Tax Simplification – There’s a long way to go!

See the latest edition of UK tax legislation on my desk. It runs to over 21,000 pages –  this does not include the recently published Finance Act 2010!

So if your tax advisor ever says

“….well, its not quite that simple….”

in response your straightforward question or otherwise perfectly logical suggestion, hopefully this well help you understand a little better why.

Tax needn’t be taxing – yeah right!

Conservative Manifesto – What does it mean for your business?

“Our ambition is to create the most competitive tax system in the G20 within five years.We will restore the tax system’s reputation for simplicity, stability and predictability.”

David Cameron and the Conservative Party launched their manifesto for the impending May 2010 election today.

So what were the key points for business?

  • Emphasis is made of (re)introducing a simplified, more stable and certain tax regime. There is little doubt that small and large businesses alike are confused by the levels of bureaucracy and red-tape mixed with constant meddling in the UK tax system of late. An intention to introduce stability and certainty must be welcome. Mention is made of introducing an Office of Tax Simplification – did I just say plans to reduce bureaucracy……?
  • Tinkering with the planned increase in employer’s National Insurance – there appears to be a white elephant in the room here. Everyone seems to have been caught by the Tories’ proposed abolition of this “tax on jobs” when in fact the manifesto does not propose to abolish the 1% increase due in April 2011 but instead to tinker with the relevant income thresholds to make it apply to less employees and employers than would previously be the case – did I just say less meddling and increased simplification….?
  • Reduction in the standard rate of corporation tax for companies from 28% to 25%. Small companies rate to be cut from 21% to 20%. Further cuts to follow. But how will this be funded? By simplification – if so, what does this mean for the future of capital allowances for expenditure on fixed assets like plant and equipment….? Is the end nigh?
  • One year tax holiday from employer’s National Insurance for the first 10 employees of start-ups during the Conservatives’ first 2 years in Government
  • Research and Development tax credits (R&D tax credits) will be improved and refocused on hi-tech companies, small businesses and new start-ups.  Pretty much verbatim out of Dyson’ report as commissioned by the Tories – will the increase from 175% to 200% tax deductions be implemented….?
  • Cut red tape to enable businesses to be started quickly. A one-click registration model for new businesses rather than sifting through endless forms. Sounds interesting –  we await the detail.
  • £2,000 bonus for every apprentice hired by SMEs
  • Increased accessibility for SMEs to public sector contracts
  • No mention of VAT….?
  • Little mention of headline income tax rates….?

Is this enough support to help your business?

TIGA targets tax incentives to position UK Games Industry at the leading edge

TIGA, the trade association supporting the UK Games Industry, has launched its manifesto in readiness of the incoming governing party – whoever that may be from 6 May 2010?

Key proposals include (in my preferred order):

  1. Introduce a Games Tax Relief “as soon as possible” – we know it should be coming as it was announced in the recent Budget yet the exact details have yet to be revealed. The key point here is that other competing countries such as Canada, Australia. China, France and South Korea already receive support – we cannot allow this to drag on without concrete detailed proposals and an imminent timetable for its introduction. TIGA suggest that the relief should apply to any company subject to UK corporation tax so long as certain cultural tests are satisfied. They go on to suggest a series of tiered reliefs dependent on spend incurred in development of the games and the entitlement to a tax credit for qualifying companies. My concern is that efforts to make this as targeted as possible actually result in a more complex and burdensome regime that does not reach those UK gaming businesses that need it. I wonder whether a tax holiday system may be easier to implement?
  2. Increase the enhanced R&D Tax Credit to 200% (from 175%) for SMEs (Small and Medium Sized entities – basically those with less than 500 employees). I think this is right.
  3. Introduce the (lower 10% corporation tax) patent income regime as soon as possible. Like the Gaming Tax breaks, we know this incentive for patent income is on its way, TIGA quite rightly call for it to be introduced in 2012 rather than 2013 as currently proposed. The Netherlands have this now – why do we need to spend years consulting with businesses on this issue?
  4. Increasing the value of corporation tax losses – allow for corporation tax losses to be carried back 3 years to offset against previous years’ taxable profits rather than the current 1 year. There has been a temporary measure to allow a 3 year carry back but this extension has been limited to £50,000 of losses. I think this is a sensible proposal that would return us to the position we were in some 10 or so years ago.
  5. Extend the scope of Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) tax enhanced investing to include those businesses that fund rather than actually create intellectual property (IP). Given that IP will become increasingly valuable going forward, this makes sense.

Given that the UK Games sector contributed approximately £1 billion to the UK’s GDP and £400m in taxes to the Exchequer  in 2009, the Government should sit up, listen and take action.

You can download a copy of the TIGA manifesto here. Please leave your comments and thoughts.

Serial Entrepreneur Questions the Value of Lawyers

Successful entrepreneur and VC, Luke Johnson challenges the value that lawyers bring to our economy in an article in today’s Financial Times – although his criticism is directed at lawyers, ALL professionals and consultants should take heed.

Johnson refers to a recent company acquisition and the significant six figure fees charged by the 4 law firms involved. Although he concedes that the fees were agreed in advance, one law firm (that was not named) raised its fees considerably at the last minute – £35k to £110k (ouch!).

Luke Johnson goes on to question the value that lawyers bring to our economy, arguing that the increasingly litigious nature of their work is a drain on value and wealth creation. He adds that innovation, enterprise and job creation may be stifled by lawyers – harsh words indeed.

As a professional advisor myself, I think it is important that firstly we listen to valuable feedback from a respected entrepreneur such as Luke Johnson. We then need to question where the value we can bring to business lies and to ensure that we communicate and implement this effectively. Agreeing fees in advance is important to me (‘no surprises’) – the ‘no name’ law firm does not help our cause with actions like those described above.

There is, however, a deeper and more fundamental underlying point. Professionals have long occupied a position of privilege, status and respect.  Our ability to help clients navigate rules, regulations and best practise, whilst helping them identify opportunities adds value to businesses and the wider economy. This remains unchanged in my view. What has changed is a historical perceived ‘license’ to pass on escalating time costs in fees to clients – fees that have no direct relevance to the value delivered to the client. This must change if we are to keep pace with business demands and change.

Professional advisers also need to focus on and more effectively communicate the value that we can bring.  We need to focus on future value creation alongside entrepreneurs and avoid getting bogged-down and indulging in bureaucracy. To be solution (rather than problem) oriented.  The fact that Johnson states that businesses should “avoid lawyers altogether” should send shivers down the spines of all professionals and ensure that we focus on contributing to business success and avoid “ambulance chasing” tactics that can detract from the value we bring.

Tomorrow’s law and accountancy firms will look very different. Thanks Luke for nudging us further forward.

Digital Kids embrace iPad for Work, Rest and Play

I can’t help but share this short video of a young 2 year old girl who has just got her mits on a newly released iPad.

Look at the way in which she interacts with this medium – such grace and ease. Clicking in and out of applications and scrolling through pictures and icons. Like it’s second nature.

One moment she uses it as an educational toy, the next as a play-thing. Effortless.

Just think what our classrooms will be like in the not-too-distant-future…? Fun + work intermingled into One.

Given that I already have to prize my ipod Touch from the grasp of my equally young sons, we can expect that the release of the iPad in the UK will be welcomed by the whole family!

Patchwork Traditional Food Company launches new products NOT so traditionally

It is great to see The Patchwork Traditional Food Company:

a) launching exciting new products and

b) using new social media channels to good effect to launch quickly, cheaply and effectively.

I’ve long been a HUGE fan of their pate so to see the launch of this ice cream is great news. Here is a business that has stuck to the knitting in producing high quality pates from a family recipe over a good few years. Now run by the founder’s sons, it is great to see traditional family business values mixed with forward thinking marketing techniques and product innovation.

I stumbled across the announcement of the launch of the new alcoholic ice creams via Twitter. A click on the Twitter link led to their Facebook fan page where the company is already generating some buzz around this new product launch.

Throw into the mix some nice artwork (just one example above) to support the new products and its difficult not to comment. But that was the point…. wasn’t it?

Great Leadership Demands A Brave 1st Supporter

Right now, the world needs more Leaders.

Business Leaders. Community Leaders. Not-for-Profit Leaders…. the list goes on.

Leaders have to push themselves out on a limb. Leaders have to stand out from the crowd. Leaders must push the status-quo and challenge accepted ways of thinking. For these reasons, being a Leader can be isolating.

So what is the catalyst that can turn individuals (often initially perceived to be) “lone lunatics” into admired Leaders of Movements?

Answer: a 1st Supporter

Being this 1st Supporter demands bravery (just as brave as being the (about to be saved) isolated, lunatic Leader). The first supporter is often accepted as an equal by the leader – perhaps an element of relief from the Leader to find a kindred spirit. The 1st supporter needs just one more person to join for a crowd to emerge (i.e. 3, the Leader + 1st supporter + 1 other). From this crowd, a Movement can develop.

Nowhere is this more perfectly demonstrated than in the above talk by Derek Sivers. Watch how the (initially) perceived dancing “nutter” is quickly enveloped by those eager to become part of the in-crowd – those who had, up until a few minutes before, watched with a mixture of amusement and horror from the safety of the crowds. But they stood up and joined in – all due to the bravery of that 1st supporter. Fascinating stuff.

Lesson: Great Leadership can only emerge by virtue of that single 1st brave supporter.

So can you see an opportunity to be THAT 1st Supporter and be the much needed catalyst to help create a Movement?

iPad frenzy begins – What can businesses learn?

Today is the day that the media frenzy for Apple’s latest toy, the iPad, reaches new insurmountable heights with its launch in the US.

What can we learn from the iPad that you can apply to your business?

Here are some of the traits that strike me:

  • design thinking – it looks beautiful
  • usability – it looks easy and fun to use
  • innovation – it may redefine the computer – will separate keyboards become a thing of the past
  • game-changing – digital or ebooks may finally have THE portal device that could make them mainstream. I suspect the Kindle will look primitive in comparison
  • anticipation – Apple created a buzz before Steve Jobs announced it in Jan 2010 – we knew they had some sort of tablet on the way but no-one knew what it would look like or its name (e.g. iSlate anyone?)
  • evolution – look back at how the iPad evolved from the ipod (first incarnation was clunky looking but functional). The ipod Touch and iPhone developed the touchscreen that was necessary to roll out the tablet iPad
  • crowd-sourcing –  the real value of the iPhone and ipod Touch emerged from applications developed by external developers. Apple resisted releasing the developer tools initially but since then applications (both free and paid for) within iTunes have flourished. These will also be available for the iPad
  • stubbornness – nobody asked for the ipod – we had perfectly good walkmans. Apple just showed the way.
  • never resting on their laurels – Apple could have sat back and basked in the glory of the ipod and iphone. They are still selling by their millions. But no, they pushed forward with the iPad to change the game once again
  • building new markets – the publishing industry may be changed beyond measure. Magazines and books may be consumed in new ways.

What have I missed?

Carbon Reduction Commitment (CRC) – Dawning of Constructive Capitalism?

Today’s the day that a mandatory carbon reporting and trading scheme comes into force for some 5,000 UK businesses (the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme is its full title if you’re interested!), yet confusion still reigns regarding its implementation, enforcement and its overarching policy goals.

This is most evident from a Telegraph article today in which, not only are the quotes in the body of the article pretty much unanimously derogatory toward the scheme (e.g. “the scheme is likely to add 6% to affected business energy costs next year” etc) but more interestingly, there are also some 28 highly disparaging reader comments (at the time of writing). Most reader comments refer to climate change being some sort of conspiracy theory (or even April Fool’s joke!) aimed at lining the pockets of politicians, experts and consultants, without a single positive comment to the effect that we might actually need a change of tack in our approach to doing business – and that attempting to change business behaviour by implementing a limit on carbon usage might (just might…) help wrestle in global warming.

Admittedly, the introduction of the scheme does not appear to have been as widely publicised as it could have been. As a result, the opportunity to clearly spell out the vision of success in reducing carbon emissions by 2020 (and ultimately 2050) and what this might mean for climate change has been missed. The danger now is that the naysayers get the opportunity to nit-pick and detract from a potential game-changing opportunity. Surely, even those sceptics who contest whether pumping fossil fuel fumes into the atmosphere actually impacts on global warming, must agree that extracting oil and fossil fuels at the rate we are now cannot continue infinitum?

Our current mode of business revolves around extracting and spending (most of) the natural capital resources of future generations when really we should be confining ourselves to spending and investing its income only (“spending capital”, “getting in debt for future generations….” does this sound familiar?).

Bringing the extractive qualities of businesses (in this case, energy consumption) sharply into focus for business decision-making and strategy should help empower new ways of thinking. Less about short term profits and targets and more about longer term value. New modes of thinking such as:

Sustainability. Responsibility. Accountability. Transparency. Community. Innovation.

Building sustainable value for the long-term. We can’t put this off any longer.

It was Umair Haque who aptly coined thick or constructive capitalism. A new way of thinking about business that is centred around building sustainable long term value.  Could the introduction of CRC represent another small step toward the dawning of constructive capitalism?

Photo credit: Kuyzetac

Fresh Water creates a Fresh Challenge for Business

A further significant challenge facing businesses wishing to do business in the 21st Century is emerging with news that access to fresh water is declining more quickly than originally feared.

A report by Globescan and SustainAbility notes that a combination of population growth, urban development, farm production and climate change is increasing competition for fresh water and producing:

“shortages so acute that virtually every industry in the world anticipates sweeping and systemic transformation over the next decade in their strategic planning, production practices and business models”

I repeat: “over the next decade“….? Are business leaders prepared for this? I must confess that this is not a business issue that has been high on the agenda with my clients but might this be about to change?

The survey, which covered some 80 countries and 1,200 influential leaders, said that water scarcity will deeply influence virtually every major company that wants to stay in business in the 21st century.

Respondents called for a focus on water conservation rather than increasing water supply.

This will impact on the way all businesses operate: from the way they function, to the products and services that they produce, as levels of water conservation continue to be squeezed.

This also opens a significant opportunity for innovation by entrepreneurs to either remodel a production process to use less water or to create products that use less water in the hands of the end user. Think of white goods manufacturers; easy-clean fabric and textiles; washing powders; sewerage systems; farming irrigation methods etc…. all ripe for reinvention.

Future investment in production plants will also likely be governed by the availability and access to water e.g. the report suggests that executives considering a new plant in China will be mindful of rapidly melting Himalayan glaciers in the Tibetan Plateau that feed some of China’s key rivers and that US factories may need to be relocated from drier South West areas to the more water-rich Great Lakes region.

So in addition to businesses managing their carbon-footprint it looks like a company’s water-footprint will become increasingly important – to understand the life-cycle of water within the business and to maximise conservation and management. Coca-Cola has been ahead of the game in this area and it is likely that the rest will have to follow.

“When it rains, it pours”… the saying goes, but this might turn out to be a distant wish unless we start responding to these challenges now.

Photo credit to gato.