Tax breaks can be taxing

By Rob Carter on December 19th, 2011

Just over a year ago, HMRC introduced a National Insurance holiday for new businesses, worth £5,000, covering each of their first ten employees.

In the first year of employment, each qualifying business can legitimately not pay the first £5,000 of Employer National Insurance Contributions for each staff member. Sounds brilliant, doesn’t it? Five grand off the wage bill for each of the first ten staff. Fifty grand. Free money.

Inevitably, there was a catch. See that little word, “qualifying”? An inoffensive word on its own, but one that drenches every piece of “Guidance” that Her Majesty’s finest release. “Qualifying”, for our purposes, defines the diameter and height of hoop through which you will be required to backflip. And whether or not the hoop will be on fire.

But let’s pick carefully through the Guidance with an open mind. Point One reminds us that there is a “limit of £5,000 per qualifying employee”. Point Two reminds us that this can only apply “to a maximum of ten employees”, subject to some further restrictions.

Point Three tells us that the “period in which your business can hire its ten employees [is] subject to a maximum of 12 months from the date your business started trading or hired its first employee – whichever is earlier”, with Point Four reminding us that the “holiday period for each qualifying employee [is] subject to a maximum of 12 months after they became employed by you”. Well, you have to have limits, we understand.

But let’s put some numbers to this. Relief of £5,000 per employee is £5,000 and you can’t get cross about that. Except, it isn’t: this tax break applies only to Employer National Insurance Contributions, rather than the National Insurance that the employee himself pays. This year, the rate of Employer NIC is 13.8 per cent of the salary paid, above the first £110 per week.

You’re ahead of me, aren’t you? The salary you would need to be paying your first ten staff members in order to get your full £50,000 qualification would be a minimum of just under £42,000 per annum. Each. And you’d have hired all ten within the first 12 months of trade.

There’s one final piece to this story about tax. You’ll have read recently that a certain area of London is responsible for single-handedly solving the economic crisis. And while I won’t be naming the postcode, nor any of the, ahem, questionable figures backing up the area’s success, you’d guess that this piece of legislation, pertinent to start-ups, might at least be partially responsible?

Mystifyingly, this is not the case. London and the South East are the only regions of the UK excluded from this holiday. The costs of including (for the sake of argument) 600 businesses would have been a theoretical maximum of £30m – peanuts, by Revenue standards – and realistically a lot less. You can’t help but feel that by excluding the obvious hotspot, the Government has also missed out on some bragging rights that would have made recent credit-taking more palatable. But no.

Is anyone not doing daily deals?

Group buying, daily deals, one-day sales… this beast has many names and is showing no signs of disappearing. The business model is simple: find a discount on teeth whitening, hair cuts, 4×4 driving, Korean electronics or anything you can think of and email it to every address in your database. Track the uptake of the deal and share some of the proceeds with the person supplying it. Sounds simple, and indeed it is. Its genius is in that low barrier to entry that has led so many people to drop whatever they were doing over the past two years and set up a Groupon clone.

While we are seeing some consolidation in this highly fragmented market, something else is rearing its head: a pattern of established tech giants doing their own versions. Google, Facebook, Bing, Gumtree and Amazon have all started something in the deal space, although Facebook has now apparently ended their trial, perhaps not to come back. And big newspapers are wading in by the forest-load.

There is a missing major player from the above: Apple. Apple has continued to sell apps, songs, movies and pretty boxes, completely unfazed by the daily deal tsunami. Apple has concentrated on what it does well and continued to get bigger and more valuable. “Siri, what should all the other major players be doing now?”

“Well, Rob. I would like to see the big boys have a sit down and a think about brilliantly original new ways of making money. Like they used to.”

The Kindle Fire, a two-and-a-half trick pony

I’m lucky enough to have had some one-on-one time with the new Kindle Fire, Amazon’s answer to the iPad. And here are some of the things that occurred to me as I played with it. I didn’t think to type, to see how it coped with email or browsing. I wanted only to see books, music and video.

At $199 (and, if it makes it to the UK, under £200) the Fire has done something clever: it won’t need to beat the iPad. For multimedia absorption, it’s great. The e-ink Kindle did one thing particularly brilliantly: books. If the Fire can do songs and movies well, with a bit of casual gaming and books thrown in, then it will never leave my sofa. Assuming there’s a nice dock in the pipeline.

Enterprising uses of capital funds

I notice Luluvise has been getting some heat for its approach to male visitors. I sympathise with the critics. But what I find even more interesting is the marriage of Luluvise Inc., a US company, and Passion Capital, a UK Enterprise Capital Fund.

Whether the hurdles – ensuring that all UK public money has been correctly invested in the correct regions – have been overcome or not, and I am no expert in the finer details of government divestment, I am undecided as to whether “importing” this business satisfies the spirit of what the money was endowed to do. Shouldn’t it be reserved for UK businesses?