BLOG 99

WHEN IT COMES TO GOVERNMENT “IMPROVEMENT” MEANS “DETERIORATION”



When it comes to Government “improvement” means “deterioration”. That is my recollection of Hutber’s Law, a principle formulated by a former City Editor of the Sunday Telegraph.

I do not know if Martha Lane Fox (the Government’s digital champion) is aware of Hutber’s Law. She certainly seems to know how to operate it though!

I received an e-mail before Christmas telling me that Martha and the Minister for Cabinet Office (who seems to prefer to remain anonymous so that Martha can take the flak single-handed) have announced that “HMRC are putting together a package of measures that will make it easier and quicker for businesses to deal with the tax authorities using online services as the norm … From August 2012 the online channel will be the mandatory way to register for VAT, with other channels being closed … And from 2013 it will become mandatory for business customers to tell us online when they start their business activity for the purposes of Self Assessment and Corporation Tax. Employers will also be expected to use the online channel to obtain their PAYE scheme number and to ensure that they can operate PAYE accurately from the first pay day”.

Thanks a lot, Martha! I see from the internet that we only missed out from sharing the same birthday by three days – and of course the 40 years head start I have been given on you. I suspect what you really mean is that if us old fogeys are not prepared to embrace the internet age and ditch our reliance on pen and ink (yes, they really do still produce ink for me to put in my fountain pen) we shouldn’t be allowed to run businesses. We should leave it to the thrustful, entrepreneurial, modern people like you.

I don’t really mind you thinking that. Obviously I also think that you are wrong but that’s by the way. What I resent is your being so patronising. Forcing me to do something that I do not want to do clearly cannot make it either “easier” or “quicker” for me. It can certainly make it both easier and quicker for HMRC if taxpayers can be turned into a homogeneous population whose affairs can be fed onto an HMRC conveyer belt with little or no human intervention. So why don’t you just say that your real interest is computers and that people don’t really count in your book; Bow to the mighty computer or get out of business?

Also how do you expect people to recognise when they “start a business activity”? I have been a practising accountant for more than 40 years and I often can’t identify when that happens. I don’t know what happened when you co-founded lastminute.com. It may well be that you and your colleagues all threw in your jobs, sat down together and brainstormed about a possible new business venture. If so Martha, you need to realise that is not how most businesses start. Most start because a hobby gradually becomes a money-making activity, or because people start using the skills from their day job to help friends in their spare time and when they are made redundant offer those skills more generally, or even experiment with something with friends and when they realise it works offer the concept more widely. In all of these situations I do not have the faintest idea when the business starts. In retrospect I can see that it has become a business, but if you ask me to pinpoint the day it started, I have to admit defeat.

I accept, Martha, that I may be exceptionally thick. You may be right in believing that in all of the above situations the taxpayer will have no difficulty in identifying the day the hobby/helpfulness/experiment or whatever drifted into becoming a business. I have no reason to believe that you are an unreasonable person. I am happy to assume that in advising the government to mandate taxpayers (presumably under the pain of a financial penalty if they get it wrong) to tell HMRC online when they start their business activity, your personal experience of setting up lastminute.com was that you and your partners did not experiment with the idea while you had a day job but resigned from your jobs with no idea whether or not the idea might work, and then developed the website and tried to interest your friends in the idea. However that is not how most small businesses start. In most cases it is extremely difficult to pinpoint when the business started. There is also a technical tax uncertainty as to when a business starts. For example I think that lastminute.com started at the earlier of when you or a colleague first began to develop the website and you first tried to interest a theatre in the idea. Others would say the business did not start until your website was up and running.




ROBERT MAAS

BLOG 98

OLDHAM’S FAT TAX?


I recently wrote about Illinois’ weird use tax. Jill has drawn my attention to another strange tax. Perhaps I’ll start to collect them! This time is what last Wednesday’s Metro called Oldham Metropolitan Borough Council’s proposed “fat tax”. This is apparently a hypotheticated tax, i.e. the proceeds will not go into Oldham’s council tax pool but will be used specifically to fund healthy eating campaigns and litter-picking.

I do not know how real this proposal is. I cannot find any reference to it on Oldham’s website. Metro (and the Daily Mail) may well have picked it up from the previous days Manchester Evening News, which ran a similar article the previous day. It may have simply been a council official “winding up” a journalist. I note however that Mail Online has a fuller story, so it may well be true.

Apparently the proposed “tax” is a charge of £1,000 p.a. on “takeaway” businesses. Curiously restaurants such as most branches of MacDonalds which have sufficient seats for customers to eat in the restaurants will be exempt. A “fat tax” that excludes burger restaurants sounds a bit odd. Accordingly the tax seems aimed more at raising funds for litter clearance than at healthy eating. The Metro informs me that “Town hall bosses say they are being forced to act to curb the glut of fast food joints taking over town centres and because of the obesity epidemic sweeping the country”.

The Manchester Evening News reports that “the Council will consider exemptions for takeaways – like cafes and smoothie bars – that can prove they sell healthy food”. The “tax” is apparently aimed at kebab shops, pizza places, curry houses and fish-and-chip shops. I must admit I am a bit puzzled that pizza and curry are apparently not regarded as healthy foods. I am also intrigued as to how an exemption will work. Will a restaurant have to sell only healthy food or mainly healthy food or some healthy food. Most sandwich shops sell crisps as well!

The story has certainly spawned a lot of readers’ comments. The Mail Online has 149 when I looked (including one as far afield as Massachusetts, USA, “just another government gimmick to grab some quick cash. Any excuse will do”). The Manchester Evening News had 103.

I do note however that in Oldham a licence is required for an awful lot of businesses including, for example, in addition to the expected ones, animal health and welfare, boatman, body piercing etc, chaperones, child entertainment, cooling towers, dog breeding, dog supervision, hairdressers, highway work, motor salvage, riding establishments, second-hand goods, street cafes, and street trading, so this may simply be a new licence fee for the right to operate a takeaway.


ROBERT MAAS

BLOG 97

IS THIS THE ODDES TAX EVER?


You may think that the UK is a past master at finding new things to tax but, if so, you don’t realise how lucky you are. I’ve just received an e-mail about the Illinois use tax. This is probably the oddest tax that I have ever come across. It has been in existence since 1955 but has apparently been in the nature of a voluntary tax up to now. Presumably because of these straitened times, the Illinois tax authorities have now decided to get tough. They have introduced an amnesty on interest and penalties from 1 July 2004 – which I assume must be as far back as they can go in collecting the tax. If a taxpayer pays the tax due for those past years, the Illinois Department of Revenue will not seek interest and penalties (unless someone who uses the amnesty is found to have under declared the tax due). Incidentally, Illinois has also raised the rate of State income tax by a massive 66% from 3% to 5% which perhaps demonstrates how desperate it is for tax revenues. For 2010 onwards the Illinois General Assembly has made it easier for individuals to pay their use tax by putting an line on the Illinois income tax return for taxpayers to show the tax due. This reads “Use tax on internet, mail order or other out-of-State purchases from UT Worksheet or UT Table in the instructions. Do not leave blank”.

Yes, that’s right. Use tax is a tax on all out-of-State purchases. It is the difference between the US State tax actually paid on the purchase in the State of purchase and the Illinois sales tax rate of 6.25% (1% on food and medicines). For example when I go to Chicago I often visit an Outlet Mall in Wisconsin where the sales tax is 5% and there is no tax on food. If I were a Chicago resident I would have to pay Illinois use tax of 1.25% on the items I purchase in Wisconsin and take back to Chicago. If I buy goods in Michigan or Iowa, both of which have a 6% sales tax, I would have to pay Illinois use tax of 0.25%. If I were to visit London I would pay Illinois use tax at 6.25% on the items I buy here and take back to Chicago as the VAT I pay here is not a US tax.

So how does the Illinois Department of Revenue know how much use tax a person owes? Well Illinois residents are supposed to keep their invoices and till receipts! I suspect most don’t. So, it appears, does the Department of Revenue as if a person does not know the amount of all of his purchases he can account for use tax on an estimated amount. This depends on income. A person with income of up to $10,000 is deemed to have spent $48 and to owe use tax of $3. A person with $100,000 of income is deemed to have spent $832 and to owe use tax of $52. Over $100,000 the estimated use tax is 0.0625% of income, i.e. the person is assumed to spend a hundredth of his income outside Illinois.

These estimated figures look very low. So what do the tax authorities do to check that the actual tax figure due is not significantly greater than the estimate? I do not know, but they have just said, that “Illinois is focusing upon collecting this tax”, so if I visit Wisconsin when I go to Chicago this year, I will be on the look out for tax police when I cross the Illinois State border!

They have also pointed out that, “The Illinois Department of Revenue can assess use tax owed by taxpayers who do not pay voluntarily. For taxpayers who do not have records to document their use tax liability, the department will estimate liability. Taxpayers have the right to refute the department’s estimates”.

Of course we already have a sort of use tax in the UK insofar as we charge VAT on goods brought into the UK for private use in excess of £390 other than on purchases from within the EU where there is no limit on the amount of purchases that can be brought in. A use tax on that exempt amount on the goodies that we bring back from our holidays outside the EU would raise a lot of money. I hope that George Osborne does not work that out.


ROBERT MAAS