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Wading through the treacle of bureaucracy without a paddle

Today I had an idea for a website that might be worth monetising. Nothing I could give up my day job for, but something that might bring in a few tens of pounds pocket money from Google Adsense. It would be fun; it might help fund my gadget habit. But:

Despite what you may have read somewhere on the Internet, any income earned from Google Adsense is taxable income. It makes no difference whether you earn £5 or £10,000 – this money must be declared to the Inland Revenue as income derived from self employment. Moreover, you must declare yourself as self employed as soon as you start work (this could be when you begin that new website or insert Google Adsense into a personal blog).

Says Her Majesty’s Revenue and Customs:

If you’re self-employed on a temporary or part-time basis you must register for business taxes with HM Revenue & Customs (HMRC) as soon as you start work. You’ll have to complete a Self Assessment tax return and are responsible for paying your own tax and National Insurance contributions on the income you earn.

Even if you don’t think you’ll earn enough to need to pay tax, you still need to complete a tax return.

Right now I pay my tax on Pay As You Earn, meaning my employer employs a department of people to do all the form filling. I like it that way. I have a very strong aversion to filling in official forms. When forced to do so my heart rate increases, I start to sweat, I hyperventilate, my writing hand cramps up, I have a stong urge to shout and throw things and people around me get nervous. This is partly indignation at being made to do something I do not want to do, partly the unease of spending time doing something that is not pleasant and not what I am skilled at (if I was good at organising paperwork and form filling I would have made different career choices), and partly irrational. And I can never find the damned supporting documents no matter how organised I have tried to be. I could elaborate yet further but thinking about it now is starting to induce symptoms so I must end this paragraph soon. The point is: the rewards would have to be very high to overcome this aversion, or I would have to make enough to pay someone else to do it for me.

A quick google suggests I am not the only one. Even for normal people, the cost, time and effort to fill in a tax return must be high enough to rule out all but the most serious of business ventures.

What is the cost to society of all the little side projects, hobbies and micro-businesses that do not get started because it is not worth the bureaucratic hassle?

Update: I found some tax examples graciously provided by HRMC. I particularly enjoyed the phrase “air of commerciality”. No grey areas here, then.

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21 comments to Wading through the treacle of bureaucracy without a paddle

  • What is the cost to society of all the little side projects, hobbies and micro-businesses that do not get started because it is not worth the bureaucratic hassle?

    Vast cost indeed. But hopefully it also teaches many people that there is nothing immoral whatsoever about trying to evade the parasitic thieving scum.

  • Myno

    Given the humble level of expected remuneration, if you’re willing to forgo personal recognition for your work, then you might employ a trustworthy agent in a suitable foreign land to front your work, and perhaps enjoy a holiday in that person’s land on the after-foreign-tax proceeds.

    Not that anyone who gathers here thinks along such lines. /s

  • Laird

    The rules in the US are similar (one must pay estimated taxes quarterly, pay both the employee’s and employer’s portions of the Social Security tax, etc.). I’ve been self-employed for a over a decade, and gave up trying to do it myself a long time ago. I hire an accountant to prepare the paperwork (they have software to automate the process, but I still have to get them the raw data). Not cheap, and quite a nuisance. But my life is complicated enough without having to prepare tax returns, too.

    I’ve long believed that all of our congressmen and senators should be required to prepare their own tax returns: no accountants or third-party preparers allowed. That would drive home to the people who really matter just how insanely complicated they’ve allowed our tax system to become. I also think that employer withholding should be abolished, so that people have to actually write checks (either quarterly or annually) to pay their taxes, rather than getting a “refund” in April. That would drive home how much they’re actually paying, as opposed to thinking that they’re getting money back.

  • MarbellaBoy

    I suffer from exactly the same form-phobia, despite having started and run a number of businesses over the years. In my experience, the personality type of many (I do not claim all) entrepreneurs is that of broad brushstroke thinking rather than the detail orientation required for all of this bureaucracy. Most are also by nature risk takers so would probably just go ahead and start the business and not bother with any of the forms until they reached a size that would justify hiring such a person. That’s what I did.

  • Gib

    FYI, in Australia they’ve “solved” that problem by making everyone fill out a tax return. Your employer can’t do it for you.

  • Tedd

    Gib:

    Same way they “solved” the problem of voter apathy in Australia! I’m detecting a pattern.

    Seriously, though, as annoying as that is, it is a solution of sorts. At least it takes away the disincentive to be self-employed.

    Here in Canada the rules are still fairly “liberal” so far as the administrative details are concerned. It’s still pretty easy to set up a business, either a proprietorship or a corporation. But they have outlawed contracting (as opposed to employment), for all intents, which I believe is very much a retrograde step.

  • Gib

    Yes, I’ve been fined for forgetting to vote.. Grrr.

  • A friend and I once had a publishing microbusiness. We got out of it — the forms and records were too much.

    I do not think this is an accident. Governments — small or large, royal, tyrannic, feudal, or democratic — do not approve of the “masterless man”. Even in anarchy, you stand a risk of being shanghaied into some warlord’s army, thus gaining a master.

    Independent businesses are too damn independent for them.

  • Dale Amon

    Hmmm. Conservative government? My arse…

  • RRS

    Right now I pay my tax on Pay As You Earn, meaning my employer employs a department of people to do all the form filling. I like it that way. I have a very strong aversion to filling in official forms. When forced to do so my heart rate increases, I start to sweat, I hyperventilate, my writing hand cramps up, I have a stong urge to shout and throw things and people around me get nervous. This is partly indignation at being made to do something I do not want to do, partly the unease of spending time doing something that is not pleasant and not what I am skilled at . . . .

    Here you have struck upon the key to better constraints on fiscal policy.

    In the U S we have “Witholding,” which probably matches “Pay as You Earn.”

    These schemes mask the full burdens of taxation.

    If we ever want to see public awareness of taxation, these schemes should be phased out. Return to individual compliance (with all its burdens, inefficiencies, enforcement issues, etc.) where all have to make direct payments.

    Phases will be necessary, as employers at first continue the calculations, but pay gross. Very simple “card” filings at first, but keep moving the burdens to the public.
    Tax awareness is the goal. It may be a “self-goal” at first, but the game will be refined by the players.

  • These schemes mask the full burdens of taxation.

    Exactly RRS, that is their purpose as implemented by governments and civil servants the world over.

    They may speak loudly of reform and simplification, but they like the PAYE schemes, Employees NI (and more importantly Employers NI) and other withholding taxes exactly because they get their grubby fingers on the money before it goes into the taxpayers pocket.

    The taxpayer never has to think about the burden of the government and never has to write out a cheque for many thousands of pounds which would inevitably cause him to question whether all of these taxes on his hard earned money were really necessary.

    They call following tax rules “compliance” and that is exactly what they want taxpayers to be, as compliant as the milch cows that they are, as meek as sheep going for shearing or for slaughter.

    We know the reality of the tax burden is far higher than the bullshit headline rates publish by the government (UK and US). It is by the very nebulous nature of these taxes and disguises placed over the point of the mugging that they have been able to extract so much from the general population without civil war.

    “The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing”

    Jean Baptiste Colbert
    French Economist and Minister of Finance under King Louis XIV of France. 1619-1683)

  • llamas

    Laird wrote:

    ‘ . . . That would drive home how much they’re actually paying, as opposed to thinking that they’re getting money back.’

    Or, it might make it a lot more obvious to 49% of the voters that they’re actually, effectively not paying any bloody taxes at all and thet their ‘refund’ is actually a handout – and it will make them vote for more of the same, please.

    Not sure we want to encourage that . . . .

    llater,

    llamas

  • RRS

    llamas, et al.:

    Whilst that is close to true about the Federal Income Tax, it is not true of all payroll taxes (tho’ some are now in moratorium).

    But, you are on target for a huge remainder of the problem.

    I have not seen stat studies, but, I venture that “voting” participation (as opposed to yelping) is much lower amongst those in the “exempt 40+%” group. Participation seems to increase with income levels, and hence taxation.

    There are two answers to consider: Capitation Tax and voter qualification (state level – about Zero chance).
    Any other ways???

  • RRS

    OK John of Galt – what can be done, and how is it to be done in getting around to doing it?

    VAT can be (is?) just as surreptitious.

    National Sales Tax would itlimately settle in at little better than VAT (prices cloak).

    Flat Tax – perhaps; if universal filing, inclusive of all taxes related to employment, including the portions now collected through employers (as if “paid” by them). Quarterly payments.

    Hey! It’s a mess! That’s why I moved from “Tax Law” to Corporate Finance back in 1957; though my boss and mentor went on to become IRS Cmsr.

  • Robbo

    Hmmm, smells like a business oportunity. Will you pay me to fill in the forms for you ?

  • guy herbert

    And don’t think that PAYE doesn’t come at a cost to you.

    The admin is monstrous and getting steadily worse. (Next: “real time information“) It is already impossible to get right. Almost everyone on PAYE is paying too much tax. And their base salaries are potentially diminished by the administration costs: what your employer can afford to pay you is conditioned by payroll costs.

  • Oh, I’m not by any stretch arguing that PAYE is a good thing. The administration costs are paid by me and I agree with RRS and others that hiding the pain is no good thing.

    It’s just that all else being equal, which it will be, adding a tax return form to my pain is a strong incentive not to do anything outside my day job.

    If we have to have tax, let’s have it flat so the form can have just one box.

  • Rob

    Actually, like the Aussie system I think it would be a good thing if everyone was FORCED to fill out a tax return. Regardless of whether or not you work on PAYE.

    This would achieve two things:

    1. People would be annoyed by the state for forcing them to fill a form they used to leave to comeone else.

    2. In the midst of their annoyance they would be further annoyed at just how much money they send to the politicians.

    Whats not to like?

  • RRS

    Rob, et al.

    What I am driving at (on a bumpy road) is the need for change in the ways revenues are derived in both the U S and U K.

    There are probably very few ways to drive that need home.

    Right now, most people “think” the costs (many of which are hidden) and inefficiencies (which are becoming cancerous) are “worth the convenience & comfort” of not having to deal with personally providing for one’s tax burdens (now so deftly spread out); and, for the responsibility to set aside from one’s receipts funds for the great ogres of Westminister and capitol Hill.

  • ThePresentOccupier

    Rob, the flipside to the form-filling is that all relevant costs then can be offset against the potential tax burden. So, for example, should your new idea require a shiny new Asus tablet (and it is solely for the use in that venture) then the cost of that can be deducted from any income generated.

    HMRC will probably want to see a reduction in tax repayments after a while, but I don’t know how many years that is.

  • Paul Marks

    “even if you think that you do not earn enough money to pay tax, you will still have to fill out a tax form”.

    That says it all. As if a poor person (whose life is quite hard enough) is going to “contact the inland revenue” and fill in forms.

    They do not want people to work – let alone set up business enterprises, no matter how small.

    The system is determined to grind us all into the dirt.