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Why The Proposed Online Sales Tax Is a Bad Idea

(Source: getstencil)

In many ways, it was inevitable.

Since the start of the pandemic, the government has announced financial support in excess of £300 billion to shore up individuals and business of all sizes.

The state had to intervene in unprecedented ways, from paying 80% of workers’ salaries through the furlough scheme to giving lifelines and loans to entire sectors.

But those significant levels of intervention have come at a cost.

The £300 billion wasn’t exactly sitting in a savings account; the Chancellor had to fund his announcements through borrowing. Fortunately interest rates on borrowing are at a historic low of 0.1%, but it means there is still a £300 billion-shaped hole in the public purse which must be repaid.

There have been hints and rumours about how the colossal expenditure of 2020 will be paid for. Will the Chancellor raise income tax? Is a return to austerity on the cards? Or, will corporation tax be increased?

Call me cynical, but my view is that many of these rumours emanate from the very heart of government itself, so they can get a read of how popular a policy might be if or when it’s announced.

But I digress. So far it’s clear that after a decade of George Osborne’s austerity, the electorate will not tolerate further cuts in public spending. Nor will income tax rises win this Conservative government votes at the next election. It might be four whole years away, but it’s always on the radar for politicians!

An increase in business rates might be the nail in the coffin for many businesses. Especially for a retail sector already on its knees before the pandemic which is now haemorrhaging money and employees with each passing day. So there is very little leeway to raise funds there.

What Has The Government Decided To Do?

(Source: abstractrecruitment.co.uk)

The government is proposing an online sales tax.

For more background information on what it is check out my last blog post; essentially it will be a levy of 2% on all purchases made online, and also a tax on deliveries of items bought online.

What Was The Rationale Behind It?

(Source: Business Live)

The government clearly needs to find alternative sources of revenue. Fast!

Since retail is in dire straits and will take a long time to recover – if at all – there are high hopes that this new tax will raise something in the region of £2 billion each year. According to the government, this could potentially fund a cut in business rates to give the sector a much-needed reprieve.

However, I doubt such a cut will actually be implemented. And that lack of transparency is my first issue with this tax…

…why position it as support for retail, when there is a black hole in public finances to fill?

That aside, it seems like a good idea at first glance: online sales were booming even before the pandemic and have gone stratospheric since March. It makes sense to raise funds from one of the few areas of the economy that is performing well and forecast to grow even more for the foreseeable future.

Or, does it?

Why I’m Against the Online Sales Tax

I’ll lay my cards on the table: I’m not in favour of the proposed online sales tax.

I think it’s a bad idea, and here’s why:

1. Impact on SMEs:

According to the government’s own figures, small and medium-sized enterprises (SMEs) account for three-fifths of the employment and around half of the turnover in the private sector. So, total employment in SMEs was 16.6 million (or 60% of the total) and turnover was £2.2 trillion (or 52% of the total).

However, these figures are due to be updated and do not take into account the effect of the pandemic. When that update is published, I suspect both figures will see a significant reduction.

These businesses have already borne (and in many cases, are still suffering from) the effects of the coronavirus pandemic and subsequent lockdown, and introducing a new tax as they seek to emerge from the doldrums could have a damaging and lasting effect, which is the opposite of what’s needed.

2. Who Really Picks Up The Bill?:

You’ve guessed it: these taxes will be passed on to consumers.

So, you and me.

That’s already happened with the digital services tax which came into effect in April: there are reports that companies such as Amazon have passed that tax onto its sellers, most of whom are small business owners who cannot afford to absorb it. Which raises the chances that the new digital services tax will be passed on to customers.

What’s to stop companies – especially multinationals who the government seems unable to hold accountable – from passing this new tax on to customers too?

Customers have already been battered and bruised by the pandemic. Official figures are yet to catch up and reflect current events, but estimates are that more than 600,000 people have lost their jobs. The last thing they need is a heavier tax burden!

And those who are lucky enough to still have an income and can afford to spend should be incentivised to do so, not penalised.

3. Timing:

To all intents and purposes, we are still in the middle of a pandemic.

Not many individuals and businesses have escaped unscathed. Its effects are still unravelling, and my sense is that this is not a good time to announce new taxes or tax rises. Especially as so many businesses are falling into administration, and job losses mounting by the day.

I accept that the government needs to plan ahead. But I would suggest that a new tax on the few successful areas now will inhibit and penalise, rather than encourage, economic recovery.

What Alternatives Would I Suggest?

I’m neither naïve nor an anarchist; and we do need to raise money for crucial public services to ensure education, universal healthcare and social welfare are always available for people as and when required.

But there are better, more efficient ways to fund them. I’m not an economist, and none of my suggestions have been costed. But here are some of the initiatives and actions I would suggest instead of a new online sales tax:

1. Focus On The Online Digital Services Tax:

This was introduced in April 2020. It applies to search engines, social media platforms and online marketplaces with global revenue of more than £500 million and UK revenue of more than £25 million.

It is specifically targeted at companies like Amazon, Facebook and Google which have historically paid very little tax due to accounting practices which mean sales are processed through countries with low corporation tax policies such as Ireland and Luxembourg.

The aim was to achieve global consensus on a digital tax but with little progress made, former Chancellor Philip Hammond announced the UK’s plan for a digital services tax in his October 2018 budget.

The amount it is forecast to raise each year varies depending on which publication you read; it could be anything between £275 million and £500 million.

And while there are obvious teething problems with it – see the paragraph above about who actually foots the bill for this – I would suggest that it makes sense to ask businesses with millions of users in the UK who generate huge profits for them to do more by paying this tax.

The government could focus on refining it to curb practices such Amazon’s, and create more of a level playing field.

2. Revise The Debt Repayment Schedule:

I don’t know what the Chancellor’s plan is for plugging the hole in our public finances, or how soon he hopes to get it done.

But if it’s in the next year or two? I would suggest extending that out, with a repayment plan that is less aggressive.

We all know we need the medicine, and that all the support provided was not free.

Nothing ever is!

But the medicine risks killing the patient, if prescribed in large doses.

Plugging the hole quickly may look good on paper. But is it the right move, considering the severe blows dealt by the pandemic and lockdown?

And will it do more harm than good?

3. Wholesale Review of Retail Sector and Business Rates System:

The government claims this new tax will potentially mean business rates can be cut.

As I’ve said, I’m doubtful that will happen.

But putting my cynicism aside, the truth is that retail has been on its knees for a long time.

A comprehensive review of the sector is urgently needed, and there have long been calls for an overhaul of the business rates system. A temporary rate reduction will not address the underlying issues and general view that it is no longer fit for purpose.

The system needs to be revisited and replaced with something that works for businesses and communities in the twenty-first century.

4. Fix The Leaks!:

It may surprise you to hear this, but many large companies get away with paying a fraction of the tax they should.

I’ve explained how internet giants have eluded paying the correct amount of corporation tax for so long, which brought about the digital services tax.

They are not the only ones; stories like this give the impression that once a company can afford expensive tax lawyers to handle their negotiations with HMRC, they can pay what they like instead of what they are actually liable for.

Unfortunately it sometimes appears to be one rule for one group, and another for the rest. As a small business owner, I certainly wouldn’t get away with trying to knock down how much corporation tax I pay…

…and I’m sure this is not an isolated example. It would be interesting to know how much has been “saved” by large companies in this way, and how that compares to the £2 billion the Chancellor hopes to raise with this new tax.

My suggestion? The government should ensure the rules are applied equally across the board. I know the government makes concessions and offers incentives to encourage businesses to invest, but after the initial one-offs there shouldn’t be further room to manoeuvre.

5. Stop The Waste:

Stories of wasted public funds abound, and I wonder if such practices would fly in a private organisation…

…there are too many to count, but I’ll give you a recent example. £15 billion was spent just in the last few months on the beleaguered test and trace system and personal protective equipment (PPE).

That sum alone covers this proposed tax for seven and a half years, and there are calls for a public inquiry to investigate how this was allowed to happen.

But that’s not all.

As I write, the test and trace system is still not fully operational. Experts say it is crucial when planning for the start of the academic year in September, and is also required if the rest of us are to return to some semblance of normality.

Yet, all that money has been spent and the world’s fifth largest economy does not have an effective tracking system to help combat the virus.

And the PPE? The whole batch was faulty and has now been condemned, as it did not meet basic standards set out by Public Health England.

It’s hard not to think that taxpayers are seen as an endless source of funds which can be frittered away at will.

The country is straining under the weight of the pandemic and besides, the business case has not been made for a new tax.

The Chancellor should put the brakes on.

How The Proposed Online Sales Tax Could Affect You

(Source: getstencil)

Following the series of financial packages announced by the UK government to support individuals and businesses through the coronavirus pandemic, one question has been on everyone’s mind:

How are we going to pay for it?

There had been hints and leaks that tax rises and austerity measures would be used to plug the £300 billion hole in public finances, which were subsequently denied. But the first official step has been taken by the government, with the Treasury consulting with industry on the best way to “provide a sustainable and meaningful revenue source for the government.”

Here is a summary of the proposed online sales tax, and how it could affect you if it is implemented.

What Is the Proposed Online Sales Tax?

There are actually two taxes being considered in relation to online sales.

The first is a two per cent tax on anything sold online. Early forecasts from the Treasury estimate that this will bring in an estimated amount of £2 billion each year.

However, note that this online sales tax is not the same as the digital services tax designed specifically for the likes of Facebook, Google and other international internet-based businesses which operate and have users in the UK.

Deliveries have increased significantly since the start of the pandemic, and the second proposal is to implement a tax on deliveries.

Why Were These Taxes Proposed?

(Source: getstencil)

The government believes that online retailers benefit disproportionately from the current tax system, while businesses with a physical High Street presence bear several financial burdens such as rents and business rates.

As the High Street has been in dire straits for a long time and is under even more pressure as a result of the pandemic, the thinking is that the £2 billion raised each year can be used to fund reductions in business rates for retail properties.

On the other hand, the delivery tax has been positioned as targeting traffic and congestion on the roads, with a view to achieving a reduction in toxic emissions and pollution.

When Will a Decision Be Made?

The government will make a decision on these proposals in the Spring of 2021.

And if you really want to know what I think about this proposed online sales tax? Have a look at my next post here.

Everything You Need To Know About Bounce Back Loans

(Source: getstencil)

The Chancellor launched the Bounce Back Loan Scheme (BBLS) in April to help small and medium-sized businesses suffering from the effects of the coronavirus pandemic.

As Mr Sunak mentioned in his Summer Economic Statement, 1 million businesses have applied to the scheme and £31 billion has been approved in loans so far.

However even though it has been three months since the announcement, many people are still not sure how the scheme works.

So here’s everything you need to know about Bounce Back Loans.

How Do Bounce Back Loans Work?

With these loans:

  • Small and medium-sized enterprises can borrow up to 25% of their turnover.
  • The maximum loan amount is £50,000.
  • They are 100% guaranteed by the government.
  • No interest or fees are accrued for the first year.
  • After the first twelve months, the interest rate becomes 2.5% a year.
  • There are no repayments to be made in the first year. This is crucial, as this gives businesses some breathing space and a chance to recover from the turbulence of the pandemic.
  • The term is for six years. But if you can repay it sooner? No problem! There are no early repayment penalties.

What Are The Criteria To Apply For Bounce Back Loans?

(Source: getstencil)

To apply for help on the Bounce Back Loan Scheme (BBLS), a business:

  • Must be based in the U.K.
  • Must have been established before 1 March 2020.
  • Will have been negatively impacted by the coronavirus pandemic.
  • Cannot be a bank or insurance company.
  • Cannot be in the public sector, or a state-funded school.

If you meet these criteria and wish to apply, there are several lenders participating in the scheme. You’ll find the list of the Bounce Bank Loan Scheme lenders here.

And a tip: You don’t have to do this, but it might be easier to apply wherever you do your business banking, if they are on the list.

What Do I Need To Apply For a Bounce Back Loan?

The exact details of what you need to provide to apply for a Bounce Back Loan may vary slightly from lender to lender, but in broad terms this is what you’ll need to do:

  • You’ll be asked to fill in a short application.
  • You’ll be asked to confirm that you qualify, i.e. that you meet the criteria listed above.
  • To provide details about your business such as business name and address, contact details, and your annual turnover.

The process should be easier if you apply with your business bank, as there is already an existing working relationship. They already have some data and knowledge about you and your business, which should simplify and accelerate the application process.

What Should I Do Next:

If a Bounce Back Loan sounds like the kind of support you need or qualify for, it’s worth having an initial conversation with your accountant.

And once you decide to proceed, contact any of the banks listed in the list of lenders above to start your application.

Still Struggling To Understand How It Works?

(Source: getstencil)

If you need further clarification about the Bounce Back Loan Scheme (BBLS) and how it works, you can contact me here.

Summary of The 2020 Summer Economic Statement

(Source: theguardian.com)

Did you listen to Chancellor Rishi Sunak’s Economic Statement last Wednesday 8 July?

“We will not be defined by this crisis, but by our response to it,” he said, and respond he did.

It was the second stage of his response to the coronavirus pandemic, and the focus is protecting, supporting and creating jobs.

The first stage involved providing crucial and immediate support in March through initiatives such as the Coronavirus Jobs Retention Scheme, where employees are furloughed on 80% of their salaries. £20.8 billion has been claimed by businesses so far, which has ensured that 9.1 million people kept their jobs.

However it was never expected to run indefinitely, and Mr Sunak confirmed the scheme will wind down by October and be replaced by a Jobs Retention Bonus Policy aimed at retaining people in work and staving off the threat of unemployment for millions.

Here’s a breakdown of the policy, and a summary of the Summer Economic Statement: 

Protecting Existing Jobs

Jobs Retention Bonus Policy:

The policy has at its core a reward system for employers who bring back furloughed staff and retain them till January 2021. Companies will be paid a Jobs Retention Bonus of £1,000 for each employee, on the condition that they are paid a minimum of £520 per month.

Financial commitment: £9 billion.

Hospitality & Leisure:

(Source: getstencil)

There was an acknowledgement that these sectors employ more than 2 million people who tend to be among the lowest paid n the country. Consequently, people who work in this sector have been some of the hardest hit by the pandemic. And the numbers don’t lie; 1.4m have been furloughed!

The Chancellor announced two new measures to revive the hospitality and leisure industries. The first is a VAT reduction on food, accommodation and attractions such as amusement parks from 20% to 5%. The reduction on this sales tax takes effect on Wednesday 15 July and will run until 12 January 2021.

It’s expected to benefit 150,000 businesses and protect 2.4 million jobs.

Financial commitment: £4 billion.

The second measure to facilitate recovery in the hospitality and leisure sectors has been designed specifically to get customers back into restaurants and pubs. The government-backed “Eat Out to Help Out” discount will be available for everyone in the country to use on certain weekdays this August.

Patrons will benefit from a 50% discount (up to a maximum of £10 per head) from Monday – Wednesday for the month, and businesses can register from Monday 13 July.

Supporting People To Find Jobs

Kickstart scheme:

(Source: getstencil)

A new kickstart scheme targeted at young people will pay employers to create new jobs for 16-24 year-olds at risk of long-term unemployment.

To qualify, the jobs must last six months, be for at least 25 hours per week and pay at least minimum wage. With a £6,500 grant per person and no cap on available places, the expectation is that this guarantees that the youth do not bear the brunt of the economic effects of the pandemic.

Financial commitment: £2 billion. 

Apprenticeships, Trainees & Support for the Unemployed:

Mr Sunak also announced schemes to encourage employers to take on trainees, Career Advisers to support 250,000 people, an expansion of the universal skills offer (with plans to triple existing places), apprenticeships funded at £2,000 each, and support for the unemployed with more work coaches, and £1 billion pumped into the Department for Work and Pensions to help support people back into work.

Creating Jobs

A Green Recovery:

(Source: getstencil)

Government ministers have previously talked about making this a green recovery, and the Chancellor announced a historic investment in infrastructure & jobs in the sector by way of a green homes grant, which will provide homeowners and landlords with vouchers to make their homes more energy-efficient from September.

Expected to make 650,000 homes more energy-efficient, the vouchers will cover two-thirds of the cost or £5,000 per household. This will double for low income households.

Financial commitment: £2 billion.

Stamp Duty Cut:

(Source: getstencil)

Probably the most eye-catching announcement was the immediate cut in stamp duty on property sale transactions below £500,000 until 31 March 2021. This is expected to resuscitate the property industry and In the Chancellor’s estimation, this temporary cut will benefit 9 out of 10 people buying their main home.

Total financial commitment for these announcements and initiatives is £30 billion. The third phase of his coronavirus response will be announced as part of the Autumn Budget & Spending Review.