Monthly Archives: December 2014

First the Banks – are EU Regs, MOSS VAT & HMRC also trying to kill off UK SMEs?

This is an unscheduled blog because this afternoon I read an article in the Telegraph about a proposed VAT reform which will literally kill off tens of thousands of SMEs. Here’s a link to the article: http://www.telegraph.co.uk/technology/internet/11295953/How-the-EU-is-throttling-online-business-with-idiotic-VAT-reform.html In short, what it says is every SME will have to pay VAT on every digital transaction to EU Countries as of January next year and this will expand to physical transactions in 2016. Therefore, even an aspiring author or musician or photographer selling their ebooks, digital images or mp3s – and maybe with a turnover of £5-£10,000 per annum will have to register for VAT, charge it to their EU customers and submit a mountain of paperwork to HMRC. They will also have to register for UK VAT even although they are exempt and under the threshold.

This begs the question of why we are part of the EU when the adverse consequences seem to outweigh the benefits? And what benefits? Surely one of the biggest benefits was we are free to trade with all our EU partners? Here’s a blog from Andrus Ansip at the EU Commission: https://ec.europa.eu/commission/2014-2019/ansip/blog/euvat_en

The first thing I noticed in the blog was this comment “The change in VAT rules was decided democratically, and after years of discussion, by EU Member States in 2008.” Democratically by who? Given it will affect SMEs so dramatically, I wonder how many SMEs were asked how they felt about it? And assuming it was a democratic process in EU terms, i.e the MEPs sat down over a nice lunch and agreed on this, how democratic were individual Governments and specifically ours, in asking if SMEs agreed? Personally I had no idea this was due to happen – maybe I just missed it? Admittedly I was very tied up exposing bank fraud in 2008 (another crippling tool to destroy SMEs) so I may have over looked it because I couldn’t trade my SME back then (or now). And, trailing through Goggle today, I have found plenty of news about this – although no front page news, so I have been asleep at the wheel but that doesn’t excuse the lunacy of it.

Why have the EU done this? Well according to Andrus, “ As I understand it, one of the aims was to establish a level-playing field for smaller companies. No more picking of low VAT countries by larger companies to gain a competitive advantage over SMEs.” Riggghht! This is to stop companies like Amazon exploiting tax loop holes by basing their digital content sales in Luxembourg. Fair enough, Amazon et.al will now have to pay millions in extra VAT payments. But does anyone really think they will absorb this cost? No. They will simply pass the cost on to the consumer. Not just the cost of the VAT but also the huge accountancy costs involved.

Andrus goes on to say “Now, some small and micro companies are worried about what the VAT changes coming on January 1 mean for them.” You bet they are. “Given that this change was adopted six years ago, Member States should have helped businesses to prepare.” Even if they had – what would that change?

Consider this: Joe Bloggs writes a book, turns it into an e-book and promotes and sells it via his own website. The e-book costs the buyer £2.00 + VAT for EU buyers. He sells 50 books in the UK – that’s OK he doesn’t have to charge VAT although he still has to be registered for VAT if he wants to sell in the EU. He sells 10 books in France, 15 in Germany, 5 in Italy and and 20 in Spain because his Aunty Mavis who lives in Benidorm persuades her friends to buy it. So that’s 100 books and 4 different VAT rates. There is apparently a “one stop shop” which will help with these varying VAT rates but I’m not sure how this works or, if I was Joe (and to an extent I am) whether I would want to take that route or just not sell to EU Countries.

Joe will have to do quarterly UK VAT returns even if he doesn’t charge VAT in the UK (he can just fill in 0 in all the boxes – so that’s not a waste of any one’s time!) and do separate VAT returns for his EU sales (no idea what happens with the rest of the world – is that still zero rated?). But because he does charge VAT for the EU he can deduct any expense relating to his EU sales from his overall VAT. And all this will be broken down and documented in the records of sales Joe must keep for years.

Now Joe, who is an excellent writer but not much of an accountant, could possibly struggle with the various rules and regulations he has to comply with – starting with, does he have to register at all or is what he does exempt? For example, these new rules don’t apply to: “supplies of goods, where the ordering and processing are electronic.”

But they do apply to: “images or text, such as photos, screensavers, e-books and other digitised documents e.g. pdf files, music, films and games…..”

I find that a bit confusing because ordering or processing an e-book is all done electronically isn’t it? So I looked at the section of the HMRC document entitled, “What is meant by electronically supplied?” and it explains: “This covers e-services which are automatically delivered over the internet, or an electronic network, where there is minimal or no human intervention. In practice, this means: Where the sale of the digital content is entirely automatic – for eg a customer clicks the ‘buy now’ button on a website and the: content downloads onto their device – customer receives an automated e-mail containing the content.”

So what part of a customer clicking “Buy Now” on your website and then receiving your e-book to download, isn’t covered in the above? Equally confusing is the section entitled “Examples of Electronic Supplies and Whether They Are Digital Services.” According to the chart, if Joe e-mails a pdf (his book) to someone, that is an E Service but it’s not covered by the new rules. However, if his pdf document is automatically e-mailed by the sellers (his) system or automatically downloaded from his site, then it is an E-Service and he does have to pay EU VAT to sell it in Europe. Hang on – didn’t it also say the new rules don’t apply to “supplies of goods, where the ordering and processing are electronic” or where the customer clicks the “buy now” and automatically downloads?

I won’t go through the rest of the document because I’m confused enough but here it is: https://www.gov.uk/government/publications/revenue-and-customs-brief-46-2014-vat-rule-change-and-the-vat-mini-one-stop-shop-additional-guidance/revenue-and-customs-brief-46-2014-vat-rule-change-and-the-vat-mini-one-stop-shop-additional-guidance

I have a horrible feeling this EU VAT reform will be an absolute disaster for SMEs and it will either cause a lot to just stop trading or, it will cause them to stop bothering to be independent. What will be the point of Joe doing all this hard work (over and above writing his books) when the easiest option will be to sell it on Amazon in the first place and let them do the accountancy exercise? Yes Joe will get less money so Amazon can have a cut and his book will cost more because Amazon will pass on the EU VAT costs to the customers – but at least Joe won’t have a nervous breakdown doing a mountain of paperwork (which will no doubt result in massive fines if he gets it wrong) in order to sell 50 e-books to Europe. And there are 1000’s of Joe Bloggs in this Country who will do the same. I would even advise them to do so. So Amazon et.al could come out of this quite nicely.

Don’t get me wrong, I have two books on Amazon Kindle and it’s a very convenient site for writers. And ironically, I’ve had an e-mail this evening explaining the new charges anyone in Europe will have to pay for my books. But I am very aware small publishers will really struggle with this new system – the same as I would as a music publisher – which I was and would be but for HBOS.

End result? Whereas the internet gave millions of people and SMEs the opportunity to promote and sell their individual downloads all over the world – MOSS VAT + HMRC will now take that ability away. We will end up with half a dozen global platforms to sell digital or physical products across the Europe – and no doubt the world will follow. Sure they will have lots of subsidiaries but ultimately there will be a few Corporates running sales across the internet or to Europe.

The obvious solution was (and you don’t need to be a rocket scientist to work this out) – those digital traders or physical traders in the UK who sell in excess of the UK VAT exemption figure, should charge and, if applicable, pay VAT to the EU in the same way they do in the UK but at a flat rate agreed by the EU community to avoid unnecessary bureaucracy.

I would say to Mr Ansip, Mr Osborne and Mr Darling (who must have agreed this in the first place) that while MOSS VAT may bring in some cash from the big players avoiding tax, it will do them little harm and they’ll simply put prices up. But your new rules will be a disaster for SMEs, for the economy and for the morale of the Country.

For example, I know a young photographer who sells her images digitally and who has already considered the sad fact she will have to put a sign on her site saying – “Apologies, no sales to EU Countries.”

One might almost think our Government’s (present and past) are quite keen to see SMEs throw in the towel. First the banks and now this. What next?

And one last thought, why does Andrus Ansip say “As I understand it….” Surely this is an EU directive drafted in Brussels or Strasbourg wasn’t it? So he should know. Unless it was drafted elsewhere.

p.s If any accountant reading this can clarify what MOSS VAT really means to SMEs, please do post a reply or e-mail smealliance2014@gmail.com . I sincerely hope I have got this all wrong.

Christmas 2014 round up of financial crimes with no one going to jail.

My husband made a very valid point a few days ago and I have been thinking about it every day since. He pointed out that when we (Paul and I) started looking at misconduct in the financial industry and specifically HBOS, we couldn’t get anyone to take our allegations seriously because no one believed us. That was in 2007 and it took until late 2009 to actually get the FSA involved and 2010 before the police got involved – even although we made allegations to the police in November 2007. We’re not a lot further forward now in December 2014 because the criminal trials for that alleged crime won’t start until September 2015 – and even then, I’m not holding my breath.

It was disappointing no one believed us in 2007 but not surprising because the idea banks, or rather bankers, might be crooks, was out of the question back then. Bankers were seen as respectable professionals and your bank manager was so trustworthy, he or she could even sign your passport. The same doesn’t apply now and no one bats an eyelid at the concept of crooked bankers – in fact bad conduct is what we expect from them, to the point even the good guys (yes I do acknowledge there are still many good bankers our there) are tarred with the same brush.

Paul’s point was simple: It was tough back in 2007 because no one believed us, so nothing was done. Now, everyone knows the financial sector is rife with fraud and corruption and still nothing has been done! Not just in the case we reported – right across the board and in thousands of cases. Even more alarming is the fact that, in many instances I know of, where people have tried to report financial crime, the police will not investigate it! In all probability this is because they don’t have the budgets to investigate such a glut of criminality in austerity Britain – but that is of no help to the victims who are frequently told – “it’s a civil matter.” No it’s not – crime is never a ‘civil matter’ and even victims of PPI have a right to report it as a crime, get a crime number and, if applicable, also have it investigated. Of course that might damage crime statistics.

But no. Most financial crime is just swept under the carpet as “mis-selling” or “restructuring” and resolved by bank shareholders’ paying huge fines to the FCA. Think about that for a moment – we all believe bankers have committed criminal acts but nothing has happened. It just beggars belief and is really as scary as hell because, what it actually means is, we can no longer rely on the Law and really do have a two tier criminal justice system. There isn’t another, plausible explanation.

This terrifying thought was brought home again when I read the latest excellent Matt Taibbi article in Rolling Stone magazine: http://www.rollingstone.com/politics/news/the-police-in-america-are-becoming-illegitimate-20141205 where he is talking about the disparities in the US legal system and it reminded me that I still haven’t had a reply to my letter to Mr Cameron of December 2012 when I asked for some clarification about the apparent immunity bankers have from prosecution. In that letter, which I wrote after reading some worrying comments from Andrew Bailey (now head of the PRA), I said:

Mr Cameron, unless I am completely mistaken, Mr Bailey seems to be telling us that banks, and therefore bankers, are now officially considered to be above the law in this country and that, in the interests of confidence in the banking industry (which is already at rock bottom among the British public, and therefore can hardly sink any lower), they cannot be prosecuted.

I am writing to ask you, as Prime Minister, for some clarification.

Does your government endorse the notion that banks and bankers should be given a licence to commit criminal acts without any fear of prosecution? Is this now official government policy? Are the British public now being asked to accept that, despite incontrovertible evidence of multiple criminal acts by banks, including money-laundering, drug-money-laundering, Libor rigging, multiple frauds and assorted Ponzi schemes, bankers are considered to be immune from prosecution? And if so, can I ask on what grounds your government, or indeed the government of any democratic country, can justify such a policy?” Full letter here: http://www.ianfraser.org/dear-mr-cameron-if-bankers-are-above-the-law-we-need-an-urgent-explanation/

I didn’t write the letter to be confrontational – although I must admit I am incredibly disappointed the PM’s strong words in the run up to the last election about what should happen to criminal bankers, turned out to be hot air and no more. This is what he said to Jeff Randall in January 2009:

“I think that we need to look at the behaviour of banks and bankers and, where people have behaved inappropriately, that needs to be identified and if anyone has behaved criminally, in my view, there is a role for the criminal law and I don’t understand why is this country the regulatory authorities seem to be doing so little to investigate it, whereas in America they’re doing quite a lot.”

I wrote the letter because I genuinely wanted some reassurance from the Prime Minister that bankers are not above the law; we don’t have a two tier legal system and; something would be done to redress this inequitable situation.

So what has happened to clarify or allay my concerns since December 2012? Well a few things have happened but not what I was expecting. For example:

  1. I’ve never had a reply.

  2. Several banks have been found guilty of money laundering and even money laundering for drug cartels. And the only penalty has been a huge tax on the bank’s shareholders who have paid massive fines for the conduct of bankers. But no one has gone to jail.

*given that banks (buildings or legal entities) don’t have any physical ability to pick up the phone and negotiate with drug cartels – such deals had to be done by bankers. So why have no bankers been held responsible?

  1. Many banks have been found guilty of making billions of pounds with the PPI scam. They’ve had to pay the money back in many cases but, I assure you, not all cases. So again, the shareholders have lost a fortune. But no one has gone to jail.

* I often wonder who invented PPI? Did senior bankers sit down and plan how best to get thousands of their customers to take out insurance policies which cost them a fortune but could never be used? Or did someone in a bank find a recipe for creating and implementing PPI in a fortune cookie?

  1. As a founder member of SME Alliance, I talk every day to people whose businesses have been totally destroyed with various, ridiculously (and I would suggest deliberately) complicated financial products under the collective name of swaps. I’m not a victim of a swap and I know little about them (I’m learning fast) but even their titles smack of more contempt for businesses e.g. vanilla swaps. Can you have chocolate or strawberry? Probably. The FCA have said many of these products should never have been sold to ‘unsophisticated’ clients and in some cases banks have had to give the money back. However, the years it has taken for this to happen and the devastation these products have caused, apparently do not necessitate banks having to pay out billions in compensation. The redress scheme the FCA has come up with has conveniently been limited to peanuts – and no one has gone to jail.

* A journalist was telling me the other day of a case where someone challenged the FCA decision multiple times and was eventually awarded £500k – but of course the bank interest and charges on his account over the time it took to challenge the bank’s conduct meant the victim got nothing and the bank paid themselves £500k. You couldn’t make it up.

  1. The now infamous business recovery units like RBS/GRG have been merrily acquiring, appropriating, stealing their clients’ assets left right and centre and sadly RBS have not been working in isolation. It has caused outrage – it’s been all over the news, MPs have held debates on the subject, Committees have interviewed senior bankers and regulators and even the ever cautious BBC have suggested some bankers are crooks. http://www.bbc.co.uk/programmes/b04t6jy1 But no one has gone to jail.

* As a victim of HBOS Reading (similar model) I have so much to say on this – but am having to keep quiet for now but not forever.

  1. And while the likes of GRG and HBOS Reading have caused many businesses to fail, a separate scandal has specifically targeted farms across the Country for over 20 years. Repeated allegations have been made against a man called Des Phillips and various of the 59 companies he has been or is a director of including UK Farm Finance, UKCC and UK Acorn Finance. And some of our major banks have been heavily implicated in these allegations as have other ‘professionals’. It’s a sickening story which has resulted in many family farms being repossessed and, sadly, farmers committing suicide. You can hear about it here: http://www.bbc.co.uk/programmes/b040hzz5 or read about here: http://www.publications.parliament.uk/pa/cm201415/cmhansrd/cm141111/halltext/141111h0001.htm No one has been prosecuted so no one has gone to jail.

  2. Bankers or traders have been found guilty of rigging LIBOR. Again, massive fines have been levied – another penalty on shareholders. However, in this instance it looks possible some bankers will go to jail and one banker has even pleaded guilty. But let’s not get too excited that justice might be done. Read this: http://www.theguardian.com/business/2014/oct/07/banker-pleads-guilty-libor-rigging-rate-fixing

As you can see the banker concerned could get up to 10 years in jail but we don’t know who he is or what bank he worked for and reporting on this case is heavily restricted. Presumably, after the other three people charged have had their trials, we might know more. But I wouldn’t bet money on it – especially if the banker in question worked for one of the State subsidised banks. But it’s a start.

I could make the list much longer but, to date and looking at the 6 instances above, money laundering, PPI, Swaps, asset theft including farms and LIBOR rigging, it’s certain 1 person in the UK will go to jail and 4 people might. And when you look at the trail of poverty, misery, desperation and devastation these crimes have caused, it is unbelievably disappointing – not to mention scandalous, that our regulators, justice system and worse still, our Government, have let this happen. In fact it is morally and ethically reprehensible.

Of course individual bankers do go to jail quite regularly – they’re usually quite low down in the pecking order and their offences (with a few noticeable exceptions) just about make it into their local newspapers. But the top dogs – the ones who make policy – the ones who instigate and oversee the kind of conduct which allowed all of the above to happen, seem to remain above the law. Which begs the question – why do we have laws?

Meanwhile, the Government have issued the following figures regarding crimes to businesses:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/284818/crime-against-businesses-headlines-2013-pdf.pdf

I haven’t read it in any great detail but I’m pretty sure it doesn’t mention the wholesale destruction of SMEs by banks. I sometimes think we should move the Houses of Parliament to Canary Wharf and have done with it before La La Land spreads across the whole of London.

Here in the real world we are in the run up to what will be another very austere festive season for many people in Britain – and I’m not just talking about people or SMEs who have been defrauded by banks. I’m talking about those families who’ve lost jobs and/or benefits and most of all, those people relying on food banks or who have lost their homes and now live on the street. A lot of people would say – me included – our major banks and therefore our most senior bankers, were very instrumental in causing our national austerity. And, post the so called Credit Crunch, those same banks (especially the part State owned ones) have done little to help the economy and much to damage it further. Unbelievably, the people at the top of those banks continue to be heavily rewarded.

For example, yesterday (13th December) I was reading an article about the top paid European Bank CEO’s. http://www.cityam.com/1415705309/which-ceos-european-bank-have-biggest-pay-checks-two-uk-banks-take-second-and-third-place

Hmmm – £7.4M. Even when you deduct 50% tax, that still leaves approximately £71k a week. I think you could have one hell of a Christmas with that remuneration package!

Mind you, every silver lining has its own cloud and I suddenly thought – I bet it’s really tough finding the perfect Christmas gift for these top bankers because, what do you buy for the man or woman who has everything? So maybe La La Land has its own problems at Christmas.

Shame you can’t gift wrap integrity – if we could give some of them that, the whole Country might feel more festive. Still, there’s always the good old standby gift – Monopoly. After all, banks have bought, sold, packaged and mortgaged every property on the board many, many times over – but, to date, they have been very adept at steering clear of the “Go to Jail” square. But then I’m guessing Al Capone thought he would never lose ‘games’ either.