16 June 2013

David Cameron was recorded a few days ago speaking about Poverty. He said it was time they tackled the causes. His answer:

  • Fairer Taxes
  • Greater Transparency
  • More Trade

It was an odd speech because he was trying to tenuously link Poverty and tax havens.

The real way to eradicate offshore tax havens is to compete with them. Tax havens only exist because people feel the need to reduce their tax expenditure.

The immediate concern is, how does the government compete with a zero rate? Well actually if you break down all the components necessary to ensure you do everything correctly, these off shore tax havens require complex structures and they cost millions to run.  If the government reduced Corporation and Capital Gains Tax, more people would stop wanting to create offshore companies. The more you reduce these taxes, the more the government will attract bigger businesses to the UK. We need to be honest here; all the big businesses are at it. I think once businesses reach that critical mass where it’s significantly cheaper to pay the accountancy fees and have a Swiss or BVI office, I think that’s precisely what they do. It’s not illegal, so they are vindicated.

Whilst the government is powerless to intervene or question why vast sums of money go to these countries, they are now creating huge departments to scrutinise every aspect of people’s expenditure into travel and other costs. But there has to be an easier way?

Under the present schemes, we as small business owners do as much as we can to reduce our tax amounts, and it’s getting harder with the HMRC clamping down on areas it doesn’t think are integral to the running of your business. Certain elements of travel, hospitality or training your team might not qualify as tax subsidies. Even our tax allowances were shaved on computer hardware a few years ago, yet they are all things necessary to build a long-term brand. In my opinion, one of the reasons so many businesses collapse after or around the 10 year mark, is simply because people get worn down. It really does feel like we are swimming upstream, especially in harder times.

If you are listening David Cameron, I do have the answer and it solves everyone’s problems, even yours!

A real solution needs to remove the multitude of complex problems and mistrust that surround the current system. It would have to be fair and equal to all, whilst potentially giving breaks to those who contribute the largest amounts allowing us to celebrate people’s success as opposed to the smoke and mirrors scenario we have now. A real solution has to be simple.

The answer is very easy. Charge everyone a flat rate of a few percent of their entire turnover and remove all allowances. So you pay as you grow, in proportion to your turnover and not your ability to understand the complex avoidance schemes.

It would be very easy to implement, the government would guarantee that all offshore tax havens were suddenly more expensive than housing a business in the UK.

Furthermore, if you charge all businesses a percentage of turnover in the UK, foreign companies like Starbucks or Amazon, with European HQ’s in Switzerland, gain nothing from their strategic offices as, if they want to do business in the UK, they have to contribute.

I blogged last year after these startling results were produced. http://bit.ly/TRYgUP

UKFast paid 300% more tax than Facebook last year and if you add up all the tax Starbucks has paid since inception 14 years ago, we have paid more at UKFast.

Under the present scheme, US companies who make billions selling to us Brits happily take all their profits back to other countries.

This is particularly poignant in our industry as the two large players including Amazon, are both US organisations. Imagine the difference to all the hosting providers and IT businesses in the UK if people started buying British.

These better tax efficiencies also make it easier for US and foreign companies to acquire UK businesses. With simple restructuring they remove some huge tax costs, thus making their new transaction more profitable.

These are the things the government and the UK population should be worrying about. We should be buying British and doing our best to buy local and support the smaller organisations.

The best part of a flat rate tax scheme is that it even solves people’s dislike for massive audit fees and complex tax meetings with expensive tax accountants!

There is a fine balance between avoiding tax and evading it and I am wholeheartedly behind Cameron and his quest to create a solution.

I do not think he is right to link the offshore tax issues in his same speech and refer to his solution as the “War on Poverty.” I think we have had enough of Wars and I’d much rather find a more positive way to address the situation.

To solve poverty we have to improve education on a global scale. This will never be a possibility whilst we wage physical war on other nations.

The issue of avoiding tax is a serious issue, but it’s got very little to do with poverty. In Cameron’s list to tackle poverty, he misses out the one that is the most important, which is taking more care with Government spending.

Knowing how hard it is to earn money and build businesses in the UK, we have adopted a very simple principal when purchasing in our small business. “If we don’t need it, we don’t get it.” Every pound you spend is gone forever and whilst you can generate more revenue, you can never get that particular one back. So spend every penny very wisely.

Cameron talks of greater transparency. I am not sure what he means by this. However, if there was a published list of every business in the UK and their turnover with the amount they actually pay in tax available for everyone to see, I believe it would help consumers and the great British population to make a choice about who they should be buying from.

I have never drunk coffee in Starbucks since I heard about their appalling tax avoidance. I’d never use Amazon not even to buy a book.

 

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