Whilst on the subject of Hamlet's father's ghost, in my post “As ye sow” on 13th of this month, I mentioned the spectre of income shifting legislation and was worried that it might be sneaked in whilst we were looking at the drastic measures being introduced to save the country from ruin. No, it's not funny.
In the PBR we were told:
"The Government firmly believes it is unfair to allow a minority of individuals to benefit financially from shifting part of their income to someone else who is subject to a lower rate of tax, known as income shifting. The Government has consulted on this issue but, given the current economic challenges, the Government is deferring action and will not bring forward legislation at Finance Bill 2009. The Government will instead keep this issue under review."
I explained a year ago how fundamentally inequitable such measures would be – see here.
My sources tell me that the Treasury and HM Revenue & Customs think that implementation of any such legislation is impractical and too expensive to administer. Phew, what a relief! I hope it's true.
www.jonstow.com
Friday, 28 November 2008
A hard taxing week, Horatio!
Readers of this column know that I am not a great fan of the Government’s economic and taxation policies, so may well be expecting me to take another swing at the Chancellor and his organ-grinder boss. However it is true to say that my disappointment at the content of the Pre-budget Report given last Monday by Mr. Darling is not because I would oppose any of his policies on principle, but because I truly believe that the measures announced are not the right ones, and that they are again treatment of the symptoms of the economic malaise, and not of the underlying cause or disease.
There were announcements of increases in benefits such as Child Tax Credit from January instead of April, and additional earlier payments to State Pensioners, and this type of thing does put money into the economy, though it will very likely have to go towards higher fuel costs compared with this time last year, and help pay off any overspend at Christmas. However, the disappointing reality is that many people are very hard up and pretty much all the increase in benefits is likely to be mopped up.
Of course there is the very tight squeeze on credit following on from the banking crisis, and I am not going to rehearse the background to this other that to say it might have been a lot less serious if the Northern Rock crisis had been addressed properly in September 2007 when it came to a head, and not at the beginning of 2008. There is however a shortage of money to spend, which is why I am confused as to the thinking behind cutting the main VAT rate from 17.5% to 15%, albeit in time for Christmas, with a guaranteed rise in Employers’ and Employees’ National Insurance from 2011. Naturally the latter rise will raise billions towards the borrowing the Government has embarked on to spend its way out of this mess but to me it highlights muddled thinking.
We all agree that there is not enough money being spent to keep the economy going and keep people in work. However, surely the cut in VAT on what will be largely imported consumer goods relates to voluntary expenditure which people anyway are reluctant to make. It might save a few retail jobs in Currys (though DSG are not doing so well) but what people really need to spend money on is food and fuel. Food is zero-rated for VAT purposes and domestic fuel and electricity keeps the 5% rate. I suppose the thinking is that people will spend money on those things because they have no choice, but the logic behind increasing the duty on vehicle fuel to compensate for the VAT cut makes not much sense even in a twisted green world. What it will do is increase the price of food because it will be an extra expense on the food retailers who could recover the input VAT but not the fuel duty.
The decrease in VAT on the imported items will be offset by the higher import costs because of the decline of the pound as a result of the economic downturn, so in cutting the VAT rate, Mr. Darling bears more than a passing resemblance to Don Quixote. Not a pretty sight!.
What scares me is the terrible price we are going to pay. The VAT cut will be very expensive for the Exchequer, and will be one reason why the NIC rate is going to go up in a couple of years if Mr. Darling has his way. The fact is that tax does have to go up, but as NIC is such an easy tax to manipulate I am at a loss to understand why it has not been used as a tool now.
If instead of cutting VAT, Mr. Darling had cut NIC at least for next April that would have given most employees and immediate boost and if Employers NIC had been cut that would have been a help to the cash flow of small businesses who are still the backbone of the economy, even if the Chancellor does not understand them. Oh, yes, losses can be relieved back three years now for tax purposes, but many small businesses cannot sustain losses for long in this climate and any sole trader with significant losses would most likely be stacking shelves in Tesco (not that isn’t an honourable job) rather than soldier on with negative money for any length of time.
The trouble is that for small business it is on the whole jam tomorrow. Small companies have to make the losses and wait for repayments down the line; it does not help them now. Never mind, the corporation tax rate for any small company making a profit next year is staying at 21% in April rather than rising to 22% as had been intended; a year’s reprieve. Now, only a couple of years ago the rate was 19% and I have never read any justification, official or otherwise, for the increase in the small companies’ corporation tax rate. Increases in allowances for plant etc. are generous this year and the ongoing rates are also reduced, but they assume that companies have money to spend. If they do, they had best spend the money on marketing, because there are opportunities still if business owners remain positive.
I just wish that the Chancellor and his cohorts had thought about the real world, not cutting taxes on imported goods that may be out of our price range now anyway. You cannot pull money out of people’s pockets to spend it on what they don’t need if the money isn’t there. We need early concerted action to cut the cost of all our mortgages (surely the banks want to retain control over their destiny rather than succumb to what John Prescott called Old Labour policy c 1947) because that is what is needed to help revive the economy. Otherwise the whole “cash injection” looks misdirected. An NIC cut would have been so useful, and more immediate than the VAT effect (if any) even if it could not happen until April.
I guess the lesson is that it is more important to be doing something positive than to jump about appearing to be doing something. I say this more in sorrow than in anger, because I would love the Government’s strategy to work for all our sakes. I just fear that we will pay the price without ever seeing the goods.
© Jon Stow 2008
www.jonstow.com
There were announcements of increases in benefits such as Child Tax Credit from January instead of April, and additional earlier payments to State Pensioners, and this type of thing does put money into the economy, though it will very likely have to go towards higher fuel costs compared with this time last year, and help pay off any overspend at Christmas. However, the disappointing reality is that many people are very hard up and pretty much all the increase in benefits is likely to be mopped up.
Of course there is the very tight squeeze on credit following on from the banking crisis, and I am not going to rehearse the background to this other that to say it might have been a lot less serious if the Northern Rock crisis had been addressed properly in September 2007 when it came to a head, and not at the beginning of 2008. There is however a shortage of money to spend, which is why I am confused as to the thinking behind cutting the main VAT rate from 17.5% to 15%, albeit in time for Christmas, with a guaranteed rise in Employers’ and Employees’ National Insurance from 2011. Naturally the latter rise will raise billions towards the borrowing the Government has embarked on to spend its way out of this mess but to me it highlights muddled thinking.
We all agree that there is not enough money being spent to keep the economy going and keep people in work. However, surely the cut in VAT on what will be largely imported consumer goods relates to voluntary expenditure which people anyway are reluctant to make. It might save a few retail jobs in Currys (though DSG are not doing so well) but what people really need to spend money on is food and fuel. Food is zero-rated for VAT purposes and domestic fuel and electricity keeps the 5% rate. I suppose the thinking is that people will spend money on those things because they have no choice, but the logic behind increasing the duty on vehicle fuel to compensate for the VAT cut makes not much sense even in a twisted green world. What it will do is increase the price of food because it will be an extra expense on the food retailers who could recover the input VAT but not the fuel duty.
The decrease in VAT on the imported items will be offset by the higher import costs because of the decline of the pound as a result of the economic downturn, so in cutting the VAT rate, Mr. Darling bears more than a passing resemblance to Don Quixote. Not a pretty sight!.
What scares me is the terrible price we are going to pay. The VAT cut will be very expensive for the Exchequer, and will be one reason why the NIC rate is going to go up in a couple of years if Mr. Darling has his way. The fact is that tax does have to go up, but as NIC is such an easy tax to manipulate I am at a loss to understand why it has not been used as a tool now.
If instead of cutting VAT, Mr. Darling had cut NIC at least for next April that would have given most employees and immediate boost and if Employers NIC had been cut that would have been a help to the cash flow of small businesses who are still the backbone of the economy, even if the Chancellor does not understand them. Oh, yes, losses can be relieved back three years now for tax purposes, but many small businesses cannot sustain losses for long in this climate and any sole trader with significant losses would most likely be stacking shelves in Tesco (not that isn’t an honourable job) rather than soldier on with negative money for any length of time.
The trouble is that for small business it is on the whole jam tomorrow. Small companies have to make the losses and wait for repayments down the line; it does not help them now. Never mind, the corporation tax rate for any small company making a profit next year is staying at 21% in April rather than rising to 22% as had been intended; a year’s reprieve. Now, only a couple of years ago the rate was 19% and I have never read any justification, official or otherwise, for the increase in the small companies’ corporation tax rate. Increases in allowances for plant etc. are generous this year and the ongoing rates are also reduced, but they assume that companies have money to spend. If they do, they had best spend the money on marketing, because there are opportunities still if business owners remain positive.
I just wish that the Chancellor and his cohorts had thought about the real world, not cutting taxes on imported goods that may be out of our price range now anyway. You cannot pull money out of people’s pockets to spend it on what they don’t need if the money isn’t there. We need early concerted action to cut the cost of all our mortgages (surely the banks want to retain control over their destiny rather than succumb to what John Prescott called Old Labour policy c 1947) because that is what is needed to help revive the economy. Otherwise the whole “cash injection” looks misdirected. An NIC cut would have been so useful, and more immediate than the VAT effect (if any) even if it could not happen until April.
I guess the lesson is that it is more important to be doing something positive than to jump about appearing to be doing something. I say this more in sorrow than in anger, because I would love the Government’s strategy to work for all our sakes. I just fear that we will pay the price without ever seeing the goods.
© Jon Stow 2008
www.jonstow.com
Friday, 21 November 2008
Government and Data Protection - Security, schmecurity?
Last year’s membership list of the British National Party has leaked into the public domain and there will be many politicos who will take great pleasure in leafing through the names to embarrass certain individuals. At the same time there is a great deal of schadenfreude amongst senior politicians. In political terms this is understandable, and few reading this (and the writer) will have any sympathy for the views of the
The Home Secretary, Jacqui Smith, succombed to political temptation on air in saying that members of the Labour Party would not mind having their names published. I doubt she had polled them all in advance and membership of any political party is often considered a private matter by the individual concerned. Ms. Smith finally conceded “everyone had the right to protection under data protection laws but it was up to Dyfed-Powys Police whether to take the matter further.”
The Home Secretary’s relaxed attitude is in a context where so many businesses in the professions and otherwise have to hold a licence to keep private data on pain of heavy fines for any leak. I myself was at a presentation on this very subject a couple of weeks ago, yet even in the wake of the loss of the entire Child Tax Credit database, information about prisoners, details of military personnel, their families and new applicants to the forces still the Government and its staff do not seem to take the matter seriously. We know that important data has been lost, even though there is no need to carry it round on a laptop. If you “found” my laptop you would find there would be no data about my clients whatever, though you could possibly read my “raw” blogs if you were that patient.
Thursday, 13 November 2008
As ye sow...
It is always difficult to write in advance of the Pre-Budget Report, though we understand that it will be happening shortly. In some past years the PBR has been in October, but the Government would say it has had other things on its mind; in other words the “credit crunch” and the apparent impending recession. Of course, it depends on what business you are in as to whether you think there is a recession now, and the effects will bite on different people and businesses at different times. However, clearly the collective spending power of the nation will be affected.
The delay in the PBR is we assume because the Government is thinking about what measures it can take to address an immediate problem. Normally the twice yearly Budgets we have got used to take a longer term view. In the meantime we have been left with the spectacle of the Bank of England desperately cutting lending rates in an attempt to kick start the economy or at least relieve beleaguered mortgage holders (most of us) and ironically stimulate the housing market. Of course this points to a good part of the problem. Anyway, the Bank says it is cutting rates as it has most recently with a 1.5% reduction because it has calculated that inflation will fall below 2% anyway, whilst we understand that the economy may shrink by half a per cent a least in the next year; maybe more depending who you believe.
It is nice that the Bank has remembered that it was supposed to be using the interest rate tool as a way of controlling general inflation. In recent years it has wound the rate up in order, it said, to control house price inflation specifically, whereas before about four or five years ago it seemed to look at the general inflation rate, which is what we understood was important. Indeed it was important, and therein lies part of the damage that has been done. The general lending rates for business are what has caused a good deal of damage to the economy underneath whilst the Bank has been looking at house prices, and now, surprise, surprise, businesses are struggling. Apart from the construction industry and retail sales fueled by easy credit, those of us out in the real world know that the business environment has been slow for about three years because of the lack of genuine spending money in the economy..
The Bank of England, in increasing interest rates over the last couple of years has of course been treating the symptoms of the disease, house price inflation and consumer spending, rather than curing the disease, which has been the ridiculously easy credit available. Of course mortgage lending regulation had been hived off to the Financial Services Authority, an impotent and useless quango as we know form their failure to regulate properly the pensions industry, but even so one would have thought there might have been some dialogue. Of course it would not have saved the US sub-prime market from coming to grief, but we might have been much less badly off in the UK if people had not been defaulting on mortgages they could not afford and never should have been given in the first place.
So where does this take us on the tax front? Business does not react well to jam tomorrow, so any new stimulus to spend money such as a hoist in capital allowances will not help in the short term, any more than a cut in corporation tax for small businesses (or delaying the current locked-in increase to 22 %) would help us now. The Government has already painted itself into a corner even with the current level of borrowing. Remember also the fiasco requiring the Chancellor to increase the individual personal allowance for 2008-09 to compensate basic rate taxpayers for the loss of the 10% rate band? Will this have to be locked in for future years at further cost to the Treasury and us when the chickens come home to roost and the borrowings have to be repaid?
A quick stimulus to the economy has to put money in people's pockets now. Anything of this ilk will be very costly indeed. What would be most effective would be a cut in Employer's National Insurance because this would help business now. Schemes such as the Conservatives' idea of cash to business to employ the longer-term unemployed might to a degree be self-funding but even this will have a delayed effect.
Anyway, the Government and Gordon Brown are now reaping what they and the Bank of England have sown. In the end, we shall all have to pay. What really worries me is that MPs and the financial press will take their eyes off the ball when it comes to the Pre-Budget Report and the Chancellor will sneak in something nasty, such as a revised attack on family businesses with the income-shifting proposals we saw this time last year as a reaction to the Revenue defeat in the Arctic Systems case. Such a thing would hardly lift the mood and sentiment in small businesses, but the Treasury hitherto has not understood the reality on the ground, and is unlikely to now in the light of a “painting over the cracks” Mini-Budget.
© Jon Stow 2008
The delay in the PBR is we assume because the Government is thinking about what measures it can take to address an immediate problem. Normally the twice yearly Budgets we have got used to take a longer term view. In the meantime we have been left with the spectacle of the Bank of England desperately cutting lending rates in an attempt to kick start the economy or at least relieve beleaguered mortgage holders (most of us) and ironically stimulate the housing market. Of course this points to a good part of the problem. Anyway, the Bank says it is cutting rates as it has most recently with a 1.5% reduction because it has calculated that inflation will fall below 2% anyway, whilst we understand that the economy may shrink by half a per cent a least in the next year; maybe more depending who you believe.
It is nice that the Bank has remembered that it was supposed to be using the interest rate tool as a way of controlling general inflation. In recent years it has wound the rate up in order, it said, to control house price inflation specifically, whereas before about four or five years ago it seemed to look at the general inflation rate, which is what we understood was important. Indeed it was important, and therein lies part of the damage that has been done. The general lending rates for business are what has caused a good deal of damage to the economy underneath whilst the Bank has been looking at house prices, and now, surprise, surprise, businesses are struggling. Apart from the construction industry and retail sales fueled by easy credit, those of us out in the real world know that the business environment has been slow for about three years because of the lack of genuine spending money in the economy..
The Bank of England, in increasing interest rates over the last couple of years has of course been treating the symptoms of the disease, house price inflation and consumer spending, rather than curing the disease, which has been the ridiculously easy credit available. Of course mortgage lending regulation had been hived off to the Financial Services Authority, an impotent and useless quango as we know form their failure to regulate properly the pensions industry, but even so one would have thought there might have been some dialogue. Of course it would not have saved the US sub-prime market from coming to grief, but we might have been much less badly off in the UK if people had not been defaulting on mortgages they could not afford and never should have been given in the first place.
So where does this take us on the tax front? Business does not react well to jam tomorrow, so any new stimulus to spend money such as a hoist in capital allowances will not help in the short term, any more than a cut in corporation tax for small businesses (or delaying the current locked-in increase to 22 %) would help us now. The Government has already painted itself into a corner even with the current level of borrowing. Remember also the fiasco requiring the Chancellor to increase the individual personal allowance for 2008-09 to compensate basic rate taxpayers for the loss of the 10% rate band? Will this have to be locked in for future years at further cost to the Treasury and us when the chickens come home to roost and the borrowings have to be repaid?
A quick stimulus to the economy has to put money in people's pockets now. Anything of this ilk will be very costly indeed. What would be most effective would be a cut in Employer's National Insurance because this would help business now. Schemes such as the Conservatives' idea of cash to business to employ the longer-term unemployed might to a degree be self-funding but even this will have a delayed effect.
Anyway, the Government and Gordon Brown are now reaping what they and the Bank of England have sown. In the end, we shall all have to pay. What really worries me is that MPs and the financial press will take their eyes off the ball when it comes to the Pre-Budget Report and the Chancellor will sneak in something nasty, such as a revised attack on family businesses with the income-shifting proposals we saw this time last year as a reaction to the Revenue defeat in the Arctic Systems case. Such a thing would hardly lift the mood and sentiment in small businesses, but the Treasury hitherto has not understood the reality on the ground, and is unlikely to now in the light of a “painting over the cracks” Mini-Budget.
© Jon Stow 2008
Sunday, 9 November 2008
Funnily enough....
Whilst we complain about the time it takes to process tax returns, I asked the local HMRC office recently to process a Form 64-8 authority for my firm to act, and issue a new reference number. They turned it around in a week. Well done, and take a bow, South Essex Area! Sefton, take note.
We need to remember most of the inadequacies of the Revenue are not the fault of staff we deal with day to day. They do their best. Mind you, please don't call us customers. As if we had a choice....
We need to remember most of the inadequacies of the Revenue are not the fault of staff we deal with day to day. They do their best. Mind you, please don't call us customers. As if we had a choice....
Monday, 3 November 2008
Ulterior motives and deadline woes
Well, the deadline for submitting paper tax returns for 2007-08 has passed with Halloween, and with it the Government’s trick or treat. The trouble is that this messing around with deadlines really is a trick. We have until 31st January 2009 to submit Self Assessment Returns online, and the real reason for the earlier deadline for submitting paper ones is to force online submission to save costs. HM Revenue & Customs probably hoped that people would not get their acts and papers together by the end of October, and would be forced to investigate the online process, either doing it themselves if computer literate, or otherwise having to employ an agent. Then they will be locked in for the future to the online system.
Now, as an agent this will bring me more business, but the truth is that HMRC have got their cost cutting in early; they have already cut so many staff and are so short of resources that they take a long time to process paper returns. It is known that the Sefton office in Bootle is months behind in dealing with paper returns. Even where returns have been submitted for several back years following discoveries by HMRC of possible undeclared income, they are still taking weeks and months to compute liabilities. They used to be so hot on that, but trained staff who understand tax technicalities are in short supply in HMRC.
I feel very sorry for the staff that have to answer the phones. None of them knows anything about tax and consequently each has to take a lot of flak. We are not allowed to talk to those who actually understand and do real case work.
The deadline change for paper returns suggested by dear Lord Carter was just a ploy to get returns submitted online and get the Revenue computers to do all the work. Yes, it saves taxpayers money but it does not help the older taxpayers or those who are not used to computers; in the main it will cost them money to have their tax affairs sorted out.
Has the Government and HMRC been entirely honest about this?
Now, as an agent this will bring me more business, but the truth is that HMRC have got their cost cutting in early; they have already cut so many staff and are so short of resources that they take a long time to process paper returns. It is known that the Sefton office in Bootle is months behind in dealing with paper returns. Even where returns have been submitted for several back years following discoveries by HMRC of possible undeclared income, they are still taking weeks and months to compute liabilities. They used to be so hot on that, but trained staff who understand tax technicalities are in short supply in HMRC.
I feel very sorry for the staff that have to answer the phones. None of them knows anything about tax and consequently each has to take a lot of flak. We are not allowed to talk to those who actually understand and do real case work.
The deadline change for paper returns suggested by dear Lord Carter was just a ploy to get returns submitted online and get the Revenue computers to do all the work. Yes, it saves taxpayers money but it does not help the older taxpayers or those who are not used to computers; in the main it will cost them money to have their tax affairs sorted out.
Has the Government and HMRC been entirely honest about this?
Subscribe to:
Posts (Atom)