The damage of taxation

[DSM2]

Countdown said:

Pay rise isn't compulsory. If your profits haven't increased and your costs have, then be truthful with them.

He knows that. He's saying the compulsory 3% pension contribution he will have to pay is, as far as he is concerned, a pay rise.

He's right.

Unless you are saying he should explain to his employees that he is lowering their pay so they can pay their pension themselves?

[Countdown]

DSM2 said:

He knows that. He's saying the compulsory 3% pension contribution he will have to pay is, as far as he is concerned, a pay rise.

He's right.

Unless you are saying he should explain to his employees that he is lowering their pay so they can pay their pension themselves?

Why not?

Let's assume that at the moment he's currently just breaking even. The 3% additional costs means he starts making a loss. If his profits don't increase he cannot continue to make a loss ad infinitum. So his options will be

Start making redundancies
Reduce salaries across the board.

Admittedly that's simplifying things but that's what it boils down to.

[DSM2]

Countdown said:

DSM2 said:

He knows that. He's saying the compulsory 3% pension contribution he will have to pay is, as far as he is concerned, a pay rise.

He's right.

Unless you are saying he should explain to his employees that he is lowering their pay so they can pay their pension themselves?

Why not?

Let's assume that at the moment he's currently just breaking even. The 3% additional costs means he starts making a loss. If his profits don't increase he cannot continue to make a loss ad infinitum. So his options will be

Start making redundancies
Reduce salaries across the board.

Admittedly that's simplifying things but that's what it boils down to.

Thanks but I understand all that. Though it is, as you say, a simplification.

I still think you misread his post.....

[New POD]

superlightr said:

I understand that in 2015 employers will be forced to contribute 3% of the e/ee wages to a pension for them but cant take into account this extra cost or benefit to the e/ee when reviewing their wages.

So in 2015 its a 3% pay rise from my pocket to my e/ee when I dont have a pension myself. Great. Plus I cant say to them in 2015 sorry no pay rise as you have had it via your new pension.

Okay, why are you in business ? If it isn't making enough to pay you enough to gain a pension, then maybe there's something fundamentally wrong with the business, and you need to focus on doing something different.

Maybe the problem is that you spend too much time on survival and not enough time planning for the future.

[Ozzie Osmond]

New POD said:

Maybe the problem is that you spend too much time on survival and not enough time planning for the future.

It is scary how many so-called businesses exist at the subsistence level.

[Mudgey]

Does anybody know how much the government gains from small businesses paying Corporation Tax on profits of under 100k or other such levels?

Surely they could work out how many people they can lay off from government run services (such as useless entities as VED of the DVLA) and then reduce corporation tax for small businesses up to a certain threshold. This way they are reducing their outgoings by the same level of income but also upping the UK's productivity now these small companies could afford to employee more people. However without figures I can't work out exactly how many government employees they could lose and what level of tax breaks they could give. Its all very well laying off people but without giving businesses incentives to employ there is no point.

[Ozzie Osmond]

Mudgey said:

Does anybody know how much the government gains from small businesses paying Corporation Tax on profits of under 100k or other such levels?

For what it's worth I would venture the number is relatively small, especially given that Corporation Tax is 20% of profits as opposed to the thumping 20% VAT on sales.

UK government has a massive tax take from VAT and Income Tax/NI. And fuel duty. Plus of course higher rate corporation tax on big companies where a bigger % of a bigger number means bigger ££!

[Digga]

Ozzie Osmond said:

Digga said:

Because businesses - once they reach a certain size - have to generate more than 20% to keep anything back for growth and investment. Does this simple explanation help you or shall I elucidate further?

You don't seem to understand the basics.

Corporation tax is on PROFITS.

Make £100 profit and that's £20 for the taxman with £80 for "growth and investment" as you put it.

Yes you're correct - I phrased my argument poorly. However, the fact remains that whatever gross margins you are able to achieve, the state tax-take will grab 1/5 of it. Given the competitive nature of business, especially on a small scale (I'm talking very small businesses now, not like my own - I'm not singing for my own supper here!) and also the cost of capital, this is tough.

The country needs to nurture the very small ventures, these are the breeding ground for greater businesses, the firms that could easily double in size (and head count) overnight, make attractive acquisitions for larger firms and generally oil the wheels of GDP. Growth is the key. Small fimrs can and do grow enormously fast - much quicker than any large firm is capable - and can generate a lot of employment in the process.

[superlightr]

New POD said:

Okay, why are you in business ? If it isn't making enough to pay you enough to gain a pension, then maybe there's something fundamentally wrong with the business, and you need to focus on doing something different.

Maybe the problem is that you spend too much time on survival and not enough time planning for the future.

its the fact Im being forced to give a pension (aka payrise) to my staff and not be able to legally take this into account when discussing pay rises with them for that year. We try to give good pay rises but cant give a 'normal' rise when this legislation is forced on me to also give them a 3% pension as well. Sure we can argue overheads are increasing but we are not allowed to use the fact this pension has started as a reason to make a lower pay rise that year.

Pensions I dont trust hence why I dont pay into one. Doent mean I dont have other savings or paymyself a suitable wage. It being forced on me not to decide whether we can give a pay rise to my staff or not depending on the buinses but forced that a 3% pension MUST be given to my staff irrespective of how the business is doing and the cost to me of the admin that involves as well.

Running a buisiness you tend to like to have some flexability in what you pay your staff this is starting to be dictated to me by Nanny. (clearly alowing for min wages)

[pherlopolus]

Odie said:

Wages cant really drop though, its against the law (is it law? not sure, i know companys cant do it) to lower someones wage. The wages would probably just stagnate, but we are already in that situation. with the majority of people get no or reduced cost of living increases.

They cant drop salary without employees position (unless you move jobs)

we had this at HP recently, we were asked for a 5% reduction (10% for management, 15% for VP and above), they were surprised at the low response was :S In the USA it was mandatory.

On the basis that I hadnt had a payrise for 5-6 years (8 now) I pointed out they had already had at least 5% off me for not having a cost of living raise.

[Digga]

Guam said:

The sad fact is increasing the potential pain on the SME's is counter productive for the wealth of UK PLC, very few guys are prepared to put more resources on the table right now, preferring to wait until the situation is more stable economically. And to be fair who can blame them, its their judgement call after all.

We've erred toward investment in technology/automation, rather than staff of late. We have recruited (extremely selectively!) but the problem is that the 'cost' of staff is now so high and labour laws are pretty inflexible. At least with machinery, you can stop them when they're not needed, at which point running costs drop close to zero, plus after the HP is paid, the outgoings drop.