Ethically dubious

I’ve been a bit overly busy to actually write a blog recently. Thanks to Christie Malry for reminding me I have one…

One of the things that I thought I might put here is a little response to the remark made by Richard Murphy regarding me “cooperating with an unnamed person claiming to be a chartered accountant on the web”.

Personally, I took that as being aimed at me. The ethical dubiousness attaching itself to the cooperation with, rather than the being a, chartered accountant. Presumably the unnamed part doesn’t help.

I don’t think that it really matters. It was really a bit of banter on twitter as far as I was concerned and given that the calculation attached to a hypothetical personal service company, I completed a hypothetical engagement letter, performed hypothetical money laundering checks before issuing a hypothetical engagement letter and then submitting a real 64-8 to HMRC for “A Completely Hypothetical Company Limited”.

I checked Companies House. There is no “A Completely Hypothetical Company Limited”. I also headed the letter “taking the piss” before I sent it to HMRC.

Anyway, administrative duties and risk management being done, I decided that maths is maths, and Murphy was incorrect and being a tad hypocritical. Not that Chas Roy-Chowdury was correct (in his original article), but Murphy’s criticisms, as Christie Malry points out, are arguably applicable to him.

Most people on the internet are unnamed and could be anybody as far as I’m concerned. It doesn’t mean that when they make a point it is any less valid than if they were a named person standing next to me with their passport in their hand.

At first all I did was post a link to the blog, because I felt it was obvious to any accountancy or tax professional that Murphy’s calculations were wrong, and they would see the irony.

I had a chat with a couple of people on twitter, including Christie and had a quick go at the calculations. When you think somebody is wrong, it’s probably best to make sure not just that they’re wrong, but you know why they’re wrong.

In my opinion, in Chas’ original article, and in the corrected version, the figure for the tax paid on PAYE is incorrect insofar as it is used for comparison purposes.

The comparison isn’t like-for-like.

One is for £200,000 of salary from the company, not including employer’s NICs, which would cost an additional £26,566 in NICs, the other is for £200,000 of income to the company.

The company would need income of £226,566 to pay the salary without making a loss.

A far better way of comparing the efficacy of the two options is the way which Christie did, which is to look at £200,000 of income to the company and see what the shareholder receives at the end by either salary  or dividend.

I’m talking about the sort of calculation you would actually perform for remuneration planning purposes.

And for anybody looking for bonus points, yes, you should pay out salary of £7,488 to optimise the calculation.

PS I notice this blog has been now linked to from Tax Research UK. Please read this Tax gap corporation tax rate analysis

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About Ben Saunders

I'm a Chartered Tax Adviser and a freelance writer. This is my personal blog about, well, mainly taxation. I might put other stuff in. Who knows.
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6 Responses to Ethically dubious

  1. Ben

    I’ve done those calculations before – and yes, on this occasion I made an error. It wasn’t the first, and won’t be the last time in my life when that happens, especially with the speed at which i work.

    You can find other versions of the argument by me which note the point you make, here http://www.taxresearch.org.uk/Documents/TRLLPSmallBusinessTax8-08.pdf

    Byt my real point was a simple one: there is no FCA called Christie Mallory.

    That then is a misrepresentation and if he is an FCA contrary to ICAEW ethics. Passing off as an FCA is not allowed by such rules, I would suggest.

    I am surprised therefore that you cooperate with someone doing such a thing.

    It was a simple, ethical, observation on my part, but which, I think, suggests a lot about where I think you are in this arena.

    That’s all.

    Richard

    • I don’t think that’s relevant, in all honesty. As I said, I didn’t cooperate, I merely conversed with somebody on the internet. I do so with many people, many of whom I don’t know their real identity. This wasn’t advice and it didn’t relate to a professional matter. A professional ethical judgement wasn’t required on my behalf.

      If the ICAEW badge and FCA title is being used incorrectly, that is a matter for them. I am not a member, so I feel it has nothing to do with me. You might see that as an ethical judgement on my part, and I’m comfortable with it.

      The other reason why I am willing to ignore the use of a pseudonym is Christie’s depression. I suffer from depression and I don’t mind talking about it. But there was a time when I would consider doing so only ensuring that nobody could identify me. Now, you can take issue with the idea that Christie Malry is blogging about stuff other than depression, but I don’t think that would work as well as a blog. And I think it’s very useful for people to identify somebody with depression as capable of being a professional.

      Now, that doesn’t override your argument, but for me it provides a point of balance, albeit a slightly self-interested one.

    • Andrew Jackson says:

      Surely the issue with passing off is saying you’re an FCA when you’re not, rather than saying you’re called Christie Malry when you’re not.

      I note that the ICAEW’s own blogs explicitly say you can use pseudonyms. So if “Christie Malry” actually is an FCA called Joe Bloggs (or whatever), I can’t see that there’s a problem.

  2. Andrew Jackson says:

    I’d rather not pay out the salary. With £200,000 of income there’s no personal allowance, so it gets taxed at the basic rate of 20% instead of at the dividend rate of nil. That’s countered by the CT deduction for the salary, of course, but if you pay the £7,488 out as a dividend net of CT then gross up by 10% you add taxable income to the top rate of only £6,656 rather than £7,488. It’s the top line that counts.

    The cut-off is around £140k – below that, it’s worth paying the salary; above, it’s not. Although the benefits of paying NI and getting your stamp shouldn’t be ignored…

    Rule of thumb: don’t use a rule of thumb. Model it, even if you think you know what the answer will be. There are too many variables interacting and you’re bound to forget one.

    • Irony upon irony!! Damn looking for a pithy comment at the end! So true. Even for marginal rate of CT, I think that holds true.

      Still worth paying out £5,564 for your NIC stamp, if you feel it’s worth it.

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