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istock_toilet_Bowonpat Sakaew

The economy is in the toilet

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A recent conversation with a tradesperson not only resulted in a new bathroom but plenty to digest about the tax system and the role of accountants. 

8th Mar 2024
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There is a lot to learn about the economy and the toll the complex tax system is having on small businesses from a Budget. But there is even more you can learn from having a tradesperson do some work on your property. 

We had a new bathroom fitted this past week (yes, I know, more toilet chat on AccountingWEB!). The old 1980s apricot bathroom was ripped out and left outside the house in a rubbish heap of shame, much to my embarrassment and the curiosity of my net-curtain-twitching neighbours. 

So while Jeremy Hunt spent Wednesday afternoon monologuing in the House of Commons delivering his Spring Budget, a just as informative conversation was happening in my bathroom about the tax system. (Insert your own joke here about tax and going down the toilet.) 

A black mark has probably been put against my name on these find-a-tradesperson sites because not long after offering the first coffee I can’t resist quizzing the unsuspecting occupier of the white van parked outside my house about their bookkeeping software of choice and whether they’ve heard of Making Tax Digital (more on that later!). 

Smallest room talk

However, I decided to let them off this time from the usual interrogation as soon as they stepped foot in the house. I didn’t think a casual conversation about tax was appropriate while he was bench pressing a bathtub over his head, plus he didn’t pull up in a double-cab pickup, meaning that particular ice breaker was off the small-talk menu. I didn’t even make a quip about offering the basic Hobnobs rather than the chocolate variety because they’re more tax-efficient (not that I wanted to save the chocolate ones for myself).  

However, I didn’t need to wait long before I could use the sole trader as a one-person focus group for AccountingWEB’s editorial content strategy. Only this time it was the tradesperson, not me, who brought up the topic of tax. 

In what seemed like a well-rehearsed speech, accompanied by usual the suck of the teeth, he brought up how his expenses have recently increased and that’s resulted in him having to charge more. This was completely out of the blue and I wasn’t kicking up a stink about the costs (I’ll just use my monthly column to do that, instead).

The conversation turned to VAT, as it often does in these situations. His workload has suddenly picked up after listing his services on a find-a-trader website. Good for him for growing his business, but with higher prices, he’s now perilously close to exceeding the VAT threshold, and I suspect he may have just tipped over the threshold.  

He’s found himself in a bit of a bind. He doesn’t really want to turn down work, but at the same time, he’s found himself skirting around the VAT threshold. As he said: “I don’t want to charge my customers any more.” Yet at the same time, the work is flowing like water out of a freshly installed tap, but he’s relatively new to the game and he is concerned that his work might dry up, especially if he drops the costs of listing on the check-a-trade site. 

That sinking feeling

Our bathroom fitter has found himself in the situation where he’s turning down work. For seven years, the VAT threshold had remained as frozen as a dodgy drainpipe in the winter. But at the Budget this week, the Chancellor threw growing businesses like our sole trader’s a lifeline and increased the threshold to £90,000.

While this is better than the previous threshold, it’s not quite the royal flush for our fitter. Still feeling the pinch of inflation, it’s likely that the increase will allow him to take on one or two extra projects before he switches from bunching around £84k to applying the same tactic around £89,000.

He was hoping the Chancellor would increase the threshold much higher, but – as he was hefting our new glass shower screen around the room – I decided against countering that with the argument that lowering the VAT threshold would put everyone on the same level playing field. 

You might be wondering why this deliberation was happening in a bathroom rather than in an accountant’s office. It’s a good question, but before you pull the flush on our bathroom fitter, he claims he has 'an accountant'. But – and it’s a big but – his 'accountant' told him that he’s earning too much money and he can’t do his accounts any more.  

He now wants to find a chartered accountant to look after his affairs, but – and here’s the kicker – their fees are high and he doesn’t see the value. So, if you’re not paying attention, he said people moan about how much he charges, but in the same breath he doesn’t see the value in hiring an accountant. 

Flash in the pan

Suddenly, our bathroom conversation turned into a live-action Any Answers post… I could only imagine the response from FactChecker, Tax Dragon et al if they happened to pass by my bathroom window at that moment. 

As the tradesman loaded his tools into his van, I was struck by a couple of important lessons. The VAT increase in the Spring Budget didn’t solve an issue that is clearly putting an artificial ceiling on growth for many. It’s not doing sole traders any favours and is putting some in a position where they’re turning away work. 

The other lesson is the role of accountants. He’s proud of his work – and I can attest that it’s nice having a working shower these days and a toilet that refills in less than five minutes – but for some reason he doesn’t see the value in what his accountant does. He is able to show his value through nice photos of toilets, but his previous accountant wasn't able to do the equivalent version. After all, he thought by buying a brand new van he could reduce his profit, thus avoiding the VAT threshold. I must emphasise here that he was a really good bathroom fitter! 

Education is one of the most important jobs of what accountants do. With the right hand-holding, our sole trader would have properly understood his responsibilities, felt more in control of his business and would have not been looking for tax advice in a freshly tiled bathroom while simulataneously fitting a sink basin. 

This was even more evident when we asked first if he used any bookkeeping software and secondly whether he’s heard of Making Tax Digital. I can imagine his internal voice at that moment sounded much like when he was cursing our discounted bathtub. 

So how do you delight clients and entice prospects without having photos of a brand-new, working loo? How do you make the intagible tangible?

Replies (8)

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By Open all hours
08th Mar 2024 09:54

Apricot. You rebel. 75% would have been Avacado? Anyhow you’ve had value over the last 4 decades.

Weekly (two this week due to budget) email with original content, designed to amuse, challenge and inform.

Takes time and you do need to say what you like and like what you say but it goes down well if you know your audience.

Total circulation unknown because a good number of clients forward it to relatives/friends/colleagues and in one case a writer on one of the serious national papers.

Thanks (2)
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By Justin Bryant
08th Mar 2024 10:02

Re the VAT ceiling, I don't blame him, as who wants to be an unpaid tax collector (with potentially crazily high penalty downsides for your trouble) if they can possibly avoid it?

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By arthurallan
08th Mar 2024 11:39

Why not get rid of VAT completely and go back to straightforward purchase/sales tax to avoid the utterly pointless exercise of millions of business reporting the same inputs and outputs on their separate VAT returns?

Thanks (3)
By ireallyshouldknowthisbut
08th Mar 2024 12:50

I imagine he was hinting quite hard that you paid him in cash.

What the VAT threshold does (when you are supplying materials) is keeps down to the threshold and then on cash in hand the rest of the time.

Chap who does odd jobs for me (I dont do his books) I always make sure i buy the materials direct by calling up the builders merchant etc and settling the bill for my stuff. He of course makes a kick back on materials so isnt keen on my just buying them direct.

As an aside on MTD as you note, the problem with trades people they are often very highly skilled individuals and inteligent in many ways, but they often dont get accounts. Its just a big mystery, just as it is to desk jonnies how the heck you weld a pipe, skim a wall, or hang 12 doors in a day. Completely different set of skills.

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By Crouchy
08th Mar 2024 14:46

I used to work for someone who used to spend a fortune on final bound accounts to send to clients each year, stating it was the only tangible thing that they would see, most were binned or lost at the bottom of a draw, never to be seen again

the trouble is alot of people out there who dont value what the profession does, between software advances and info on the internet, many people think they can do it themselves and what we do is easy, but they they dont actually know if they are getting things right or not, and like your plumber, are constantly confused and getting things wrong, and with HMRC's poorest ever level of service, there is no one out there policing it properly

sure there are some that can get it right on their own, but they are the minority.

I could do my own plumbing, but it wouldnt be right if I did

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Tornado
By Tornado
08th Mar 2024 16:25

Apricot to White?

Sounds like you are whitewashing your past errors.

(We had Apricot and Avocado in the same house at one time !).

Your story is the same that many of us hear all of the time. Clients will stop working for a month or so if necessary to avoid all the complications of having to Register for VAT which could mean to them more hassle and much less profit. The only winner in this situation is HMRC.

And the Governments rather naive notion that MTD is something that is going to be helpful to small businesses is just as ridiculous now as when it was first conceived.

At least Margaret Thatcher recognised the value that small businesses bring to this Country and raised the VAT registration limit to the highest permissible level under EU Rules, and she would have raised it even higher if she was permitted to do so.

And yes, it is reasonable to expect and benefit from the specialist services that Tradespeople and others are very good at but completely unreasonable to expect them to be equally as good at other specialised skills such as Digital Book-Keeping and complex Taxation.

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By FactChecker
08th Mar 2024 18:12

Well done, Richard, for not (I think/hope) falling into the trap of becoming the proverbial MDTP to your plumber.

I have regular need of tradespeople from one or other branch of the house maintenance spectrum and always engage in light chat (along with the endless teas/coffees) in order to ensure that the job feels more like a deal between friends. During the chat I can guarantee two topics being raised:
- a discreet enquiry as to whether I'd like to pay cash (with an undefined discount being alluded to - except for the occasional overt 'we can knock off the VAT for cash'*); and
- a tax enquiry that quickly balloons into a torrent of tax questions once it becomes clear that I am even vaguely au fait with the current rules.

I manage to deal with the latter in broadly the same terms as on Any Answers ... i.e. mentioning a couple of aspects with which they might wish to become acquainted whilst pointing out this is not advice / may not be appropriate to their circumstances / should be discussed with their accountant.
The good news is that none of them yet have 'flounced off' in the manner adopted by some on AA (let alone downed tools or cut corners), but a worryingly high %age would endorse your experience: responding either "what accountant?" or "oh they don't give advice just file things"!

['we can knock off the VAT for cash'* = I did once reply "Did I mention that I work for HMRC?", but quickly retracted my 'poor joke' because he looked on the verge of a heart-attack.]

However I don't have a one-size-fits-all answer to your question regarding how to improve the perceived value of having an accountant, particularly at the end of the market that maybe most needs it but is extremely price-sensitive.
It is of course not a problem unique to Accountants (it exists even in the regulated sectors like Solicitors, but is naturally far worse where regulation gives 'light touch' a bad name and where the line between sub-genres are fuzzy) ... so an interesting if wide-ranging topic - from regulation through promotion and all in points in between that touch on education, awareness and a dab of penalties!

Thanks (3)
Rob Swan
By Rob Swan
09th Mar 2024 15:56

Great article Richard.
Although I don't think our economy is 'in' the toilet, I'm pretty sure it's past the U-bend, has gone untreated through the sewage system, and is now lingering... somewhere near a wild swimmer?
Trading at £84,999k (no VAT). Revenue 85K.
Trading at £90,0001 (with VAT). Revenue £75K
Do well, earn a LOT less!!!
Even at £100K threshold, the revenue (with VAT) is ony £83K.
Of course we know this, as I expect do most small business owners bordering on the threshold... BUT!!! Those running our country don't - or won't - get it, even when it's explained to them in terms a 5 year old could understand. (Any Questioins (BBC R4) this week is a great example - other programmes are available.)

The best policy for any new business owner likely to hit the threshold at some point is to price in VAT from the start, save the extra 20% while below the threshold and the problem goes away. I know that's difficult for businesses whose competition are not VAT registered, but it's easier than having to hike prices or take a large fall in earnings later on.

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