Has Government considered the business cost of its actions?

With all the concerns over the economy and keeping people in work was now the right time fro the Government to cost business an estimated £300 million to be able to reduce the rate of Value Added Tax by 2.5% on 1^st December 2008? Having had some time to reflect on the Pre Budget Report Statement many retailers are thinking that the VAT reduction will not necessarily get passed onto shoppers at the till without negotiation and so is it all really worth the aggravation being caused?

 

This Government has been good at wasting resources. In its first term of office its obvious inexperience of being in Government led them to creating many costly talking shops whilst trying to reach the right answer on policy decisions. Laudable maybe in trying to discover the right answers but if Gordon Brown’s zig zagging method of being Chancellor has been mirrored across the board then a lot of right answers were not reached making the spend uneconomic.

 

Gordon’s last error; the 10p tax rate withdrawal (as if you didn’t know) has proved particularly costly to the Nation. By compensating all tax payers in the way they did the Chancellor issued another tax coding notice to every tax payer to every employed person with the new personal allowance on it. This cost the price of a stamp, an envelope, labour or machine costs to pack it and at least one sheet of A4 paper to produce it within HMRC.

 

Upon receipt there were the extra professional costs to check them to ensure accuracy. But how could they be wrong you ask as only 1 item changed; the personal allowance from one sum to another. Ah yes, but you have to consider that other tax codes had already been issued in many situations which had had things changed that were not correct. We had checked these and advised of the revisions. In many cases these had either not been processed or returned to the incorrect figures again meaning further amendments. Some clients we have had 7 or more tax coding notices this year!

 

And if this was not staggering enough we had to use our working together links to access a computer programmer to understand how the program worked so that we could telephone a Manchester tax office to explain how to use the software. I think this is called training and probably unaccredited training at that as we had never seen the software and so offered it in virtual way. “When a blind man cries” I think was the name of the Deep Purple song!

 

Trading in a difficult economy requires care and attention over the overheads to keep spending at a minimum. I think we need to see some appropriate care and attention from our Government to ensure that they do not cost their customers too much money and at the same time keep their own overheads to a minimum whilst offering an efficient and well trained service.

 

Now there’s a challenge for the New Year resolution!

Uncle Audley looks at Small Business help suggestions

I got a call from Uncle Audley last night. “Do me a favour,” he asked, “look up the word defer for me would you?” Not wanting to upset my favourite relative I took the book from its shelf.  The Chambers Concise Dictionary 2004 edition priced at £17.99 from all good book shops. “Why that word?” I asked. “

 

“Because that is what David Cameron asked the Government to do, in his Observer article of October 19 2008, when considering VAT payments for SME’s,” came the reply.

 

“His actual quote was, “And today we are calling on the government to allow small and medium-sized enterprises to defer their VAT bills for up to six months. That means a typical small business with 50 employees, revenues of £5m and an annual net VAT bill of £350,000, doesn’t have to find £90,000 to pay the taxman when the bank has just taken away its overdraft.” What does he mean? Does the £90,000 disappear never to return or does it stack up to be paid later if the business can? I’m not altogether sure – perhaps the devil is in the detail.”

 

“Chambers Concise suggests that defer means “to put off something or leave it to a later time” or “to yield to their wishes” I told him.

 

“Typical we’ll have to wait to find out. The Daily Mail are trying to get in on the act suggesting their wonderful 8 point plan to help save our small businesses with their Charter which includes some good points but some ill thought out ones too. Wherever we look there is lots of suggestions but they all point to one solution; a return to where we were. Is that not why we are in difficulty?”

 

Good point I thought and as I opened my mouth to tell him so I was forced to listen once more.

 

“Surely the problem here is a lack of saving and a long period of spend spend, spend coming home to roost. In my day boy you had to wait for what you wanted. None of this slap the plastic down. Nowadays we get more than we need before we consider whether we need it in the first place. Thatcher privatised everything and had nothing to show for that money now Gordon has himself in the same place. Maybe the Australians are giving handouts to help but is this the answer? Surely those who take it seriously and self help should be rewarded not those who have no intention of doing so. Maybe I’m too old for all of this but in my day it never worked like this. It was called cutting your cloth accordingly. Nowadays there is not much cloth worn let alone Waide and Pollard from which to buy a vest or two!

 

Savings, my boy, are the answer. Without them we’ve got nothing but too many have been allowed to get themselves in a muddle and it is this problem that needs sorting out. Not popular with small business though as to save we cannot spend at all to build them up and that will mean the mother of all recessions. To avoid this careful management is needed but this means telling people what they have to hear not what you think they want to hear. Reassurement does not work when hard lessons need learning. That is why the Bank bail out is difficult to implement. It seems the Government’s plan includes lending in areas deemed folly and the reason for the problems, so how can this provide a solution? What we need is a return to sense and this means property price falling further to allow new borrowers into the market. That will mean negative equity. Unfortunate but there you have it.

 

We’ve also got to put right some of the nonsense we have created. The 10p shenanigans should all be reversed to reduce corporation tax on small business – but that is for the long term as payments dates are later. The 10p back in would put right last years wrongs and put money in pockets but let us not forget the amount of money and paper that has been wasted printing and sending out all those tax coding notices before the year, after the budget, after P11d’s and then again for the extra allowances. No one seems to bring up this level of waste – but it is there and very real.”

 

“Uncle, you sound depressed” I said, having got a word in at last, “is there anything more certain than a recession in your mind?”

 

“Only Spurs to get relegated” he added with a laugh and he was gone. Oh dear I thought, how do I break the news to Nick in the morning…..        

All that glisters is not gold! More problems with the detail on the 10p band!

I should have known better.

 

When Mr Darling, in his Budget, announced the introduction of a 10% tax rate on the first £2,320 of savings income, I started to rub my hands.  OK the Chancellor was, illogically, ending the 10% starting rate of tax for income in general and this was just a sop to Cerberus but something we could exploit for our clients. 

 

I therefore penned a paper on how our clients could create a director’s loan account balance of £23,000 and then charge interest to the company at 10%.  For a husband and wife company this could be nearly £500 per annum of tax saved.

 

Unfortunately, I failed to heed a favourite dictum of mine, “the devil is in the detail”.

 

The watchful guardians in our tax department, Chris and Gill, intervened.  “It is not quite as you may think.  The reality is that your earnings are taken into account in priority to your savings income in establishing whether you qualify for the 10% tax rate on savings income”. 

 

If your earnings are at least £7,755, these will be set against your personal allowance (£5,435) with the balance (£2,320) set against the 10% savings band of £2,320. As the balance of earnings has used up the £2,320 band savings income will be taxed at 20%.

 

Let us take another example.  You have a salary of £20,000 per annum and you have savings income of £2,000.  I imagine your first thought might be that your savings income will be taxed at 10% as it is below £2,320.  No.  Your salary soaks up your 10% band and you will be taxed at 20% on your investment income.

 

The 10% savings rate will be helpful to some people, possibly those who are at home and do not work or those whose wages are below £7,775 per annum.  Given that one’s personal allowance will be set against taxable income first and that tax credits on dividends are not recoverable in any event, it looks like the measure is not going to cost too much in tax.  I wonder how many people have no earned income but savings income between £5,500 and £8,000, given how much capital one might need to generate that level of savings income, I would warrant not an awful lot.

 

It seems to me that this 10% savings rate measure was just there as a headline to take some of the publicity away from the removal of the 10% lower rate band.