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Bread and butter

October 9, 2018

The hopelessness, it gets to you.

You look at the world, at politics, economics, climate change, and you think, it’s all so big and so hopeless and so utterly, utterly fucked that there’s just no point in anything…

Nevertheless. Insert platitudinous inspirational meme here. We can’t go on. We go on.

Anyway. Did you know we have a Minister for Small Business? Well, actually a Parliamentary Under Secretary of State, Minister for Small Business, Consumers and Corporate Responsibility? It’s Kelly Tolhurst MP and she’s only been in post since July of this year, so I suppose we must let her off.

Because small businesses are being screwed. Again. Well, not small businesses, as such, but micro businesses. You know, the ones who aren’t represented by the CBI or the FSB, the ones which barely have a need for an accountant let alone someone to read policy documents for them and represent them at HMRC “Stakeholder” groups.

In the beginning there was administrative burden, which is the cost of dealing with the government – not the money the government takes from you in taxes etc, but the money it costs you to comply with the regulations they make like filling in the necessary forms to tell them how much tax you’re going to have to pay. And the UK had the highest VAT threshold in the EU because that took bazillions of micro businesses out of VAT and cut the administrative burden by gazillions.

Then there was Amazon, who hoovered up the business of selling ebooks and they did it from a low-VAT-on-ebooks jurisdiction. So the EU introduced rules to make the VAT chargeable where the buyer was located, not the seller, and in solving one problem they created another, because there were a load of authors who sold their ebooks directly from their own websites rather than paying a substantial proportion of the turnover to Amazon or another platform.

Because those authors (and the knitters selling patterns and the musicians selling sheet music and the trainers selling online courses…) weren’t represented by any “stakeholder” group and because neither HMRC not the EU did due diligence on the impact on micro businesses, no-one realised they were literally unable to comply with the legislation as originally envisaged, well, they were fucked.

Fair play to the micro businesses of Great Britain, though, because they got together and lobbied their little hearts out and crowdfunded to go to Ecofin in Dublin and lobbied the EU and… won. There’s a €10,000 Euro turnover threshold below which the new rules won’t apply, so Amazon and the like are hit but the one-woman kitchen-table business isn’t. Result?

So you might think.

The legislation comes into force on 1 January 2019. Unless something happens, the UK leaves the EU on 29th March 2019. The micro businesses of Britain have a whole 87 days to trade legally and friction free.

After that? Not only do they not get the concessionary treatment for micro businesses and the simplified system for small businesses, they don’t even get the “benefit” of being able to transact via the VATMOSS system with the protection of HMRC between them and the other EU fiscs. They become “non-union” traders and are expected to work out the rate of VAT applying in the location of their customer at the exchange rate on the day of the transaction…

It’s rubbish, and (according to the campaign group) the British government haven’t even asked for relief, or for a continuation of the de minimis threshold, after Brexit.

Oh, and there’s talk of lowering the VAT registration threshold. Because the one thing we need from Brexit is more red tape and administrative burden, right?  I mean, right?

Dear Kelly Tolhurst MP, can you please remember the very smallest businesses and look at the VATMOSS mess?

I can’t even. It’s worse than the music hall. The circus. The music hall.

 

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Day one

July 2, 2018

I guess there’s a timing issue I hadn’t thought of (I haven’t had the daily email round up of consultations yet today and I can’t honestly recall whether it arrives the same time every day or not) but a quick check of the gov.uk website shows only one consultation has been published today, or at least that was all there was when I started writing.

It’s a code of practice for Forensic Gait Analysis (FGA) published by the Forensic Science Regulator, an agency of the Home Office.  I thought I’d just speed read it but actually it’s more interesting than I’d expected.  I mean, “forensic gait analysis” is the pseudoscience of identifying people by the way they walk.  As it says in the paragraph “limitations of service”:

  1. forensic gait analysis predominantly relies on observational analysis and comparison, rather than measurable objective techniques;
  2. features of gait have discriminatory potential but cannot currently be used to identify a person in isolation or from an open population;

which makes sense, because if you think about it you can identify your partner or your child or parent in a crowd without being able to see their face, just by the way they move.  But if you notice someone with a distinctive red hat and then a few days later see someone in a similar hat, could you identify them as the same person from the way they walked?  From examining video of the way they walked?  I know I couldn’t – but then would I be able to if I trained as a Forensic Gait Analyst?  And would you want to go to court reliant on my evidence if I did?

So I speed read the CoP and it looked reasonably sensible – I’d like to see someone with experience of the use of FGA in court read and comment on it, but no doubt legal networks are or will become aware of the consultation and be on it.  The bit that worried me was:

17.1.4 Methods used by the Forensic Unit can be acquired by:-

i)  developing a new method within the Forensic Unit;

OK, so you can develop an innovative way of undertaking FGA.  But how do we know it works?  Ah.  You have to have it validated.  And how do you have it validated?

17.2.1 When validating a method for use in forensic gait analysis the Forensic Unit shall:

i) determine the end-user’s requirements;

ii) determine the specification of the method;

iii)  conduct a risk assessment of the method;

iv)  review the end-user requirements and specification;

v)  define the acceptance criteria for the method;

vi)  produce a validation plan for the method;

vii)  detail the outcomes of the validation exercise;

viii)  independently assess the validation work to ensure the method complies with the acceptance criteria for the specification;

ix)  produce a validation report;

x)  produce a statement of validation completion; and

xi)  devise a plan for implementation and monitoring of the method.

Is it just my nasty suspicious nature that reads this as “invent your own method, and then write a report that shows how well it works and how carefully you’re going to use it”?  Although to be fair 17.2.3 goes on to say they expect most of the validation will be done by peer reviewed academic study.

When I skimmed to the end it finally clicked what I was looking at.  This ought to be an internal manual: how to run this bit of your forensic department.  It might be made public for FoI purposes but no-one except those affected would ever trouble to look at it.  It needs to be a code of practice because we’ve outsourced this kind of work to profit-taking entities, people for whom the idea that they should have “facilities [that] cater for the safe storage of casefiles to maintain the integrity and identity of technical records” is not a given.

The kind of people, in fact, who need a forensic science regulator in the first place.

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Start here

July 1, 2018

It’s hard to believe this blog has been in existence since April 2012, when I was a newly-retired Inspector of Taxes.  It’s even harder to believe that, when I first thought about bloggery, I seriously thought I would follow and respond to all government consultations for a year: I had no idea, even after working within government on the consultation process, quite how many consultations there are.

We have come a long way in six and a bit years.  Gov.uk tells me it had 591 documents on the consultations page when I launched: there are now 4344, 74 of which are open consultations.

Using the gov.uk sort facility again we can see that there were 254 documents published between the first of April 2012 and the end of March 2013 (and this number is, of course, just a proxy for the number of consultations published during that period, as it will include consultation responses published during the period in response to earlier condocs, as well as condocs “live” in the year and other oddments like calls for evidence and further supporting documents)

Nevertheless, looking at the year on year totals from April to the following March we see:

254 in 12-13

594 in 13-14

839 in 14-15

531 in 15-16

578 in 16-17

675 in 17-18

I’m not sure about these figures: I’d like to know how many open consultations there were on hand at any given time but I haven’t yet worked out how to extract the figure from the gov.uk website (nor do I have any empirical evidence of how accurate the gov.uk sort function is in producing figures in the first place).  Nevertheless my impression – and it’s no more than that – is that the number of consultations has reduced lately, and I have, perhaps lazily, assumed this was because of Brexit and the concentration of civil service resource elsewhere.

However one useful change over the period I have been blogging is that they finally fixed the subscription function, so that the request to have details of published consultations emailed to one every day now actually works.

So I thought, what if I just… try to blog more often.  Every day, ideally, about what comes in?  And get some actual figures.

Watch this space.

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Office of tax complexification?

June 5, 2018

You have until a minute to midnight tonight (11.59pm on 5th June 2018) to comment on the Treasury’s call for evidence on the VAT registration threshold. (There’s a quick-and-dirty online survey you can fill in here if you haven’t got the time or inclination to read the whole thing.)

Now, this was published in March so why haven’t I commented on it till now? You may also have noticed that I haven’t been around here for a while. As I tried to explain to people who came to listen to me at Accountex a couple of weeks ago, it’s basically because the early drafts of this post started off as strings of expletives and then devolved into those random streams of letters you get when you bash your head repeatedly on your keyboard and plkfdje gjkiuht uhirsge whi4u5b

Ahem.

I am not a fan of this concept.  To put it mildly.

Here’s where we are, according to the condoc.

The threshold is a simplification measure that keeps businesses with a turnover at or below the threshold from having to register and account for VAT. This tax simplification benefits around 3.5 million businesses, over half of the UK business population.

Businesses with turnover below the threshold can choose to register for VAT, and there are approximately 1 million voluntarily registered businesses. Only around 1.2 million businesses (out of about 5.7 million total businesses) are above the VAT threshold.

To me, this is an “it ain’t broke” proposition. Small businesses don’t have to engage with VAT till their turnover is over £85,000 but they can if they want to and it benefits them.  A turnover of £85,000 is not, of course, a profit of £85,000 and it seems unlikely that a business with a turnover below that level is supporting more than one or two people from its profits.  Larger businesses object that the imposition of VAT distorts competition, but then they would, wouldn’t they.  The main driver for change seems to be the idea that the

relatively high level of the threshold has a distortionary impact on business growth. This is because of the phenomenon of ‘bunching’, where small businesses deliberately limit their turnover to remain below the threshold.

Personally I’m intensely relaxed about people being intensely relaxed.  You get close to the VAT limit, think “sod this for a game of soldiers” and take a month off.  And?  So?  Whose business is that?  Do you live to work, or work to live?

The consultation explains that the threshold will remain at its current level, but that the intention is to “consult on whether the design of the threshold could better incentivise growth.”

Well let’s see, shall we?

First, there’s an EU proposal to bugger about with the threshold to make it less of a cliff edge and yes I’m aware I’ve put several metaphors in a blender in this sentence but it’s that kind of proposal.  So instead of £85,000 = no VAT, £85,001 = VAT, the proposition is there would be a 50% cushion. If you blipped over the limit but by less than 150% of it as some kind of one off (one big order, say) then you would be ok, or if you went over the threshold by any amount but for more than one year then again you’d have to register.  There would also be a “union cap” of €100,000 turnover so countries couldn’t opt out by making their VAT registration limit infinity minus one, and there would be some fiddle faddling simplified invoicing stuff for businesses over the threshold but not over €2m turnover.

Is that better? Well, there are circumstances – the One Big Order scenario – where you might save money I suppose.  But your business growth would hardly be incentivised by the knowledge you could weasel your way out of having to do VAT if you faffed about with your turnover to keep under the 150% and one year rules, and your business admin would hardly be simplified by having to muck about calculating which scenario would leave you better off.  So no, Socrates, I do not believe this fulfils either the policy objective of incentivising growth nor the original policy objective of the high UK VAT threshold, of reducing the administrative burden.  It is a Bad Idea.  It is, moreover, a Bad EU Idea and what the heck are we faffing about with Brexit for if not to liberate ourselves from Bad EU Ideas?

Next (4.8 in the condoc) the OTS have suggested “administrative smoothing” and again (in 4.9 et seq) “financial smoothing”.  (Small pause for head bashing on keyboard again).  Repeat after me: options are not simplification.  Allow businesses six months instead of three to do their first VAT return, or allow them to use a two year period rather than one to compare their turnover to the threshold, or different rates of VAT for different levels of turnover, and they’ll just faff about trying to make the figures come out the way they want them to rather than just getting on with it.  If your policy objective is, seriously, “to change the behaviour of businesses that take measures to remain under the threshold” then just (a) declare the threshold is £100,000 and will remain unchanged for the life of this parliament and (b) invest a couple of million in employing customer service practitioners in HMRC to go out to businesses and offer to get them up and running with VAT as soon as they hit 90k and (c) carry on doing the stuff HMRC already does to combat the obvious splitting business type avoidance activity.

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April 12th

April 12, 2018

Your starter for ten today: whose diary is this?

 

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Tax for creatives

April 8, 2018

At Follycon, the British Science Fiction convention (Eastercon) held at Harrogate over the Easter weekend, I was one of the panel in a session discussing business for creatives. Our brief was to look at finance, publicity, marketing and branding for writers, artists and other creative workers when they start to make money and have to think of themselves as a business, for example when they get their first sale.

It transpired that the people present were keen to hear about taxes  and I said I would expand a little on my breathless summary of “three rules, two numbers and a concept”.

Three rules: rule one – pay your taxes. As Oliver Wendell Holmes may have said, tax is the price we pay for civilisation, and I’d rather live in civilisation, thanks.

Rule two – don’t take the piss. Much of the tax avoidance industry would disappear if this simple rule were more widely followed. For a creative start up, I’d suggest you don’t spend your time trying to argue you *really* started in business when you started thinking about unicorns in 1982 so you should be able to subtract your cinema tickets for the entire Star Wars and Marvel series from the £250 advance for your fantasy novel… It annoys HMRC and makes you look like a smart arse, and nobody loves a smart arse.

Rule three – don’t let HMRC take the piss either. Know your rights and demand them. Remember the VAT MOSS fiasco and don’t assume you can’t make a difference. And don’t agree to let the state have your voiceprint on file!

Next: two numbers to remember. The first is £1000, which is the amount you can earn under the new rules on tax free allowances for property and trading income. So if you are on PAYE and don’t have to make a self-assessment return already, you don’t have to panic about tax when you sign the contract for your first novel or sell your first illustration. Provided the advance is less than £1000 you don’t have to pay tax on it. If it is more than £1000 you can choose, instead of claiming every piece of paper and trip to Eastercon against it, to claim a flat-rate £1000 instead. Yep. If your advance is £1005 you can pay tax on the £5 – although be aware that this is a new piece of legislation, that’s just my interpretation of it, and HMRC haven’t produced particularly good guidance on it yet. If you are already on self-assessment for some other reason you don’t seem to get this option, for example. And – see Rule Two – you can’t decide you have thirty seven different income streams (selling books with red covers, selling books with blue covers…) and hope they’re all exempt. The £1000 is a global total, so it includes your book advance AND your side business of dog walking AND the £300 your cousin paid you for typing their thesis.

The second number is, of course, £85,000 which is the point at which you have to start paying VAT. In general, if you suddenly start getting paid at that sort of rate I’d advise you to see an accountant anyway, but the reason the VAT limit is going to become increasingly important over the next few years is this thing called MTD – Making Tax Digital. HMRC has this theory that we’re all stashing cash down the back of our sofas and that if we all had to keep our records tidily on computers and share them with HMRC four times a year we’d stop doing it and they’d get more tax.  What would actually happen, of course, is that we’d carry on being careful to declare our turnover – because, see Rule One and Rule Two – but we’d all be much more fly about our expenses, and that fifty quid train fare that you couldn’t remember whether it was business or personal would be much more meticulously recorded so profits might, perversely, go DOWN.

If your turnover is less than £85k you can, at the moment, keep your records how you like. MTD cuts in at the VAT threshold – and, be warned, HMRC are taking “evidence” of whether the VAT threshold ought to come down. Watch this space.

Finally, a concept: “wholly and exclusively”. You can deduct expenses which are “wholly and exclusively” for business purposes from your business turnover to arrive at your business profit. This is a big conceptual leap from PAYE taxes, where you can only deduct expenses which are “wholly exclusively and necessarily” incurred in the performance of the duties – a much more restrictive concept.

So – I asked the audience – why are you at Eastercon? Wholly and exclusively for business purposes – to make contacts, to find an agent, publisher etc, to connect with your fans, to increase your professional reputation, to sell books or other creative work? Then the cost of the convention itself and the travel to and from it would be allowable expenses, incurred wholly and exclusively for business purposes. The fact that you might enjoy the convention doesn’t make it disallowable in and of itself: the test is why you came. The fact that you might not have found an agent/publisher/fan base at the con also doesn’t make the expense disallowable – you don’t have to be successful to have an allowable business expense.

What you DO have to have is a wholly business expense. Can you claim the cost of food and drink at the con?

That was when I referred people to the tax case of Mallalieu v Drummond. A barrister had to wear specific colours of clothes in court but wasn’t allowed to claim a deduction for them: you have to wear clothes anyway, so they weren’t “wholly and exclusively” for business purposes. We talked about the need to eat and drink anyway, and whether it would be reasonable to claim the extra cost of eating at the con. With strict adherence to Rule Two, you should be fine.

 

Creatives, if you have a question, feel free to post it in comments or ask it on #taxtwitter.  Tax mavens, if you’ve spotted anything I’ve forgotten or would like to add any other rules, numbers or precepts, please join in!

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Simplification at last

April 1, 2018

Well there we have it. The actual rate will be confirmed in the Budget this autumn, but I am proud to announce that the government have accepted my suggestion for the most radical simplification of the tax system in forty years: the Single Tax Rate is go!

The Single Tax Rate works like this: everything gets taxed at the same rate.

That’s it.

I mean, why should individuals be taxed at 20, 40 and 45 per cent, corporations at 19 and  trusts at wacky rates of 7.5, 20, 38.1 and 45 per cent? Why is VAT 20%, the sugar tax 18 or 24p per litre and the plastic bag tax 5p? Landfill tax is £86.10 or £2.70 a tonne but Petroleum Revenue Tax is zero – but it’s not abolished in case anyone fancies claiming back losses… Make it simple, stupid!

From now on, everything gets taxed at one rate. Income tax and corporation tax? Same. No advantage or disadvantage to carrying on your business in one way or another. VAT? Same rate. Environmental and behavioural taxes? Same rate. Imagine the Budgets of the future! The Chancellor will be able to stand up and say “from next April, the tax rate will be 20%” and everyone will know where they stand, how much they have to pay, and how to calculate it.

I mean, I admit, when I suggested the idea, I had expected the Chancellor would stick with 20% as a nice, easy, round number that everyone can calculate on their fingers. But, hey, it’s a start. I’m sure we’ll all get used to calculating 42.1984% of things in no time.