I don't think it's quite that straightforward. In my industry, there are examples of people doing this, in order to 'avoid ' tax. It goes like this, you pay your self up to the lower rate limit and then take the remaining money from the company as Dividends, (assuming you make this much). Hence you avoid paying higher rate tax (it used to be a bit better than that, but increases in captial gains taxes have wiped that out). You can also claim expences, e.g. if you are office based mileage to and from work; headphones; books; parking; etc. which are essentially tax free.
Another interesting one is where you pay an otherwise unworking partner to do secretarial work or similar to support your business, taking advantage of a tax free allowance.
Those nice people Customs and Revenues don't really like either first scheme where the person looks like an employee. E.g. single predominant source of income; working in the same role for more than 2 years; no contract, or a contract that looks like an employment contract. The sancation is they usually assume no more than 5% expences and the remainder is payed as direct pay, attracting PAYE; and both NI's. I suspect with the high training costs and potential around VAT losses, they will be looking at this area. During times of recessions, they tend to get very excited about enforcement...
The partner approach, they get suspicious if the partner does not seem to bring in money or direct value cannot be found in the work. I think they recently lost a case on this, but I know it is an area causing people concern...
I think they can also go back 7 years!
I think there are some misconceptions in your post, bigfoot.
First, dividends don't save income tax; they merely avoid NICs. But they deprive you of the ability to fund a PP.... so in the long run, assuming you are a lower rate taxpayer in retirement than before, you lose out there. Also divis can be paid only out of distributable profits.
Expenses, yes, but only if incurred wholly in the running of a business.
The partner case you probably refer to was a famous but quite specific married couple case where the wife was paid dividends. Had they been unmarried, or had she drawn a salary, it would not have applied.
As you suggest, the whole picture hangs on a list of indicators, and a smart contractor will keep as many of these in place as possible.
Finally, I wouldn't call the Revenue 'nice people'. They are aggressive cynical bastards, who know that anybody who is actually successful will always write a cheque to keep his life simple, so if one is into boats, horses or planes, they will hit you with an "enquiry" knowing full well that you will settle somewhere between the cost of hiring a tax barrister (£10-20k) and what they ask you for. A busy inspector can run a few dozen such "enquiries" concurrently, and he gets indirect commission on his recoveries. The punters who want their day in court, or who want that strange concept called justice, are usually the less successful ones, and the inspector will try to avoid those.