it back when in work (i.e. remortgage your house), having equity in your house is not a liquid asset, not at the moment anyway.

Having been in a similar position I can tell you it is no fun:

I had worked for 15 years before being made redundant the first time. I was out of work for 4 months, one of those months I didn't claim benefits/sign on. Then worked for another 19 months. Hence when I was made redundant recently, I didnt qualify for contributions based JSA for missing one month of NIC class 1's in the last two tax years.

I rent a house, but own a house that I rent out. The rent income is the cost of the mortgage. When I got made redundant I tried to sell the house with tenants in, but sale value offers were less than the mortgage value of house.

When I went to the benefits office they said that:

a) no income based JSA as the house was "worth" 17k more than the mortgage.

b) no housing benefit as I had either i) a house to move back to (you can't if you have incumbent tenants), ii) I could sell house and make 17k profit.

c) no WTC as I had earned above the yearly threshold

d) no other entitlements than child benefit

Hence now I have a contracting job, I will eb ensuring I pay as little tax as possible and will be putting away my own "national insurance"..

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Anonymous Coward

Re: Evade the taxes

But because I saved money and paid for my own home, I dont qualify for ANY benefits, no housing benefit, no income support, no help with perscription charges.. no home help.... nothing... because I have too much money

This is the outcome from applying means-testing to some (previously) universal benefits.

I assume you were working as a contractor through your own limited company - otherwise you should be complaining about the lack of statutory sick pay.

If you were contracting through your own limited company, then - unfortunately - this is the part of the risk that the business model carries and it needs separate types of insurance than the NI scheme.

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Anonymous Coward

Re: Evade the taxes

Hence now I have a contracting job, I will eb ensuring I pay as little tax as possible and will be putting away my own "national insurance"..

Pretty much the best plan available now.

I have been in an almost identical situation - three months unemployed without a single penny of state support and only surviving by borrowing so heavily that it took 12 months of well paid contracting to get everything back to where it was. I had the same problem with housing - I owned a house rented out to cover the mortgage which was above current market value so I couldnt even sell the house.

Four years of contracting later and I now have my own "insurance" policy.

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Mushroom

Re: Evade the taxes

I do get SSP... but thats all...

As a result I'm about £1200/month down on income.

Makes me wish I rented my house, and pissed my money up against a wall....

I could have got rent paid, income support, free home help and free medication.

Time to see a decent accountant and see what loopholes I can exploit (then package up as a cheap and easy way to avoid paying tax)

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The loopholes will never be closed...

...as long as the MPs are using them to line their own pockets.

Or rather their partners, whom their are not financially responsible for, or what ever weaselling guff they come up with when caught.

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