Posts Tagged ‘Tax’

VAT is the problem?

January 13, 2011

With thanks to my esteemed colleague, VAT expert John Voyez, for his insight. Any errors or omissions are entirely mine!

Well, what a lot of rubbish has been written in the press in the last week or two about the increased VAT rate – never let accuracy get in the way of a good headline !

Just for the record, there is no VAT on most children’s clothing, no VAT on most basic food items, no VAT on train, bus and airplane fares, no VAT on books, newspapers and magazines, no VAT on residential housing construction, no VAT on most drugs and medicines, no VAT on betting and gaming, no VAT on education, no VAT on insurance or financial services, no VAT on ordinary postal services, no VAT on most sport activities, no VAT on entry to museums, no increase in VAT on a range of items including children’s car seats, domestic fuel, contraceptives, energy saving equipment, products that help you stop smoking, and, finally, no VAT on cremation or burial (unlike other taxes, death is still VAT free) !

So post 4th January, it will not cost you a penny more at the weekend to slap on an anti- smoking patch, jump on the bus to go to Sainsbury’s where you can buy some clothes for the kids, and at the same time buy most of the weekly shop, including a copy of Sporting Life, before picking up some aspirin to ward of the headache for when you drop in at the bookies on the way home and lose your savings (accrued VAT free) on the 2:30 at Epsom, followed on Sunday by a game of football at the local sports centre in the morning, and a trip to the museum (because you feel you should at least do one thing educational at the weekend), before finally falling asleep in your newly built Wimpey home in front of your brand new 90″ plasma 3D HD TV screen you have just bought, which unfortunately did cost you 2.5% more in VAT.

And, just for the record, if you are still feeling hard done by, most of our EU counterparts have for many years been paying VAT at 20%, and in some cases at a rate well in excess of 20%!

So VAT, exactly, is the problem?

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Ode to an Emergency Budget

June 23, 2010

George Osborne spoke, he set the scene….

The nation is in debt.

We’re broke and he will fix it,

Clearly no need to fret!

A billion here, a billion there,

We’ll find the money now.

The poorest will be better off,

But nobody’s sure quite how.

For entrepreneurs, it’s not too bad,

That capital gains tax charge.

£5m they say, at 10%

What’s left may still be large!

For public sector workers,

The cuts will run quite deep.

Let’s hope there’s no strike action,

No promises to keep.

With VAT @ 20 per cent,

Luxury spending may wither.

So if you’re thinking of splashing out,

Whatever you do, don’t dither!

They say you’re still young at 66,

The new retirement age.

But it seems too late to me, you know,

To leave the employment stage.

So some have won and some have lost,

A very taxing day.

There’s only one question that now remains,

Will Capello stay?

There’s no need to be a hero

May 16, 2010

This is no time for heroics. With a freshly squeezed coalition government, a fiscal deficit as deep as Loch Ness, a monster sized public sector and an unfolding Greek tragedy, it is difficult to envision an entirely calm and rosy future. Indeed, the chickens that were hiding just around the corner have now come home to roost and we can only hope that some green shoots of recovery will tempt them out again. We have all had quite enough of recessions and sovereign defaults and would now like normal service to resume. Thank you!

With that off my chest, there are plenty of opportunities out there. Well run businesses will be using these still difficult times to improve their systems and processes, increase their efficiencies and work out how they will out-market and outsell their competitors, as and when circumstances permit. They will be looking at acquisitions and other strategies to increase their market share and may also be considering how our weak pound can increase their international opportunities. Above all they will be carefully managing their working capital and making sure they don’t run out of cash.

Are you one of these businesses that will be ready to take advantage of the real recovery, when it finally arrives? It’s worth thinking about…

On the financing and business development front, there have been some interesting announcements in recent weeks.

In case you have missed them, here are some of the headlines:

– A new company, UK Finance for Growth Ltd (UKFG), has been established to manage and coordinate the delivery of finance to SMEs. The range of funding will be from £25,000 to £10 million and funding will be in the form of debt, equity or mezzanine funding. Over time, it will bring together all of the existing SME finance schemes including the Enterprise Finance Guarantee and the newly announced Growth Capital Fund- a total of around £3.5 billion.

– The new Growth Capital Fund (part of UKFG) has been created to address the funding gap identified by the Rowlands Review of Growth Capital which was published in November 2009. Starting with a total of £200 million and an ambition to grow this to £500 million, it will provide funding for SMEs seeking between £2 million and £10 million, with the first investments being planned for the autumn.

– Over the next year, RBS and Lloyds have agreed to provide a total of £94 billion of new business loans. Of this, apparently nearly half is earmarked for SMEs.

– From December 2010, there will be a new portal providing access to Government contracts, with relevant contracts flagged as SME friendly. The aim is to increase Government procurement from SMEs by 15% to a total of around £23 billion. This is still only around 10% of the Government’s annual spend, so hopefully there will be much more to come.

– Although taxes are increasing to pay for our nation’s profligate spending, the budget introduced some welcome tax breaks for entrepreneurs and SMEs. There have also been some interesting developments at Royal Mail, where a decision by the European Court of Justice means that many businesses may be able to reclaim VAT on the cost of a number of Royal Mail services, including Parcelforce. Make sure you don’t lose out.

With a new coalition budget just around the corner, there will be more to report in the coming weeks. Watch out for the well trailed increases in VAT and Capital Gains Tax. Is now the time for business and property owners to consider realising some of their assets?

Bankers, bailouts and bonuses- How to repay the debt

December 4, 2009

Political posturing, regulatory threats and an outraged media have done nothing to address the real issues surrounding bankers’ bonuses. The unanswered question is how some of the world’s banks, firmly on the ropes a year ago, are back in the business of paying mega-bonuses for 2009, claimed by some to be at all time record levels.

Subject to regulatory necessities, how banks choose to spend their money should clearly be up to them. It is simply not realistic or sensible for governments or regulators to attempt to skew the market in terms of pay and reward, however tempting or politically expedient it may seem. Interference of this kind represents the tip of the iceberg, adding to the inexorable growth of the nanny state. It follows that we need to examine the issue from the other end- the income and profits of the banks- and how these have been achieved.

Firstly, it is worth pointing out that the vast majority of bankers and banking staff are good, honourable, hardworking people who did nothing to contribute to the crisis and who will not benefit – in terms of mega-bonuses, at least – from its resolution. On the contrary, many have seen their lifelong savings wiped out through the poor performance and lack of understanding of boards of directors who failed to control, or perhaps actively encouraged, the actions of a very small minority.

But let’s get back to income and profits. We all know that the banks were bailed out by governments and that governments are paid for by us- the general public. We also know that banks are now busy rebuilding their balance sheets through increased charges and margins on loans, many of which impact on those individuals and businesses that can least afford it. Not to mention, of course, the massive fees that are being generated to recapitalise the businesses that lost money through the crisis. So far this all seems to be a one way street, a win/ win/ win scenario for the banks. And so it is.

I have not yet mentioned the real debt owed by the banks to the community- the impact of the bailout itself. Had the banks and their counterparties not been bailed out, many would have ceased to exist. Far from getting mega-bonuses, many of these lucky recipients would not even have a job.

All of this has recently been highlighted by a report issued on 17th November 2009 by SIGTARP, The Office of the Special Inspector General for the Troubled Asset Relief Program in the US (See Note 1). It’s heady stuff, involving the Federal Reserve, the US Treasury and  Maiden Lane III, a special purpose vehicle that bought the underlying collateral of a portion of AIG’s credit default swaps from a number of AIG’s counterparties- the banks.

What might have happened without any intervention is anybody’s guess, but page 20 of the report shows that over $62 billion of funds were paid out to the banks, over $16 billion to Société Générale alone, plus a host of others in the $1-$15 billion range. It’s worth remembering that this was not a bailout of the banks, but of AIG itself!

In the section of the SIGTARP report that deals with ‘conclusions and lessons learned’ there are a couple of key points:

  • The Federal Reserve tried to pursue concessions from the banks in relation to the AIG bailout, but failed. This was because the banks knew that the government would not allow AIG to fail. The banks therefore received approximately par or face value for their assets.

 

  • The unintended but unavoidable consequence of the bailout of AIG, through loans and asset purchases in connection with Maiden Lane III, was the transfer of tens of billions of dollars of cash from the Government to AIG’s counterparties- the banks.

It is clear that banks all over the world have benefited both directly and indirectly from the bailouts and that these benefits, paid for by the public, are now being used to pay bonuses and, potentially at least, reboot the merry go round in terms of asset bubbles and irresponsibility.

The question is what can be done about it? Restricting the banks outflows in terms of bonuses will only happen if there is less income or profit available. Tax and regulation are possibilities but are generally regarded as blunt instruments. But is there a fairer, more fitting, solution?

It should not be beyond the wit of man to calculate the approximate trading benefits, both directly and indirectly, of the bailouts to individual banks. The SIGTARP report is effectively a part of this process. Where the benefits were unintended or transferred value, as in the case of the AIG bailout, the resultant ‘debts’ should be recognised by the banks and repaid over time.

Such a course of action would recognise and reverse part of the taxpayers’ loss, whilst easing global government deficits.

A global oversight body should be established to negotiate and reach agreement with the banks and determine sensible and affordable repayment schedules. After all, if it can be done with MPs expenses in the UK, why not with the banks? Obama and Brown should lead it, and it’s difficult to see how the banks could complain.

Oh, and it might also reduce those mega-bonuses for a while. What could be fairer than that?

Note 1. Link to SIGTARP report:

http://www.sigtarp.gov/reports/audit/2009/Factors_Affecting_Efforts_to_Limit_Payments_to_AIG_Counterparties.pdf