how the tax system unfairly disadvantages smaller businesses (like mine)

As a non-VAT registered business (like half of all the other business registered in the UK), I can't reclaim the tax I'm charged by my suppliers on my running costs (utilities, marketing, insurances, equipment, etc).

This means my overheads and running costs are up to 20% higher than they might be otherwise if I were - and puts me at an unfair financial disadvantage against other firms who are VAT-registered (because they don't have to cover costs in the same way I do, in their being up to 20% lower...).

So, I hear you reasonably ask, why don't I simply register for VAT and stop griping about this?

The answer, I'm afraid, is that if I did I would likely price myself out of being able to win a lot of the work I currently do with smaller charities, community businesses, social enterprises, and the like: once VAT registered I would be legally required to pay the government up to 20% of all the fees I received from clients and customers (before costs) - so to avoid bankrupting myself, this means I'd need to add this additional amount to the invoices I generate. And as most of these groups in turn aren't VAT registered themselves, this means that they suddenly wouldn't be able to afford me: my price would be going up 20% overnight - but I wouldn't be benefitting from any of that additional fee, in having to pass it straight back to the government...

And is that fair? Well, at the time of this blog, there's increasing outcry about the rising cost of petrol and diesel - but as part of this, no-one seems to be pointing out that at least half of what we pay for this commodity is actually tax imposed by the government....

 

Tax is an emotive issue - many people seem to want to avoid paying as much of it as they can, and there are whole industries that exist to this end (for example, did you know that contracts awarded by the government in recent years have been to companies who've knowingly evaded paying nearly £20BILLION that should have been due in taxes?)

Some people feel that they're justified in this stance because they don't trust how the government uses the monies we pay in tax. And whilst I do have sympathy with this, governments change over time. My own position is that I want to try and be as consistent and honest with myself as I can, and so in tax, as with so many other things, I seem to go against 'accepted wisdom', in that I'm always making conscious decisions to increase my tax liability wherever I can... 

https://thirdsectorexpert.blogspot.com/2015/11/bonkers-why-im-staying-as-sole-trader.html

So whilst this post may have started off as a whine about VAT, now you're reaching its conclusion you'll hopefully realise that it's actually about trying to encourage us to have a wider and more grown up debate about tax than we might usually...

Co-ops will never succeed until they start demanding more money from people who want to join them

The co-operative movement is often referred to as having emerged from Rochdale in 1844 (although it's history goes far further back than that) - a time when the average life expectancy was a mere 21 years; and most people died in the streets wearing nothing but rags.

The co-operative society that was formed then did two very powerful things that have since resonated through history: one has defined the movement globally (documenting a set of core values and principles); and the other has come to limit the interest of people in not only becoming members of co-operatives, but subsequently also not being interested in being actively involved in their governance (the setting of a membership fee of £1).

Whilst those values have gone on to be argued about, expanded, refined, and ultimately codified by the International Co-operative Alliance as the acid test of what makes a co-op a co-op, that membership fee has largely remained resolutely steadfast at £1 in nearly all co-ops.

Today, most people in the movement would argue that it should remain £1 - this is the lowest amount the law will recognise and allow, and allows for inclusivity: after all, no matter what your circumstances, you can scrape £1 together relatively quickly and easily.

But adjust for inflation, and that £1 should actually now be £128.

However, inflation only looks at the nominal buying power of that £1 - it doesn't recognise the extremes of poverty and deprivation people whom that co-operative in Rochdale was created for, and how those might transpose to our society of 2021.

A couple of quick google searches identifies that in 1844, people were most likely to be factory workers or labourers, with an annual earning of around £20.

Compare that to the average UK salary in 2021 which is £29,600 (as at 18th March).

And suddenly we start to some some big differences.

If I were to join a co-op in 1844, it would cost me 5% of what I could hope to earn in a year = roughly 3 weeks earnings (nearly a months wages) .

3 weeks wages today would be equal to £1,700.

Suddenly it becomes apparent just how radical the co-op of Rochdale was, in what it represented that meant people were willing to give up so much of what they would have otherwise spent on their rent, meals, and health (no NHS in those days!).

If you invested nearly £2,000 or a month's wages in something, you'd want to make sure you were getting value for money and a return on what you've otherwise have been spending it on (insert your favourite vice here). You'd want to make sure your voice was heard: you'd engage with any and all opportunities the organisation offered you to be part of its governance and decision making.

In short - you'd be actively involved, because it had hurt you financially to be part of it.

Most co-ops today struggle to not only recruit members, but also to encourage and maintain their involvement and engagement in their co-op's governance and activities.

Could it be because the movement hasn't paid enough heed to its history, and forgotten just how much it asked of people who wanted to be part of it, in order to keep this cost of membership current and relevant?

If co-ops today suddenly made the cost of membership £1,700 (after all, they all echo nearly everything else that the Rochdale co-op mandated and advocated), I suspect we'd seen an initial drop in member numbers. But those that did become members - how active and dynamic would they be in the democracy of their co-ops?  

why the lifeline of SEISS may bankrupt us next year...

At the start of the pandemic, roughly 5 million of us were self-employed.

At the start of the pandemic, government made financial support available to business owners (in the form of grants linked to business rates) and employees (in the form of the furlough scheme).

Only after what seemed an eternity of panic and doubt, did government make an equivalent scheme for us in the form of the SEISS (except about half of us aren't actually eligible to apply for it!).

At the time, may argued that this was further evidence that despite their rhetoric about entrepreneurship, the current administration don't actually understand or care about us unless we're employing lots of people (despite the fact that we pay more tax than our employed counterparts, and other types of business owners). And this led to lobbies, campaigns, and the formation of #ExcludedUK to try and challenge this discrimination.

For those of us who are eligible, the SEISS grant was a lifeline (because even if we can land paying work, we all know it can sometimes take months to get paid which means weeks of little, if any, income to keep the lights on with).

But for those of us who began breathing sighs of relief, having gone through the small print and talked with others who haven't, we may actually be worse off next year for having received it, than if we'd not been eligible for it in the first place...

Unlike the business rate grants and employee furlough schemes, the SEISS grant carries a clause that says we may have to pay it back if HMRC deem that we managed to end this current financial year in a better place than we feared we would (perhaps because in the last few weeks of it, we suddenly land a large contract or finally get paid those back-invoices we never thought would be honoured). But we don't know exactly what the threshold for that looks like, or might be, beyond terms and phrases that are as equally vague as "substantial meal" is for pub landlords.

We'll only know if this is the case after we've done our tax returns, and as the SEISS grants are taxable, we'll have already paid about 20% of them back as tax. 

So if HMRC deem that we shouldn't have received the grant after all, the SEISS amount will magically transform from a grant into a very short-term loan that carries at least 20% interest - 20% being the amount we've already paid in tax on it, and then there's additional interest on the full amount again unless we repay it straight away. It's cheaper to take a bounce-back loan, or arrange  (and you have more time to repay it).

But there's more...

Lets say that you also pay child maintenance through the Child Maintenance Agency. They calculate what you should pay annually, based on your last tax return. Which means that for next year, the SEISS grant(s) you received will be counted as part of your income/earnings (because it's taxable income), pushing you into paying a higher amount of child maintenance. But if you've had to pay the grant (plus at least 20% interest) back, then they've fixed your amount too high. You're already facing the threat of legal action from HMRC to repay money that you no longer have, and now are also being forced to pay levels of child maintenance that haven't been worked out properly that will stretch you even further than you are now.

The pandemic and lack of government support for the self-employed has already seen nearly half a million of us giving up our enterprises, with many more seriously considering doing the same by the end of this year.

My concern is that the SEISS grant that initially seemed like a lifeline to some, actually shows that the government who've designed them have a contempt for people who are self-employed based on larger business owners and salaried workers not facing any such fears, because of the grant support they've received has no such risks attached.

All we've ever asked for as the self-employed is parity with our employed counterparts (who already enjoy far greater privileges than us in terms of lower taxes, pension contributions, better pay, and such like). Initially this parity was about making sure we can all have access to some form of support, but maybe we should also be asking for this support to be equally non-discriminatory in the risks it forces us to take when/if accepting it?

UPDATE AS AT 10 MAY 2021

and so the panic of having to repay these grants begins (but still with very unclear guidance...): https://www.gov.uk/government/publications/penalties-for-not-telling-hmrc-about-self-employment-income-support-scheme-grant-overpayments-ccfs47

sources and references

https://www.statista.com/statistics/318234/united-kingdom-self-employed/ 

https://thirdsectorexpert.blogspot.com/2018/02/who-in-their-right-mind-would-be-self.html

https://www.accountancyage.com/2020/08/07/self-employment-income-support-is-it-payback-time/

https://www.excludeduk.org/excluded-uk-an-inclusive-alliance-for-the-excluded 

https://www.lse.ac.uk/News/Latest-news-from-LSE/2020/K-November/Hours-and-incomes-of-self-employed-workers-stayed-low-over-summer 

https://www.altfi.com/article/5997_uk-smes-now-wait-an-average-of-23-days-for-late-payments

https://www.bbc.co.uk/news/uk-55129828 

member only content

there seems to be an increasing trend on the internet towards content being hosted behind paywalls - the number of emails I now receive with links to research, features, and articles which are increasingly marked as 'member only content' when I try to read them, is starting to annoy me...

I fully appreciate that in an increasingly fragmented economy, people need to find novel and clever ways of being able to earn a living (or something approximating one), and so the potential to earn 'micro payments' of a few pence from people clicking to read your blog post or news feature may seem innocuous enough. But I'm concerned it may herald the dawn of a new net age of digital inequality - not from access to the technology which is the current digital divide, but from not being able to access information or learning when you do.

When the internet was created, it was intended to be as freely open and available to as many people as possible. A principle that chimes with the declaration of human rights, whose Article 26 states that everyone has the right to education [to be able to access learning], and that this should be free; and Article 27 which says that we should all be able to freely participate in the cultural life of our [on-line] community. 

If we start putting up charges to access content, then we start to limit the sharing our learning and experiences with each other - we start to segregate our communities into those who can afford to 'play with us' and those who can't. Which means that potentially increasingly large numbers of people will lose access to articles and research that could help to further understanding, constructively challenge prejudice and bias, and generally create a more consistent experience for us all on-line and in our lives.

I also appreciate the argument that we only truly value things we've paid for, but if the established norm in the marketplace of internet blogs and articles was that they were freely shared, then surely we need to be having a wider and deeper conversation about the effects that our use of 'member only content' may be creating in exacerbating inequality, stopping prejudice and bias from being able to be challenged as they could/should be, and generally increasingly p!ssing people off who are trying to contribute to the overall pool of knowledge and learning at the cost of our own time, in keeping with the original spirit of the internet, only to see others seemingly starting to exploit it for selfish gains...?

does anyone really care how far we're open and transparent in how we do business?

In recent news, there's been a furore of activity over leaked papers about tax havens and money laundering by an international finance firm on behalf of the rich and famous, (allegedly). 

This comes on the back of various campaigns and calls for big business to be more responsible in paying tax and treating employees and people in their supply chain with dignity and respect.

And all of this comes on the back of previous movements around fairtrade, environmental impact, sustainability, and such like.

You would think that all of the media coverage of these themes means that as consumers we've a keen interest in how responsible the businesses we spend our money with are acting, and calling them to ever greater account through demanding that they're more open in how they work.

And yet, anecdotally despite petitions and campaigns, most people I know still shop with the likes of Amazon, buy coffee from Starbucks, and similar... so my question is that while we're outraged when we hear of such unethical corporate behaviour, if it doesn't change our own personal behaviours, actions, and shopping choices, do we really care that much?

Because if we don't, then why should firms strive to be more open and transparent in how they do business?

Many of the businesses I support are social and charitable enterprises, and there's been various encouragements to them over the years to show such openness through reporting on their social impact. And yet researches and surveys show that increasingly, when they do, it's making less of a difference to their customers in influencing their purchasing from them.

For myself - as the only freelance consultant globally (to my knowledge) to openly publish an impact report on myself with openness about my supply chain and other business activities, I know that doing so has never made any difference to my clients and customers final decisions about engaging and commissioning me (I know this, because I ask them!).

So with all the calls for more openness and transparency, I'd like to start another call - this time to start a conversation about what we as consumers really would like those businesses and firms to be open and transparent about, and if they start to, if we'll actually read and act on them...

the paradox in exposing corruption...

I recently had the opportunity to hear a presentation fromLaurence Cockcroft, one of the founders of Transparency International, on the progress made over the last 20 years in exposing and challenging corruption around the world.

And while it was encouraging to hear about the introduction of various pieces of legislation, regulation, and how the rise and rise of social media has enabled instances of corruption to be highlighted much more quickly and easily, I was left wondering if the drive to expose corruption isn’t somehow normalising it...

You see, we increasingly hear of instances of corruption in business, government, and even charities, but the sanctions levied against them subsequently only seem to fuel our outrage further for their seeming insignificance in light of the original transgression. And that’s what’s concerning me – it seems that whenever an MP might fraudulently over-claim their expenses, or companies dodge their taxes, when they’re caught and exposed, their ‘punishment’ seems trivial of how much they’ve originally defrauded others by.

And that starts to create a wider narrative which says: if you cheat, you’ll be caught – but it’s OK as the cost of your punishment will be far less than you’ve gained by illicit means, so why not do it anyway?

Exposing corruption isn’t enough. We also have to fight to ensure that the punishments on those found guilty far outweigh what they hoped to gain by cheating others for their own personal gain.

 

 

Global Corruption: a lethal mix of politics, money and crime was one of a series of lectures organised by RSA Yorkshire

Do you really need to win an award to start your enterprise?

I was following an enterprise start-up awards ceremony on twitter recently that had sought applications from people who felt they had great ideas for a new venture, to be considered for being the recipient of a relatively small grant to support their start-up needs.

There are always programmes such as this running somewhere, all with different priorities and criterion for applicants and would-be entrepreneurs, but how much do they actually help?

 

Setting up any new venture takes time and involves risk – anything we do during this critical stage has to assure us of the best possible return for our investment of all-too-precious time: applying for a grant/award takes valuable time, and is inherently risky: not just in outcome, but also with the conditions that will invariably be attached to it.

By encouraging start-ups to apply for such funds are we therefore actually doing more harm than good? Not only will any such awards will come with constraints on their use, and have an economic cost of other options not pursued, they also engender a culture and mindset of 'handout': establishing a venture on the philanthropy of others means that it will ultimately weaken its ability to be sustainable and viable – always needing a crutch of some type, rather than standing on its own two feet as other enterprises who've bootstrapped their start-ups are subsequently better able to do.

But...

For some, such awards really do make all the difference owing to their personal circumstances: there's no way that they could afford, or be able to access the finance they'd need any other way. So such awards have their place – perhaps we therefore need to be more stringent in their application criteria, encouraging would-be award winners to explore other options first that they may have recourse to that others in our unequal society can't?

Why are we encouraging the lottery to increase inequality in our economy and society?

The national lottery – you've got to be in it to win it; it could be you; millions raised for good causes;... we all know the slogans and headlines – but is it actually causing more damage to our communities than good?

Lotteries tend to work on a pretty simple basis of wealth redistribution: everyone pays in a bit and someone gets the pot at the end. Effectively, we all make ourselves (the majority) a little poorer and someone else (the minority) a lot richer. Sounds a lot like the stuff that loads of people and campaigns are railing against at the moment when it happens in banking or politicians, but someone we don't seem to mind it when we've willingly made ourselves an active participant to the process...?

But what about the money it distributes to good causes? Well, yes – its supported a lot of good projects and activities, but to what extent is this just a sticking plaster over an increasingly big wound? - to what extent is the 'good' that it supports being surpassed by its model of encouraging and celebrating extreme wealth inequality?

Be fascinated to know if anyone’s done any research on this, or any social science or economic researches might be interested to look into this further...

(oh, and for the record – I don't play the lottery and never have: but only because I'm a saddo who's worked out the odds and realised I can make better use of the £ every week that would be otherwise spent on tickets and scratchcards...)