Archive for the ‘Finance’ Category.

HMRC Direct Recovery Powers – sign the petition

You may have heard that there are proposals out from Government / HMRC to grant HMRC a so-called “direct recovery” power.

In essence this would allow HMRC to debit a tax payers bank account for any unpaid tax arrears, without oversight or prior notice. There would be a stipulation that the bank balance must remain at a minimum £5,000 after the debit so as not to dip into people’s business working capital or immediate household funds, but that’s more or less the only safeguard.

These proposals cover business and personal tax debts.

Many people are very worried about these proposals. HMRC already have powers to achieve the same end via the Courts, Direct Recovery cuts out that element of oversight and due process. It could be argued its “efficiency” for HMRC, or from an opposite perspective laziness.

The accounting profession has major concerns over HMRCs administrative capability – simply there are too many erroneous assessments, mistakes and misallocations – and the bottom line is many feel this is a step to far with HMRCs powers.

There is a longer article about some of the problems on the Taxation web site (you should be able to read this without a login) and a petition on the Government e-petitions web site.

Can I urge people to consider their response to this issue and

  1. Sign the petition
  2. Highlight the issue to colleagues, family and friends (feel free to share this post)
  3. Consider a letter of objection to your MP

This post first appeared at Whitefield Tax on August 21st.

The cost of a letter

The SLC also admitted that around 309,000 customers had been sent letters using the Smith Lawson brand in the last nine years.

Using Wonga’s average of £50 repayment per customer as a baseline, I reckon that the State needs to cough up about £15.5m to cover the cost of the Student Loan Company’s actions between 2005 and the present day.

Consequences

SSE also said in yesterday’s statement that it would be investing less over the next five years.

An SSE spokesperson attributed this to “uncertainty in the underlying [regulatory] framework”.

I’m sure that the SSE spokesperson wasn’t alluding to Millipede Jr’s proposed freeze in energy prices. Honest.

The Archbishop, the banker and the loan shark

“The Most Rev Justin Welby has approached Sir Hector [Sants], who also led the Financial Services Authority throughout the financial crisis, to drive payday lenders such as Wonga out of business and create a new way of thinking about finance.”

Driving the poor into the arms of loan sharks by shutting down legitimate lines of credit hardly seems like a ‘new way of thinking about finance‘…

The Business Journalist and her tax muddle

My timeline was, on Thursday evening, chuckling about the fact that Margaret Hodge had run into a little difficulty when being asked by Krishnan Guru-Murthy of Channel 4 News about her own tax arrangements.

Whilst it was certainly quite amusing to watch her use the same answer about her affairs that she has publicly derided the likes of Google, Amazon and Starbucks for, my attention was caught by the clip which proceeded it.

I am not an accountant nor an economist – let alone a business reporter – but so far as I can see Siobhan Kennedy made two glaring errors in that piece.

The first is one same one which everybody seems to make these days: confusing sales with profits. Whether this is deliberate or due to ignorance I leave up to you, dear reader, and your personal prejudices.

It was the second one though which had me, to use the modern parlance, facepalming. Indeed I even went back and listened to it again just to make sure I was hearing correctly:

…making sales which could be subject to income tax under UK law.

Frankly, I’d expect better from a business journalist.

‘Money for Nothing…’

At this moment politicians in Nicosia are (assuming it hasn’t been postponed again) giving up their bank holiday to discuss the false choice presented to them by the Eurozone finance ministers: accept a deeply damaging bailout agreement or face bankruptcy.

In a statement released on Saturday, the Cypriot President was optimistic that the bailout “would put a definitive end to the uncertainty and restart our economy.”

I think it is safe to say that his optimism is not shared by the Cypriot people – nor many others not on the Greek half of the island.

Much, if not all, of the anger is focused on the decision that bank deposits in the country – previously thought to be safe because of deposit insurance – are to be subjected to a 6.75% levy whilst all amounts above the protection level of €100,00 are to be decimated*. The immediate (and not unsurprising) result of this was that the Cypriots tried to trigger a bank run – only to find that their government had introduced restrictions on the movement of capital. Can’t have people deliberately evading superstate-sponsored theft, can they?

However, as Frances points out, it isn’t quite that cut-and-dried…

The description of this as a “tax” or levy is a bit of a fudge. Under what type of taxation scheme are people provided with shares to compensate them for the taxes they have paid? But that is what is happening here. Depositors will be provided with bank shares to the value of their losses. They are being “bailed in” in the same way as junior bond holders: a percentage of their deposits are being converted to equity. The money taken from the depositors will go to the sovereign to compensate it for the cost of bailing out the banks. At the end of the process, the sovereign will be left with a manageable amount of debt, and the banks will be owned by their depositors and junior bondholders. In effect they will have become mutuals.

…before going on to explain the flaws in the plan.

Olli Rehn, European Commissioner for Economic and Monetary Affairs and the Euro, has said that this will be a one-off but given the number of one-off’s the Eurozone has seen in the last few years, it is unlikely that he will be taken as seriously as he might like – especially given the situation in Greece, Portugal and Spain. I imagine that the Italians are suddenly looking over their shoulders as well. How much money is going to flow out of those countries in the next few days?

Further Reading:
Frances Coppola: Reaping the Whirlwind
Tim Worstall: Welcome to another Great Depression
Tom Paine: Governments, gangsters… Same thing, different name
Richard North: A massive own goal

* Yes I know that the figure being thrown around is in the region of 9.9% but I couldn’t resist the chance to use that word almost correctly.

Harsh Lessons and Pyrrhic Victories

So Starbucks has, as we now know, given into the pack of rabid dogs which have been assailing it by agreeing to review its tax position in the UK.

Whilst personally I’d like to hope that the result of the review will be them paying even less money to the UK Treasury, I doubt this wish will come true. Nor, I guess, will my second choice of the company sending a cheque for a single penny to UK Uncut and telling them to spend it wisely.

The hypocrites at The Guardian reported on Monday that in order to finance this change of heart Starbucks have begun withdrawing employee benefits. Predictably this lesson in practical economics hasn’t gone down too well with the idiots below the line. It’s almost as if they expected Starbucks to use the magic money tree to have obtain this extra dough without any of the laws of physics economics being broken…

If I were a shareholder* I would at this point be fairly livid. No, not over the changes to employee benefits, but at the thought that a company I part own is giving more of it to the wastrels in government to piss up the wall in pointless ventures, be they foreign or domestic.

I hope that the shareholders of Starbucks request answers as to why the policy has been changed and ask to see what the, if any, financial rationale for this decision was. If no decent answers are forthcoming then I suggest that they should demand that the heads of those responsible be delivered to them on platters as they don’t seem to be aware of their duty.

For myself I shall now be boycotting Starbucks. As someone who doesn’t drink coffee this isn’t a major hardship for me but I have, in the past, been known to pick up a hot chocolate on very cold days. Not any more.

* I might be one indirectly but I’d have to check the full holdings of those funds my pension contributions pay into to be sure.

Is the HMRC boss a fool?

Last week the CEO of HMRC appeared in front of the Public Accounts Committee and, if The Telegraph is quoting her correctly, suggested that companies could be forced into paying more tax by consumers changing their behaviour.

Whilst I have no doubt that companies will react to changes in customer behaviour (it’s either that or die), do the vast majority really care about the tax arrangements of the company they are buying goods and services from?

It might well be a good thing if the public did so but Lin Homer’s belief that it should be used to shame companies into paying more tax is, I think, misguided and shows a shocking lack of basic knowledge by the person in charge of gathering taxpayers money.

I missed this story at the time but @PrincessOfVP brought it to my attention by inviting me to read her blog post on the subject of Death and Taxes. I left the following comment on her blog but felt that what passes for my readership would appreciate it as well.

Whilst, like yourself, I’m not an accountant or economist my considered opinion is that Lin Homer is a fool.

The CEO of HMRC should be well aware that companies are legal constructs and do not pay tax. As Allister Heath put it in the Telegraph on Wednesday:

Your car doesn’t pay road tax, your house does not pay council tax and your television doesn’t pay the licence fee. You do. Obvious, right?

This is what is known as Tax Incidence and this knowledge has been with us for several centuries. In general terms it means that burden of the tax ultimately falls on those who have to pay it.

For companies (who have to deal with Corporation Tax and Employer’s NI) tax incidence tells us that these taxes will fall on three groups: their employees in the form of lower wages; their shareholders via lower returns (dividends) and consumers by higher prices. The exact breakdown varies by company, economy etc but each group will bear a percentage of the burden.

In avoiding as much tax as possible companies are reducing the amount in indirect taxes that those groups pay and, given that the biggest investors in listed companies tend to be pension funds, helping fund the retirements of many millions.

If we boycotted these companies and thus reduced their revenues they would be likely to reduce their headcount which means fewer people in employment, less money collected in payroll taxes and a reduction in investor returns.

Which is why I think Lin Homer is a fool.

Obviously, if you think I’m wrong, you are welcome to tell me so in the comments. :)

A quick thought on Corporation Tax ‘avoidance’

There is a (largely constructed by people ignorant of the very basics of tax laws) furore building up around the fact that various (usually American) multinational companies have been ‘dodging’ UK Corporation Tax (CT). Firms such as eBay, Google, Amazon, Facebook and Starbucks have, amongst others, all been ‘outed’ as part of this wave of silliness.

Leaving aside the convenient fiction that companies pay tax, the reason why the UK government has seen (thankfully – they’d only waste it) little money in CT is because these companies do not have their EU headquarters in this country. Under the Single Market (one of the few things about the EU which is actually sensible) only one HQ is necessary to do business in the EU and so any CT on profits made in the EU is paid to the national government in country where it resides.

Why do firms have their EU HQ in other countries? Simple: because CT rates are lower.

How could we get those companies to place their HQ in the UK? Simple: cut CT. Whilst ideally I’d say scrap it, anything in the 10% – 15% range would make the UK more competitive.

The problem (of course) is that those currently foaming at the mouth about so-called CT ‘avoidance’ are those who hate the idea of lower CT rates.

As Spock would say, ‘Illogical, Captain’.

Murphy’s law

Richard Murphy, the former tax account and practising tax avoider whose Damascene conversion to the idea of ‘tax justice’ means that he now spends his time pontificating that tax avoidance is immoral and should be illegal, has apparently decided that, against all logic, the time has come to open a new front in his never ending campaign:

That’s right, because something isn’t codified in law it can’t – in Murphyworld – be legal.

Sorry Ritchie but in this country we follow something called ‘Common Law’. You may have heard of it. The general principle is everything is legal unless it has specifically been legislated against.

If you want a legal code in which anything which hasn’t been declared legal is automatically deemed to be illegal then can I suggest you move to mainland Europe and live under the Napoleonic Code?