With the Budget looming, I thought I would pose a question to members on a topic which has been touched on in a number of recent threads - how much is a fair amount of tax for a person to pay, and does it vary depending on whether a person is employed, self employed or working through a company?

Discussion of how much is a fair amount of tax has raised its head several times over the last couple of weeks, driven in part by my debate over IR35 - particulary "Possible solutions to the IR35 problem" [1] - , but also by Simon Sweetman's article "Avoidance Everywhere" [2].

Some of the strongest critics of IR35 state that it is unfair to tax contractors at the same rate as employees because they do not have the same rights as employees. Many would argue, myself included, that that is a matter between the contractor and his client. I guess the clients have the whip hand there - but hey employers are in the same position when engaging employees, and in particular where contractors are concerned, if particular skills are needed then the market will surely dictate the price?

I am more interested in what members think is the "right" or "fair" amount of tax for people to pay. This should include any NIC burden too. Do members think that a self employed person should bear the same tax burden as an employee - and if not why not? (One possible factor is the absence of any earnings related pension benefits for the self employed.) What about those working through limited companies? Should their tax burden be the same as an employee on the funds they extract? Or the same as a self employed person? Let's leave retained profits out of the picture in companies for now.

It is elected Government's job to decide this tax burden and apportion it between the various taxpayers (businesses, companies, employees), but just as an exercise in debate it would be good to see what members think is a fair amount of tax.

I suggest that those with ideas might suggest the tax burden in £ at income of £10,000, £25,000, £45,000 and £100,000. After that marginal rate would be good - more than one if you like. I've specified the break points to allow various marginal rate bands if you want them. Or give us a suggestion of your marginal rates and bands.

I'll draw any contributions together with some feedback around Budget day so that we can compare your ideas with what the Government thinks.

As a comparison, here are the tax burdens borne by each group based on the latest announcements (including PBR) for the current (2009/10) tax year.

Income of £10,000

• Employee tax £705, NIC £471 total £1,176 rate 11.7%




• Self employed £705, NIC £468 total £1,173 rate 11.7%




• Company director £899 total £899 rate 9.0%


*director extracts salary of £5,720 and remainder by way of dividend. Assumed CT rate is 21% in all cases. "Income" is company profit before tax of £10,000, and similar below.

Income of £25,000

• Employee tax £3,705, NIC £2,121 total £5,826 rate 23.3%




• Self employed £3,705, NIC £1,668 total £5,373 rate 21.5%




• Company director £4,049 total £4,049 rate 16.2%

Income of £45,000

• Employee tax £7,930, NIC £4,208 total £12,138 rate 27.0%




• Self employed £7,930, NIC £3,189 total £11,119 rate 24.7%




• Company director £8,249 total £8,249 rate 18.3%

Income of £100,000

• Employee tax £29,930, NIC £4,758 total £34,688 rate 34.7%




• Self employed £29,930, NIC £3,739 total £33,669 rate 33.7%




• Company director £29,834 total £29,834 rate 29.8%

As you can see, the present tax system very strongly favours the company over both employed or self employed. The self employed worker seems to get little NIC "discount" for his loss of state benefits.