Why do the self-employed pay higher taxes?

No, there is no justification for that.

Nor is there any justification why employees get a PAYE credit, but self-employed don't.

Brendan
 
This is as it always has been - I was wondering why no uproar. Surely there is some justification like they get lots of expenses.

I guess the PAYE credit made sense when you could earn 5% on the deferred cash flow but that is no longer the case.
 
I have worked on both sides of this fence and while it may not go down well with the self-employed I would definitely choose self-employed over PAYE. I don't necessarily agree that they "milk the system" but being self-employed does have its tax advantages!
 
If by tax advantages, you mean that they can "milk the system", then it's totally unfair on those self employed tax payers who do not milk the system.

Brendan
 
If by tax advantages, you mean that they can "milk the system", then it's totally unfair on those self employed tax payers who do not milk the system.
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Maybe "flexibility" would be more descriptive word than "milk" although that also works in many cases ')
 
Bronte said:
I wouldn't agree there, self employed have more opportunity to milk the system, hence I imagine the justification for zero PAYE credit.
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monagt said:
Maybe "flexibility" would be more descriptive word than "milk" although that also works in many cases ')
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The opportunity to milk the system may have been a valid point 30 years ago, but now? Hardly - in fact self-employed taxpayers carry a heavy compliance burden (not just in terms of financial cost) that employees don't share.

There are also many aspects in how employees can enjoy "flexibility" in relation to tax-free benefits that self-employed people don't have.
 
Brendan Burgess said:
No, there is no justification for that.
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Surely the justification is that employees have a 10.75% employers PRSI contribution paid on their behalf whereas self-employed do not?

On a 150K income, combined PRSI and USC is about 32,500 for an employee and about 18,000 for a self-employed person. On a 300K income, the numbers are 66,700 and 40,400. The 11% USC rate doesn't make much of a dent in the gap between employee and self-employed charges...
 
orka said:
Surely the justification is that employees have a 10.75% employers PRSI contribution paid on their behalf whereas self-employed do not?
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That is not a justification as employer's PRSI is paid by employers not by employees. Employees in respect of whom this charge is paid receive benefits in return, which are not available to self-employed PRSI contributors.

The original official justification for the introduction of the employee tax free allowance back in the 1980s was that employees paid their taxes currently while the self-employed paid their taxes a year or more in arrears. The allowance was also quite small in those days. The advent of preliminary tax in the meantime means that this justification no longer exists.
 
orka I think the employer PRSI point is valid but you will note my OP was comparing pension income with self employed earnings.
 
T McGibney said:
That is not a justification as employer's PRSI is paid by employers not by employees. Employees in respect of whom this charge is paid receive benefits in return, which are not available to self-employed PRSI contributors.
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Ah, but in this case, that's not true. The 11% rate applies to income above 100K. NO benefits accrue above this income level - any extra benefits (available to employees but not self-employed) are capped and 'earned' at very low income levels. What benefits do you think accrue to an employee from their employer paying 10.75% on the portion of their income between 100K and 150K?
I suppose the argument could be turned around as - why should an employer of oneself get away with only paying 3% (the 8% to 11% gap) when an employer of a third party has to pay 10.75%?
 
Duke of Marmalade said:
orka I think the employer PRSI point is valid but you will note my OP was comparing pension income with self employed earnings.
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I think it's actually a connected issue. While PRSI is supposed to cover (strangely enough) all the PRSI benefits, it doesn't come close to doing so (the 4% wouldn't even cover the pension accrual). Therefore the gap is made up from general taxation and USC. Given that pensioners are not accruing many (any?) of the PRSI benefits, they don't have to pay PRSI above a certain age - and they shouldn't have to pay the PRSI that's hidden in general taxation and USC either - so that's why they get a break on the USC. That's my take on it anyway.
 
orka said:
Ah, but in this case, that's not true. The 11% rate applies to income above 100K. NO benefits accrue above this income level - any extra benefits (available to employees but not self-employed) are capped and 'earned' at very low income levels. What benefits do you think accrue to an employee from their employer paying 10.75% on the portion of their income between 100K and 150K?
I suppose the argument could be turned around as - why should an employer of oneself get away with only paying 3% (the 8% to 11% gap) when an employer of a third party has to pay 10.75%?
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Sorry, I don't see your point? USC for high earners has nothing to do with PRSI. For the record, I care very little about USC rates for high earners, (although an 11% rate sounds ridiculous).

It's merely a distraction from the disgraceful mistreatment of low & middle earner self-employed people who are denied the employee tax credit.
 
T McGibney said:
Sorry, I don't see your point? USC for high earners has nothing to do with PRSI.
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You said benefits were accrued because of employers PRSI and I pointed out that at the level we are discussing on this thread (100K income), that is not true.

I don't really see how you can separate the three items (general tax, USC and PRSI). Nothing seems to be earmarked for anything specific - the government gets in a big pot from all three items and then spends it all. In looking at whether something is 'fair', you really need to look at compensating aspects. Case in point - high earning self-employed people don't pay enough PRSI but the imbalance is addressed to an extent by charging them more USC.

T McGibney said:
It's merely a distraction from the disgraceful mistreatment of low & middle earner self-employed people who are denied the employee tax credit.
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Similarly, not getting the employee tax credit might be unfair but again, balancing this, self-employed at lower levels don't pay enough PRSI (although I would be interested to know your definition of low and middle earner).
 
orka said:
You said benefits were accrued because of employers PRSI and I pointed out that at the level we are discussing on this thread (100K income), that is not true.

I don't really see how you can separate the three items (general tax, USC and PRSI). Nothing seems to be earmarked for anything specific - the government gets in a big pot from all three items and then spends it all. In looking at whether something is 'fair', you really need to look at compensating aspects. Case in point - high earning self-employed people don't pay enough PRSI but the imbalance is addressed to an extent by charging them more USC.

Similarly, not getting the employee tax credit might be unfair but again, balancing this, self-employed at lower levels don't pay enough PRSI (although I would be interested to know your definition of low and middle earner).
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You keep missing the point that employees don't pay employer's PRSI - their employers do.

Why is my definition of low/middle earner any way relevant? The lack of an employee tax credit is a discrimination against all self-employed people and company directors. Why you aim to justify such discrimination, I'm at a total loss to understand.
 
T McGibney said:
The opportunity to milk the system may have been a valid point 30 years ago, but now? Hardly - in fact self-employed taxpayers carry a heavy compliance burden (not just in terms of financial cost) that employees don't share.

There are also many aspects in how employees can enjoy "flexibility" in relation to tax-free benefits that self-employed people don't have.
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This was apparently discussed by Pat Kenny with Joan Burton today, and she didn't use the word I used 'milk the system' for justification, but as good as did. Nearly. (we will not be sued)
 
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