Nov

23

It’s widely rumored in the mainstream press that the clever fellows at Downing Street will cut the main rate of VAT from 17.5% to 15%.  Bravo, tax cuts should generally be applauded.  What’s troubling me though is that those same clever fellows don’t have a particularly good record of er, well, being very clever.  When Brown abolished the 10p starting rate of tax he pain failed to see or understand the consequences of his action. He made swathes of low earners worse off and had to conceed the gaff in parliament in an embarassing u-turn.

Tax in this country is complicated.  Very complicated.  I know this because I advise tax payers.  When VAT was introduced in the UK on 1st April 1973 it was described by the chancellor of the day as “a simple tax”.  A tax so simple that it took a court to decide if a jaffa cake was a cake or a biscuit.  HM Revenue and Customs wanted it classed as a biscuit so they could tax it, biscuits being a luxury item and cakes apparently being a necessity, biscuits are standard rated goods taxed at the main rate of VAT, cakes are Zero rated.  We have exemption, partial exemption, opted to tax, not opted to tax, second hand goods schemes, cash accounting, retail schemes and the flat rate scheme amongst other things to get ones head around.

So lets take the flat rate scheme as an example.  Lets say a small business is currently in the flat rate scheme.  Every invoice that that business raises for standard rate supply, we’ll assume here that all supplies are standard rated, needs to carry a vat charge on it at 17.5%.  Lets say this particular scheme means the business has to pay over 13% of its gross revenue in vat under the terms of the flat rate scheme.  This is the current state of affairs:

Fees charged £1000 + vat of £175 = £1175.

Due to lazy B on benefits Mr Brown 13% of gross = £152.75

Deemed input to offset against real vat incurred = £175 - £152.75 = £22.25

No need to keep detailed complicated vat records, thank you very much.

OK, now lets suppose those cunningly clever chaps at Downing Street woo the country tomorrow with a cut in VAT from 17.5% to 15%, lets do the maths again….

Fees charged £1000 + vat of £150

Due to MP’s pension fund Mr Brown 13% of gross = £149.50

Deemed input to offset against real vat incurred- £150 - £149.50 = £0.50p

Hum… it seems that 97 and 3/4rs percent of the input relief has vanished.  Where the small business got £22.25 contribution towards its VAT overhead it now gets £0.50p

I may be pleasantly surprised tomorrow and they may deal with this problem in some blindingly obvious simple way that doesn’t involve gallons of midnight oil to understand.  I sincerely hope they do, but I’m weary of this administration and their ability to cock up everything they do.

Nov

23

This clip from Ron Paul ran on Fox news on 14th October.

We can’t start rolling the printing presses to make money to fix this problem. Although the issue is huge it can still be distilled into simple principles. If the US’s production is worth in total, say $1000 and to ‘fix’ the given problem, the government prints and pumps into the system another $1000, that does not mean we have an economy worth $2000. They are still only worth their original value of $1000, but now, in the system, we have 2000 dollar bills, which means that each dollar is now worth only 50 cents in terms of its buying power.  Of course the same is true of the pound, the Euro or indeed any other currency you care to mention.  Ron Paul knows this but he represents it as a mistake by Government.  Sadly it’s no mistake.  The Government know what it’s doing here and that is that it’s inflating the huge debt away.  The Governments are happy to float the straw man argument that we’re all headed for deflation but look again at whats happening. The presses are printing.  Governments globally are flooding the market with loose money and we’re in for one hell of an inflationary ride.  The buying power of our cash is going to collapse.  If you have a pension fund that you’re banking on to fund your retirement in 10, 20, 30 years you might like to reassess what its likely buying power is going to be like once it’s value is inflated away.  My view, and this is subject to change as I assess and reassess is that we’re in for a short deflationary period followed by a once in a lifetime inflationary armageddon.

Doom-mongering done we need to consider how we can profit from this because as sure as cats are cats there will be some winners.  We’re not though going to be winners by doing nothing, nor will we win by following the crowd into asset classes that barely keep pace with inflation.  I’ve been giving this a lot of thought for a long time now and although my timing could have been better I’ve been out of shares for many months.

Cash is one option.  To many people the notion of cash as an investment may sound weired.  Fund managers and financial commentators will be advocating diversification.  They recommend having assets spread out into numerous different stocks, funds and markets but is this strategy right.  No, its flawed for the following reason.  For many years investment assets have typically risen.  They’ve been rising year on year for years, but the future is another matter.  In the short term if we get deflation holding a diversified portfolio will prove to be a poor decision.  The whole portfolio will decline in value and as investors panic to exit there will be a further slide in value.  This is true for all assets except one: Cash.

Of course, once the deflationary tide turns and we’re once again pummelled by inflation and cash will start to lose its value.  So what then?  I’ve some ideas but it’s too soon to make that call.  My first job it to protect what I have.

Nov

14

Evelyn under sail

November 14, 2008 | Leave a Comment

A few weeks back on a brilliant sunny weekend I took my boat out. We left our berth in Southampton bright and early on the Saturday morning and after swinging the compass to calibrate a new instrument I’d brought off ebay and fitted the night before we pottered up Southampton Water to the Solent.  Just after entering the Solent a boat branded boatphotos.com motored alongside and the photographer on board took a couple of shots.  I noted the name and we continued on.  At around high tide we made our way into Wotton Creek which is not accessible at low tide and after a short pootle hooked onto a mooring bouy and cracked open a bottle of beer and poped the kettle on to make up some bombay bad boy pot noodles.  About an hour later we slipped the bouy and made for Portsmouth.  The evening meal was at a fab place I’ve used a few times called the Great wall of China.  It’s a £15 quid a head eat all you can place.  After eating all we could we wandered back to the boat for the next challenge….drink all you can!  It’s a hard life but you know……

On the Sunday morning We left Portsmouth and played in the Solent for a few hours before making to Cowes for lunch.  Then we sailed back to Southampton to put her back on her berth until next time.

When I got home I googled the boat photographers web site and there was the photo above.  I paid the man his dues and three of four days later I got a couple of prints through the post which I then took to the framers in the village. The picture above is the finished article.  All I’ve got to do now is negotiate with Mrs H as to which wall she’ll hang on.  (The Photo, not Mrs H !)

Nov

13

Anyone who knows me knows I’m basically a geek who loves to play with any new technology. Well last week I replaced my blackberry with an iPhone 3G and quickly learned that wordpress offer a free application to blog direct from the iphone. If you’re Reading this it works!

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