But this is more about tax than farming.
On Tuesday morning we had a flying visit through the midlands to East Midlands airport for a farming conference. We had presentations by various people on the prospects of UK Farming, topical Tax issues and the importance of costings. Here is a bit of what we learned.
So there is a new five year averaging rules for farmers. However, they haven’t quite sorted out what the rules are and how it will work. At the end of the day, it may take far too much time and effort to actually save anyone any money. At least they have let us keep two-year averaging (although slightly tweaked).
Taxation of dwellings
The government is out to get private residential landlords, but the new tax rules which have come in are likely to catch other people out.
Now there is the extra 3% stamp duty on second homes, not just buy-to-let, but also people buying a second home. This could trip people up when people buying a new house before they have sold their previous one. Also, a useful rule to remember is that a married couple counts as one unit (note to self; I must buy a house before I think about getting married).
There is also a restriction on the amount of mortgage interest that can be offset against rental income – higher rate tax payers beware. How many people do we know who rent out a property and do the tax returns themselves (assuming they even do one!), so how many are likely to carry on as usual and get this wrong?!?
And to top it all off, when you sell the rental property you get hit with CGT of 28% (rather than the new reduced rate of 20%).
Basically, the government wants us all to invest in companies rather than houses. That’s fine if you want to accept the risk, but the risk adverse among us will need to make a decision between stumping up the new tax or letting the money sit in a bank account getting peanuts in interest.
Then away from all the Tax we had an interesting talk from a farmer/contractor; all about how farmers should keep a track of all their costs. Everyone should know how much it costs to produce their particular product, be it milk, cereals, beef, lamb etc. However, this guy was no stereotypical farmer, and he was definitely a wizard with his spreadsheets. Not only did he have his machine costs per hour, but also had fully costed his implements including factoring in other variables such as soil type! I don’t know too many farmers who would have the time to do this!
Your overseas assets are going to be notified to HMRC
The UK has agreed with 100 other countries to exchange information with banks, Trustees, company administrators, insurance companies etc.
When HMRC have this information they will contact every affected individual to check that any and all income from these overseas sources have been declared.
It will start from September 2018 and in the meantime there is a new amnesty for declaring any omissions. While the amnesty is not terribly benign (no immunity from prosecution), it is significantly better than the options if found to have misbehaved. HMRC will be looking for penalties of between 100 and 200% plus a further 60% for extra bad behaviour.
Where this regime differs from previous actions is that HMRC will be checking on everyone for whom they receive information. Apparently the financial institutions making the reports will ensure that they have the right John Smith because he will have provided his tax reference. It remains to be seen whether HMRC can match the information to the right person and could be messy.
Hopefully none of our clients have overseas income that they have not declared. If there are any, a preemptive strike would be infinitely preferable to the s**tstorm that's coming after.
I've been on a tax investigation conference. It was more fun than you might think and all sorts of interesting snippets came to light which I've decided to share. There are currently 55,000 staff which is half what it was 10 years ago (and they weren't that great then). 137 offices are closing and there will be 13 regional centres only. Hopeless if you want to see the whites of their eyes. HMRC have proudly announced that 85% of staff are adequately trained: that means that 15% (7500 members of staff) are under/inadequately trained. Investigation cases are still on the increase. Primarily these are 'aspect' cases where HMRC look at a part of your accounts eg repairs. The other winner for them is a VAT or PAYE visit. Only 9% of investigation recently have been full enquiries. HMRC want to get in 'mug you for a quick buck' and go again. They have stated that they are going to pursue penalties at the higher 'deliberate' rate in 30% of cases and this is a stated target. They can get information on you from Airline passenger lists, Chip and PIN merchants, insurance companies and overseas information exchange (more on this later). This is in addition to banks, the land registry, DVLA and your Facebook page. Last year there were 100,000 calls to the HMRC 'report a tax dodger' telephone line and £600k was paid in rewards. In spite of published rules of how investigation cases are supposed to work, the Inspectors at the 'coal face' don't all follow them. Are we to assume these guys are part of the 15% who are not adequately trained? They ask for things to which they are not entitled and try to pursue tax which is out of date. The moral of this tale is to make sure you get professional advice if faced by an HMRC challenge. They may have a big stick, but they can be made to insert it up their own tax gap.
Earlier this week, I attended a HSBC Brexit seminar, where the key speaker was the Bank’s Head of Economics for Commercial Banking – Mark Berrisford-Smith.
The key messages I took from the presentation were as follows:
Fundamentally, the UK economy is doing okay and is currently growing at the same pace as France, and UK consumers are continuing to spend. The main area of concern is that business investment levels are low as businesses continue to delay investments.
The last few days have seen a further weakening in sterling. HSBC’s view is that this will continue and that by the end of 2017, the pound will have weakened to 1.1 against the dollar and will be trading at parity against the Euro.
This will impact on inflation, which is expected to rise to 2% by the end of Q1 2017 and to 4% by the end of 2017 – this may well test UK consumers spending appetite. Inflationary pressures are beginning to feed through into fuel prices and the spat between Tesco and Unilever.
HSBC still expect the MPC to reduce base rate to 0.1%, but expects the MPC to be split.
Infrastructure projects to be announce in the Chancellors Autumn Statement are expected to be local schemes and relatively modest.
Agreeing a trade deal with the EU is likely to be a lengthy process. The deal with Canada, whilst it has been agreed, now has to be ratified by each individual EU state!
Later in the day, I received an economics update from Lloyds, which concurs with much of the above, particularly with regard to the likely further cut in Bank base rate and the extent of the spending on infrastructure to be announce by Phillip Hammond. With regard to inflation they expect this to burst through BoE’s 2% target in Spring 2017 and to rise further, but haven’t forecast where they expect it to be by the end of the year.
It would appear that choppier waters are indeed ahead, although economists’ forecasts have been known to be inaccurate. [Ed. – this is Martyn doing under-statement]
You can see HSBC’s latest Brexit webcast, with Mark Berrisford-Smith on their website.
I've been on a tax course which always gets my dander up, so stand by for a procession of batterings along the line of '....and another thing'. I thought that the following facts were interesting, although Daily Mail readers may know already. The total public spending in 2016/17 is expected to be £772bn. Of this, £240bn is for social protection, health is £149bn and education is £102bn. EU transactions are included in 'other' which totals £49bn. Unfortunately public sector receipts are only £715bn. The shortfall of £57bn is currently funded by borrowings. It is a lower figure than it has been, but the 'outs' are still exceeding the 'ins' which, inevitably, at any level, calls for a day of reckoning. The ability to borrow is affected by credit ratings which have been wobbled by the recent vote. I make no comment on the result. In a tax context, the bulk of the public income comes from Income tax, then NI and VAT. Corporation tax (CT) brings in very little and there is a school of thought that it should be abolished. More on that later. Lagging behind is Inheritance tax (IHT) and capital gains tax (CGT). BUT the % increase in the yield from these taxes has increased by 48% and 66% over the last few years. One could infer that HMRC view these taxes as further income opportunities. Particularly as the amount of CGT paid is lower than the CGT saved by Entrepreneurs relief. It can only be a matter of time before the application of this relief is severely curtailed. Sadly CT will not be abolished because we've agreed via BEPS (Base Erosion by Profit Shifting) not to allow aggressive tax planning to entice our neighbours to play over here. Of course, our neighbours will also be gentlmenly enough to sign up too. Hah!
The National Franchise Exhibition was on at the NEC last weekend, so a few of us went along. My plan, with a couple of clients, was to broaden our thinking as to what a successful business looks like and to pick up some ideas.
There were plenty of interesting businesses there, but the notable thing was the startling variability of the people manning the stands.
I was trying to establish the sustainability of the business we were seeing so asked the question
“what makes your business different to the competition”
The Polish guys, who were outsourcing care for the elderly – Promedica24, www.promedica24.co.uk had if off to a tee and gave me several good reasons why they were special and why people would /should buy from them.
A lot of the other exhibitors told me it was because they had been established 23 years or gave good service.
The question is, what would any of your team say if they were asked what makes you different? Will it be the 1922 answer or something relevant to the enquirer?
What makes your business different and does anyone care?
Business Development Club 12th October 2016
Verzon Hotel, Ledbury: 6.00pm for 6.30pm.
Why should your customers choose your product/services rather than a competitor’s? The hard truth is that unless a business can articulate some unique reason why a customer should buy from it, then usually the customer will make a choice based on other factors, probably price, but possibly reputation/brand. That’s where marketing comes in.
It’s tempting to cut back on marketing in difficult times, but the real trick is to get value for money for the expenditure.
So, we’ve asked Chris Hutchinson, of Aardvark Consulting, to give us the wisdom of his experience. He worked for many years with some household names and now spends his time making marketing and advertising work for small business. We’ve involved him with a number of our clients to good effect. He’ll cover:
This is going to be an informative session where you will have something new to take away from the meeting. The cost is £40 per head and will include a superb meal in a beautiful setting.
If you wish to attend please confirm by email your response to firstname.lastname@example.org.
I hope to see you there.
PS. Advertising has been described as “the science of arresting human intelligence for long enough to get money from it”. To discuss.
A man who has to wade through treacle on a daily basis to find silver linings and missing commas.