Facebook to Pay More Tax in the UK

Facebook-LogoFacebook is to see its UK tax bill increase by millions of pounds following a huge reform of its tax practices. The social networking giant implemented the reforms following heavy criticism of the practices it uses to minimise the amount of tax it pays on its UK advertising revenue.

Previously Facebook, like a number of other major companies, used complex business structures to divert its UK profits through overseas offices. As such, though the profits were generated in the UK, they were largely recorded as taking place overseas. Effective rates of tax paid to the UK government by multinational companies using these tactics can be extremely small, with tax on UK profits instead being paid in other jurisdictions that offer lower rates of corporation tax.

The announcement that Facebook will be paying more UK tax follows not long after another company that has used similar tactics, Google, attracted fresh controversy. The search specialist reached a deal with the UK government which saw it continue to pay very low effective rates of corporation tax, leading some to accuse the government of offering “mates’ rates.”

Facebook was diverting profits for advertising revenue generated from sales to many of its biggest advertisers through Ireland, a jurisdiction also favoured by many companies using similar tactics such as Google. This included revenue generated through advertising for large-scale businesses such as Sainsbury’s, Tesco, WPP – a major advertising specialist – and Unilever.

Advertising sales from smaller businesses will still be routed through the company’s international headquarters in Ireland when advertising is booked online without significant involvement from Facebook staff. However, the decision to cease this practice with regard to the bigger advertisers will see the full rate of UK corporation tax paid on the majority of the company’s UK profits. The resultant increase in the company’s tax bill for its UK operations is expected to reach into the millions.

Facebook is one of a number of multinational companies to attract criticism for avoiding UK tax on its earnings. Facebook is a multi-billion pound company, usually taking only around three months to generate in excess of £1 billion in profit. While it is not known exactly how much of this comes from UK revenue, it is known that the UK is one of the company’s biggest markets. In spite of this, it was revealed late last year that Facebook’s total corporation tax bill for 2014 came to just £4,327.

The changes to Facebook’s tax structure will take effect in April as the new tax year begins. As a result, the company’s first tax bill under the new arrangement will be payable next year.

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September saw Increase in Public Borrowing

According to the most recent figures released by the Office for National Statistics, September saw a significant rise in the UK’s levels of public borrowing. The government borrowed £11.8 billion, which is a year-on-year increase of £1.6 billion compared to September 2013.

The increase goes against expectations, as economic experts were predicting that public borrowing would remain flat. It also represents bad news for George Osborne (pictured right). In March, the Chancellor pledged that, over the course of a year, he would slice 10% off the budget deficit. This plan has since consistently struggled to get off the ground, with the latest figures forming a fresh blow.

Total borrowing for the financial year up to September came in at approximately £58 billion. Compared to the equivalent portion of the 2013/2014 financial year, this represents a year-on-year increase in borrowing of £5.4 billion or 10.3%.

According to economists, the government will certainly feel the effects of this situation of increased borrowing. As the general election approaches next year, they are likely to find themselves with only limited options. According to Capital Economics senior economist Samuel Tombs, “The continued run of poor UK public borrowing figures looks set to severely hamper the chancellor’s ability to announce giveaways to address his party’s deficit in the national opinion polls before next year’s general election.”

Furthermore, Tombs believes that in the Autumn statement, which is due for December, “the chancellor will be forced to acknowledge… that the fiscal consolidation is not going to plan.”

These sentiments were echoed by Chris Leslie, the shadow chief secretary to the treasury, who described the increase in borrowing as “a serious blow to George Osborne.” Leslie went on to say that the figures have left Osborne “set to break his promise to balance the books by next year.”

The need for greater volumes of borrowing comes in part from lacklustre income tax receipts. For the first half of the 2014/2015 financial year, the year-on-year increase in income tax receipts stood at a mere 0.1%.  This, according to IHS Global Insight chief economist Howard Archer, is down to a number of factors such as weak earnings growth and the fact that “much of the employment growth has been in low paid jobs or in self-employment.” The fact that the personal allowance has increased during the current government’s term has also had an impact on income tax.

A spokesperson for the Treasury acknowledged that the figures were less than ideal. The spokesperson admitted that “the impact of the great recession is still being felt in our economy and the public finances” and that “we have to recognise that the UK is not immune to the problems being experienced in Europe and other parts of the world economy.”

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It’s That Time of Year Again – The Self-Assessment Deadline Looms!

The dreaded self-assessment tax return deadline is just a few days away, and many people are still a long way from completing it. The truth is it’s not the difficult beast that we all believe it to be: simply keep a sensible record of your income and business expenditure, and you have it all to hand. Are numbers simply not your thing? Ask a friend who is more mathematically minded – you don’t need to be an accountant to fill in what is a simple form. Let’s have a look at some important tips.

Meet the Deadline

The most important part of filling in an online self-assessment form is that you meet the deadline; for online applicants this is 31st January, 2013, and if you miss the deadline by even one day you may be made to pay a penalty of £100. This applies, you should be told, even if you do not owe any tax! Even later, and the fines become more harsh, so it is vital that you plan in advance. The online form is simple to fill in and there are useful guidelines at the HM Revenue and Customs website, so make sure you take a note of what is required.

What Do I Need?

You will need your user ID, the email address you have registered with HMRC, and your unique taxpayer reference, as well as your chosen password. The problem for many people is that as this is a once yearly exercise, it is easy to lose one or all of the above. Your unique taxpayer code should be at the top of any communication from HMRC – it may be labelled Tax Reference and is a 10-figure number, but without your email or ID it is very difficult to get hold of a forgotten password. There are helpful online help channels you can use.

Do I Need to Fill in the Form?

If you are self employed and even if you did not earn enough to pay tax you must fill in a self-assessment form; not to do so is to act fraudulently, and the penalties are very harsh. It really is not as hard as many make it out to be, and in simple businesses can be as easy as telling the tax office your income, expenditure and profit across the year. Avoid those penalties, and get it done right now.

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Increased Tax Rate Fails to Improve Revenues

As the government faced greater spending cuts, David Cameron’s predecessor decided to increase the marginal tax rate. In theory, this was supposed to help the government substantially improve revenues so that they wouldn’t have to implement austerity measures to the same degree.

To Cameron’s disappointment, the increased marginal tax rate is unlikely to create the rebound in revenues that many people were expecting. In fact, it appears that the increased tax rate has actually decreased revenues by about 5%. The filings that were initiated on January 31 show that revenue is down almost half a billion pounds.

This months reports are the first indicator that Cameron and the Inland Revenue Service have to decide how effective the tax increase will be. The tax year will end on April, but the self assessment is due by the end of January report. Therefore, the first month of the year is the first time that the Inland Revenue Service can see what impact tax increases hold.

These figures indicate that Gordon Brown’s decision to implement these taxes has not yielded the promising results many hoped for. However, Cameron may face criticism from his own party for choosing to keep them in place.

The government doesn’t have many historical indicators to suggest that increasing taxes are going to have a major impact on revenues. Former Chancellor Lawson agreed to cut the tax rate from 60% to 40% nearly 30 years ago. The rate has not been increased since.

The biggest reason for the tax increase was to make sure the bankers paid for the damage they caused during the financial crisis. Cameron himself made a more unbiased statement, but many people insinuated that he felt the same way. Although the financial crisis initially originated on Wall Street by larger American banks, UK citizens haven’t felt any less animosity to their own bankers or held them any less accountable for their own mistakes.

One of the problems with the new tax system is that the richest citizens seem to have been able to shift their money overseas to avoid paying their taxes. This could be an indication to the government that they would need a new policy if they intended to make sure they could increase their tax revenue to any meaningful degree.

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Cameron Considers Tax Breaks to Hire Cleaners

Prime Minister Cameron has stated that he is considering offering tax breaks to people who hire cleaners. Although this may sound like an unconventional reform proposal to many people, he intends to use it to create jobs.

Cameron said that such a measure would encourage more women to enter the workforce and would create a new jobs for cleaners. In the long run, these tax breaks would add many more jobs to Britain’s struggling work force.

Cameron said that he got the idea while visiting Sweden, which had created a similar policy. According to Cameron, Sweden had improved their economy and built its workforce with the use of cheap labor.

However, the tax break in Sweden has been highly criticized. Many people have argued that it exists to provide tax breaks to the wealthiest figures in society.

The Swedish government argues that the new process has created about 5,000 new jobs. However, those figures don’t stand up to the voice of all critics. The issue they have is that far more wealthy citizens are likely to take advantage of the services than poorer citizens. In fact, the group that is by far the most likely to use these services is those who are earning about £5,000 or more a month.

In addition, it is unclear how many UK citizens would really benefit from the policies Cameron is proposing. According to the findings at the summit, most of the people who have benefited from the tax break in Sweden have been immigrants.

However, Cameron stated that his real goal was to create a more flexible working style for women so that they would be able to work alongside men in the workforce. This is important, because organizations seem to benefit more when they have men and women working together in the workforce.

Fredrik Reinfeld, Sweden’s Prime Minister, has had a profound influence on Cameron’s ideas in this summit. Reinfeld said that he felt encouraging more women to join the workforce would reduce the risk levels in a number of different fields such as finance. These feelings are likely to be supported by many feminists who have stated that the lack of women in the workforce played a role in the financial downfall of 2008.

Although many people find these proposals to either be interesting solutions or highly controversial, the policy will likely not be implemented for some time. Cameron is just giving some feedback on possible ideas and it is unlikely he will commit to anything right away.

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Government Claims 50p Tax Rate About to Be Withdrawn

The prime minster has said that the 50p tax rate on wealthier citizens can only serve as a temporary measure for bringing in revenue. Cameron insists that it will be withdrawn, even though it created a substantial amount of revenue for the country during the first year it was enacted.

The decision will inevitably create a substantial amount of conflict between the two political ideologies. Although conservative leaders argue that abolishing the tax will be in the best interest of the economy, their liberal counterparts are not so convinced. The Democrats feel that the decision may be implemented solely to protect the interests of the wealthy.

The HMRC is going to issue a report that will show some perspective on the issue. This report is likely to show that the tax on high income earners has created hundreds of millions of pounds. As a result, the government has been determined to keep the tax going until at least 2015. However, the decision not to end the tax prematurely is clearly politically based.

Critics argue that ensuring the tax remains permanent is essential to financial reform. Without ensuring that people with the means to pay more to keep the country running are going to do so, the country is going to have a hard time getting its debt problem figured out.

There are also outcries that the system is going to be self-sustaining and equitable for everyone involved. The government has announced that it is making significant cuts to benefits, which are likely to keep many people from being able to afford a home. Cutting taxes to wealthy citizens at a time when impoverished people are struggling more than ever before may be perceived as a sign that the government has chosen to ignore the interests of the people who need the government’s support the most.

Nonetheless, Cameron’s statement to reporters made a good point. He emphasized that they are going to need to know how much money the country is bringing in before they decide whether or not to continue with the tax. Obviously, if the HMRC report shows that the tax has failed to bring in the revenue it projected, then it will be difficult to argue that the tax serves much of a purpose.

The 50p tax shows a struggle between the classes and the need to balance the needs of everyone involved.

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What Is VAT?

 

VAT (value added tax) is similar to a sales tax. It is a tax that is charged on most goods and services provided by VAT registered business in the UK. It is also charged on some goods and services imported from countries outside the EU and brought into the UK from other EU countries.

UK VAT is charged when a company registered for UK VAT sells to either another business or a non-business customer. This is called output tax.

When a UK VAT registered, business buys goods and services they can generally reclaim the VAT (input vat) they have paid on those services. An individual or non-VAT registered business cannot do this.

 

Do you need to be VAT registered?
If your turnover is more than £73,000 then registration is obligatory. A business may however choose to register for UK VAT even if turnover does not reach the threshold.

As part of our setup package, we register our clients for UK VAT if required. Most international clients will want to be UK VAT registered even if they never reach the obligatory threshold in order to be able to reclaim back the VAT on their expenses.

 

How much is UK VAT?
There are three rates of UK VAT

  • Standard – currently 20%. This rate applies to most goods and services
  • Reduced – 5% this rate is charged on fuel and power for instance
  • Zero – for example on books and magazines

Some goods and services are

  • Exempt from UK VAT
  • Outside the UK VAT system
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How Much Tax Do We Really Pay?

A study revealing the truth about taxation shows that taxpayers are actually paying more than how much the headline rates say. The headline rates actually conceal the real quantity that taxpayers contribute to the government.

The report, entitled, “How Much Tax Do You Really Pay,” is headed by one of Britain’s leading think tanks, the Center for Policy Studies. The organization had been calling the Chancellor to get rid of the 50% top income tax rate, and unify the tax and National Insurance, in the interests of transparency.

A spokesman stated, “We should stop talking about a 20, 40 or 50 per cent tax band and accept that the real marginal rates are much higher.”

According to the study, when basic rate payers put in money to National Insurance, they actually pay a real tax rate of 32%. Higher tax rate payers are charged with 42%, while those who receive between £100,000 and £114,950 would pay more with 62% and top rate taxpayers will give 52%.

What a big rip off!

All the money collected goes to the National Insurance to cover pensions and the National Health Service, but it is time they now for greater transparency in as families residual incomes are becoming more and more stretched.

 

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