Aaaaaargh!

What? Is Larry Elliott seriously suggesting this?

he could prevent corporate tax avoidance by taxing companies on their turnover rather than their profits;

What? So high volume low margin businesses pay more tax than low volume high margin ones?

Erm, don\’t we actually want high volume low margin businesses? You know, more efficient ones? Ones that make less in profit per unit of sales? That\’s what is good for us, the consumer, isn\’t it?

Jeebus, there are some cretinous ideas out there……

21 thoughts on “Aaaaaargh!”

  1. Larry Elliot is the economics editor of the UK’s newspaper for the left-wing intelligentsia. It makes me want to weep.

    (Because I’m a left-winger, and would very much like to read a left-wing newspaper featuring economics writers who know what they’re on about. )

  2. I am sure all those difficulties could be eliminated by introducing an agency that looked at each case and for bona fide businesses allowed a different rate of tax based on acceptable industry margins.

    Obviously they would have to take into account the social impact of the company: its gender policies, mitigation of carbon emissions, community outreach programmes, and so on. Some of these things are subjective, of course, but sound people in the agency would ensure appropriate outcomes.

  3. Wow this is unbelievable. I am in the first year (first 3 months) of a startup. I am highly likely to make a loss in the first financial year due to start up costs. This guy wants to tax me 23-28% (or whatever) on my turnover? Making the first year losses much bigger? No one would start up a business ever!

  4. So Much For Subtlety

    Hmmm. A high volume low margin business is probably in an old established industry with lots of competition. A low volume high margin one is likely to be a new start-up or in a growth area. Less competition.

    I can see why someone might like to encourage old industries to shut and new ones to open.

  5. smfs

    entrants are often loss-making for a long while, and can have low margins while pursuing market share growth. Mature businesses, operating off prior investment and being used a cash-cows, can often have higher margins, especially if they’ve got a nice oligopoly going on. I had a quick look for data on correlations between firm age and margins, but I couldn’t find it.

    We want to encourage competition and low-margins, we don’t want to tax those guys out of business. Why do we want to put established industries selling goods on lower margins out of business? Who’d then sell us those goods, companies charging higher prices and making higher margins? How does that benefit us?

    Putting incentives in place to discourage price competition would be absolute lunacy.

  6. “allowed a different rate of tax based on acceptable industry margins. ”

    This does already happen, albeit with mixed results, with the flat rate VAT accounting scheme.

  7. “This guy wants to tax me 23-28% (or whatever) on my turnover? Making the first year losses much bigger? No one would start up a business ever!”

    Ah, you’ve not heard of French cotisations then? A turnover tax that is so whopping over the first three years that you have to have significant savings before you start the business in order to pay them.

    In France, you really really really have to want to be self-employed. Is it any wonder they mostly work for large state-owned corporations and “Bonjour Paresse” became a bestseller? Is it any wonder why London is the 5th biggest French city?

  8. Hence the recent introduction of the Auto Entrepreneur, that operates similarly to UK self-employed start-ups, without the up front cotisations payment.

    Apparently, the new system is proving highly popular. I’m not surprised…

  9. I wasn’t aware the French people who live in London were all setting up their own small businesses.

  10. “Hence the recent introduction of the Auto Entrepreneur, that operates similarly to UK self-employed start-ups, without the up front cotisations payment.”

    Err, sadly no. The new Auto Entrepreneur system merely levies tax on actual turnover rather than imputed turnover. 23% if it’s a service business, and 12% if it’s a reseller business.

    “Apparently, the new system is proving highly popular. I’m not surprised…”

    The popularity is down to no longer paying tax on turnover you didn’t have (i.e. you were required to hand money to le fisc from your life savings while the business was getting off the ground).

    With the new system you still pay tax on turnover, but only when you actually get some. If your margins are more than 12% then you can actually make money. It’s quite a novel concept for the French.

    Of course, you still need to send a business plan to the French Chamber of Commerce to get permission to start your business, and they will ask your competitors whether there is sufficient demand for your services in order to see if your business plan is realistic.

    “Entrepreneur? Bien sur, nous entendons parler du mot.”

    Tim adds: “Of course, you still need to send a business plan to the French Chamber of Commerce to get permission to start your business, and they will ask your competitors whether there is sufficient demand for your services in order to see if your business plan is realistic.”

    Whaaaaat?

  11. “Whaaaaat?”

    Ah, the eternal reaction of the Anglo-Saxon when encountering something of such staggering Gallic normality that it’s hardly ever mentioned by them.

    In France, if you are to be officially self-employed you have to register. You can’t just tip up and say you’re self-employed: you have to prove you will have a viable and bona fide business. This is partly the Gallic mind at work, but also because you can’t be officially resident in France unless you’re employed, retired or self-employed. So your local Chambre de Commerce will decide whether your business is acceptable or not, and requires a watertight business plan. They have to judge whether the plan is viable to do this they ascertain whether there is sufficient demand for your services, and to do that they ask the people in the same trade in the local area.

    To quote the first sentence of pretty much any article for Brits on starting a business in France: “Setting up a business in France is complicated, but not impossible.”

  12. “Is there a case for taxing individuals’ profits instead?” (Ian B)

    That’s capital gains tax, isn’t it?

  13. “Just as a comparison, income tax is a tax on individual turnover. Is there a case for taxing individuals’ profits instead?”

    I suppose we sort of recognise that with the lower earnings threshold: income below that isn’t ‘profitable’ (in that it doesn’t cover living expenses). Which means that we ought to have a living expenses threshold that is realistic (Tim’s £11k is nearer the mark).

  14. Hang on folks.

    I haven’t been to Paris for a good many years, but in the past the Bois de Bouloigne was a notorious stamping ground for hookers.

    Now I’m quite ready to believe any nonsense about the French, I really am.

    I’m just trying to work out how the Paris Chamber of Commerce determine how many hookers the market will support, and whether aspiring new practitioners are competent….

  15. “I’m just trying to work out how the Paris Chamber of Commerce determine how many hookers the market will support, and whether aspiring new practitioners are competent….”

    I’d like to see the business plan, too.

  16. The problem here is that its too easy for the big businesses to find a way around the issue. In this case, they would reduce their turnover by separating every department and making it a business in its own right. While this is done now for accountancy reasons, the next step of having a sales department Ltd is only a small one.
    Tesco would suddenly find itself as a network of 1000’s of small businesses – all with a smaller turnover, and a smaller tax bill!

    As an indicator for this – I’m aware of a trick a few small businesses used to do to avoid becoming VAT registered back in the 1990’s – they used to have a different company every day! Suddenly the turnover dropped to 1/7th – no need to become VAT registered! – I think its been stopped now, but don’t take my word for it, ask a good accountant!

  17. Hammering high-volume, low-margin businesses?

    He couldn’t be getting at Wal-mart by any chance, no?

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