Business
The complex world of taxation and its impact on SMEs

As SMEs fight to survive the recession, complex tax laws seem counter-productive in encouraging these businesses to step up and take a role in the UK economy. Vince McLoughlin, Partner at business, tax and charity advisory company, Russell New, takes a look at the problems and possible solutions.
As the Government and financial think-tanks look at ways to kick-start the economy, the focus is often on the role and contribution of SMEs. However, the bigger players and their recent associated bad press in regards to corporation tax avoidance – combined with taxation red tape – could act as a deterrent for more of these important businesses to flourish . It is natural for companies to look at ways to legally reduce their tax bill as with any other cost of business – but celebrity scandals and news of multinational corporations taking advantage of loopholes have understandably made smaller businesses question their own tactics in reducing tax for fear of falling foul of the law when they perhaps haven’t been doing anything wrong. In turn, this cycle of fear can hinder growth, which can be detrimental to the greater UK economy.
One of the main problems for all businesses trying to negotiate and understand the veritable minefield that is taxation law. As the Government tries to balance the books and find ways to draw in more tax-related income to boost the coffers, new legislation, schemes and restrictions are being introduced on a frighteningly regular basis. For SMEs that may not have their own in-house accountants or advisers, this makes it increasingly difficult to navigate their way through the most efficient processes to get the best financial results for their business while still acting within the law.
Without clear and concise guidelines and rolling updates on exactly what is allowable and what may be pushing the boundaries of tax efficiency, together with scaremongering headlines and the fear of potential legal and fiscal consequences, SMEs are becoming more and more reticent to take advantage of the tax breaks available. These types of concerns, while reasonable in light of recent history, can put them under unnecessary financial pressure rather than giving them the freedom they need to enjoy growth, create vital jobs and, in the long run, contribute more to the economy and community.
With the reputation of the UK tax system suffering due to the negative publicity over the last year or two, the spotlight is falling on all businesses liable for corporation tax – including the smaller companies that are so essential for improving our economic position. With a massive 95% of organisations in the UK being classed as micro-businesses, there is so much potential for them to assist in turning around our fortunes and leading us through the difficult financial position we have found ourselves in over recent years.
However, as more red tape and legislation is introduced in order to reduce the opportunity for large companies to benefit from offshore avoidance schemes and other borderline ‘nefarious’ tactics, it’s not just the guilty parties that are going to be hit. It can be difficult to target those who have the capability of using complex tax structures so the more tax laws that are introduced, the more complex the process of good accounting and tax efficiency becomes for the smaller businesses too – meaning that more money needs to be invested in getting the right kind of help to understand and manage the dos and don’ts of taxation.
So what can SMEs do to ensure they’re getting the best breaks possible when it comes to their tax liabilities, while staying in line with the rules? Well, knowledge is power; the most important thing to do in the first instance is to get guidance from somebody you can trust. You need to make sure that the information you’re being given is completely up-to-date at all times, with an adviser who is also proactive in informing you as soon as new changes are implemented. While you may think you can find the necessary details online or through word-of-mouth from other business associates, there’s no substitution for professional advice from somebody whose job it is to keep themselves and their clients on the right side of the law.
SMEs also need to do everything they can to make sure that they are claiming tax relief where they can, rather than being scared into submission and paying more tax than is necessary. We still have, enshrined within our moral code, the concept eloquently imparted by Lord Tomlin that a person is allowed to arrange his affairs so the tax attaching under the Acts is less than it otherwise would be. Capital allowance incentives, corporation tax rates, Research and Development and Patent Box reliefs, dividends and many other elements of tax planning need to be considered so that these businesses can realise their maximum growth potential.
Attention to detail and due diligence along with professional advice will help businesses navigate the turbulent and confusing waters of tax responsibilities. While the rules are complicated and ever-changing, the problems are not insurmountable as long as you plan well.
Business
Euro zone business activity shrank in January as lockdowns hit services

By Jonathan Cable
LONDON (Reuters) – Economic activity in the euro zone shrank markedly in January as lockdown restrictions to contain the coronavirus pandemic hit the bloc’s dominant service industry hard, a survey showed.
With hospitality and entertainment venues forced to remain closed across much of the continent the survey highlighted a sharp contraction in the services industry but also showed manufacturing remained strong as factories largely remained open.
IHS Markit’s flash composite PMI, seen as a good guide to economic health, fell further below the 50 mark separating growth from contraction to 47.5 in January from December’s 49.1. A Reuters poll had predicted a fall to 47.6.
“A double-dip recession for the euro zone economy is looking increasingly inevitable as tighter COVID-19 restrictions took a further toll on businesses in January,” said Chris Williamson, chief business economist at IHS Markit.
“Some encouragement comes from the downturn being less severe than in the spring of last year, reflecting the ongoing relative resilience of manufacturing, rising demand for exported goods and the lockdown measures having been less stringent on average than last year.”
The bloc’s economy was expected to grow 0.6% this quarter, a Reuters poll showed earlier this week, and will return to its pre-COVID-19 level within two years on hopes the rollout of vaccines will allow a return to some form of normality. [ECILT/EU]
A PMI covering the bloc’s dominant service industry dropped to 45.0 from 46.4, exceeding expectations in a Reuters poll that had predicted a steeper fall to 44.5 and still a long way from historic lows at the start of the pandemic.
With activity still in decline and restrictions likely to be in place for some time yet, services firms were forced to chop their charges. The output price index fell to 46.9 from 48.4, its lowest reading since June.
That will be disappointing for policymakers at the European Central Bank – who on Thursday left policy unchanged – as uncomfortably low inflation has been a thorn in the ECB’s side for years.
Factory activity remained strong and the manufacturing PMI held well above breakeven at 54.7, albeit weaker than December’s 55.2. The Reuters poll had predicted a drop to 54.5.
An index measuring output which feeds into the composite PMI fell to 54.5 from 56.3.
But despite strong demand factories again cut headcount, as they have every month since May 2019. The employment index fell to 48.9 from 49.2.
As immunisation programmes are being ramped up after a slow start in Europe optimism about the coming year remained strong. The composite future output index dipped to 63.6 from December’s near three-year high of 64.5.
“The roll out of vaccines has meanwhile helped sustain a strong degree of confidence about prospects for the year ahead, though the recent rise in virus case numbers has caused some pull-back in optimism,” Williamson said.
(Reporting by Jonathan Cable; Editing by Toby Chopra)
Business
Volkswagen’s profit halves, but deliveries recovering

BERLIN (Reuters) – Volkswagen reported a nearly 50% drop in its 2020 adjusted operating profit on Friday but said car deliveries had recovered strongly in the fourth quarter, lifting its shares.
The world’s largest carmaker said full-year operating profit, excluding costs related to its diesel emissions scandal, came in at 10 billion euros ($12.2 billion), compared with 19.3 billion in 2019.
Net cash flow at its automotive division was around 6 billion euros and car deliveries picked up towards the end of the year, the German group said in a statement.
“The deliveries to customers of the Volkswagen Group continued to recover strongly in the fourth quarter and even exceeded the deliveries of the third quarter 2020,” it said.
Volkswagen’s shares, which had been down as much as 2%, turned positive and were up 1.5% at 164.32 euros by 1158 GMT.
Sales at the automaker rose 1.7% in December, at a time when new car registrations in Europe dropped nearly 4%, data from the European Automobile Manufacturers’ Association showed.
Like its rivals, Volkswagen is facing several challenges due to the coronavirus pandemic as well as a global shortage of chips needed for production.
It also sees tough competition in developing electrified and self-driving cars. The merger of Fiat Chrysler and Peugeot-owner PSA to create the world’s fourth-biggest automaker Stellantis adds to the pressure.
Volkswagen said on Thursday it missed EU targets on carbon dioxide (CO2) emissions from its passenger car fleet last year and faces a fine of more than 100 million euros.
The group is expected to release detailed 2020 figures on March 16.
($1 = 0.8215 euros)
(Reporting by Kirsti Knolle; Editing by Maria Sheahan and Mark Potter)
Business
Global chip shortage hits China’s bitcoin mining sector

By Samuel Shen and Alun John
SHANGHAI/HONG KONG (Reuters) – A global chip shortage is choking the production of machines used to “mine” bitcoin, a sector dominated by China, sending prices of the computer equipment soaring as a surge in the cryptocurrency drives demand.
The scramble is pricing out smaller miners and accelerating an industry consolidation that could see deep-pocketed players, many outside China, profit from the bitcoin bull run.
Bitcoin mining is closely watched by traders and users of the world’s largest cryptocurrency, as the amount of bitcoin they make and sell into the market affects its supply and price.
Trading around $32,000 on Friday, bitcoin is down 20% from the record highs it struck two weeks ago but still up some 700% from its March low of $3,850.
“There are not enough chips to support the production of mining rigs,” said Alex Ao, vice president of Innosilicon, a chip designer and major provider of mining equipment.
Bitcoin miners use increasingly powerful, specially-designed computer equipment, or rigs, to verify bitcoin transactions in a process which produces newly minted bitcoins.
Taiwan Semiconductor Manufacturing Co and Samsung Electronics Co, the main producers of specially designed chips used in mining rigs, would also prioritise supplies to sectors such as consumer electronics, whose chip demand is seen as more stable, Ao said.
The global chip shortage is disrupting production across a global array of products, including automobiles, laptops and mobile phones. [L1N2JP2MY]
Mining’s profitability depends on bitcoin’s price, the cost of the electricity used to power the rig, the rig’s efficiency, and how much computing power is needed to mine a bitcoin.
Demand for rigs has boomed as bitcoin prices soared, said Gordon Chen, co-founder of cryptocurrency asset manager and miner GMR.
“When gold prices jump, you need more shovels. When milk prices rise, you want more cows.”
CONSOLIDATION
Lei Tong, managing director of financial services at Babel Finance, which lends to miners, said that “almost all major miners are scouring the market for rigs, and they are willing to pay high prices for second-hand machines.”
“Purchase volumes from North America have been huge, squeezing supply in China,” he said, adding that many miners are placing orders for products that can only be delivered in August and September.
Most of the products of Bitmain, one of the biggest rig makers in China, are sold out, according the company’s website.
A sales manager at Jiangsu Haifanxin Technology, a rig merchant, said prices on the second-hand market have jumped 50% to 60% over the past year, while prices of new equipment more than doubled. High-end, second-hand mining machines were quoted around $5,000.
“It’s natural if you look at how much bitcoin has risen,” said the manager, who identified himself on by his surname Li.
The cryptocurrency surge is affecting who is able to mine.
The increasing cost of investment is eliminating smaller players, said Raymond Yuan, founder of Atlas Mining, which owns one of China’s biggest mining business.
“Institutional investors benefit from both large scale and proficiency in management whereas retail investors who couldn’t keep up will be weeded out,” said Yuan, whose company has invested over $500 million in cryptocurrency mining and plans to keep investing heavily.
Many of the larger players growing their mining operations are based outside of China, often in North America and the Middle East, said Wayne Zhao, chief operating officer of crypto research company TokenInsight.
“China used to have low electricity costs as one core advantage, but as the bitcoin price rises now, that has gone,” he said.
Zhao said that while previously bitcoin mining in China used to account for as much as 80% of the world’s total, it now accounted for around 50%.
(Reporting by Samuel Shen and Alun John; Editing by Vidya Ranganathan and William Mallard)