EU bonus curbs are bad for Britain

Banker-bashing - it’s become a December ritual to rank up there with carol singing and Christmas lights. Investment banks announcing big bonus pots inevitably attract criticism of the “greedy casino capitalist fat cat” variety, particularly from politicians perhaps keen to deflect critical reviews of their own performance and economic management.

This year the EU has weighed in with some new rules limiting the amount of bonus that can be paid in hard cash and also restricting the right of the recipient to cash in all of their bonus for several years. It’s an easy sell for the Eurocrats politically – few voters are keen to see bankers getting big bonuses, particularly when they amount to rewards for failure (AIB which almost bankrupted Ireland tried to pay out €40 million in bonuses).

But nevertheless the new restrictions are a clear erosion of freedom – the right of private organisations to pay their staff how they see fit – and deserve some scrutiny. The excuse for their introduction is the “systemic” risk posed by banks; the idea that if banks pay their staff big cash bonuses, this will encourage excessive risk taking and sow the seeds of future bailouts and crashes.

However many studies into the subject have failed to find a link between bonus systems and risk taking at banks. I just read a great book about the collapse of Lehmans (“A Colossal Failure of Common Sense”). It is scathing about the bank but doesn’t mention anything about cash bonuses being the problem – in fact Lehmans always paid its bonuses mostly in shares, just the like the new rules propose. If it is felt that banks pose a systemic risk this should be tackled (and is being tackled) in the right way – requiring they put up a bigger capital buffer as a requirement of doing business – not in a politically motivated attempt to stigmatise bank employees.

There is of course a hidden subtext behind the unjustified attack which will undoubtedly contribute to an erosion of the City’s competitive position as a financial centre. Our European “friends” have long been envious of the power of London which was supposed to decline when the Euro came in but actually thrived. The financial crisis has been a great opportunity for left-leaning, anti-capitalist and unelected Europeans to lay into one of the UK’s main strategic industries. The British government should be doing everything possible to delay and block these new rules.

Latest article on the ADVOCO website Calculating the autonomo tax burden

Autonomos retain their expenses allowances

I spotted this news article in the Spanish press:

http://www.europapress.es/economia/fiscal-00347/noticia-economia-fiscal-gobierno-mantiene-rebaja-tributacion-modulos-2011-pymes-autonomos-20101111123251.html

In essence the message is all in the title and the article doesn't add that much: the government keeps the 5% deduction for small and medium-sized enterprises (SMEs) and autonomos (self-employed) for 2011. This refers to a rule that can save autonomos money if they do their quarterly "modelos" correctly i.e. return a simplified "objective" declaration of their business profits rather than the full version. This allows them to report a taxable profit equal to income minus allowable expenses minus a further 5% of net income as an additional expense allowance. The idea is that the small business will have expenses which they cannot easily claim because of a lack of receipts or justification and this allowance makes up for it.

In a sense it is more than necessary because otherwise the system of what is and what is not deductible in terms of business expenses is quite harsh particularly when compared to the UK. There is a full guide on our website (autonomo expenses guide) but as examples :

- if a self employed businessman flies to London on business the flight can only be claimed as an expense if it is demonstrably 100% business-related. If the spouse travels or there is any day spent away from business then the whole cost of the trip is disallowed. The assumption is that the trip has been at least in part for pleasure.

- it is routine in the UK to claim for business lunches and entertaining but practically verboten in Spain

Reading the article, the authorities are making it sound like retention of the 5% deduction is a temporary measure because of the crisis. It could be removed when (if) things pick up for the Spanish small business sector. With Spanish GDP growth coming in at an invisible 0% for Q3 it looks like business needs all the help it can get.

Will Spanish business ever get the internet?

Anyone who has ever lived in Spain (or owned property there, or done business there, or even been on holiday there) will know that generally levels of customer service leave much to be desired. During my family's 8 years in Spain we have had all sorts of problems with all kinds of private sector organisation from the local shops to nation-wide corporations. Not only can service be slow and erratic but outright deception seems to be a common and accepted tactic among those employed to deal with the public.

This is hardly news but I would just like to comment another twist to this sorry record of bad service - the 'net hasn't changed much. On the surface of things Spanish business seems to have embraced the internet, not to the extent of the US or Northern Europe, but at least most reasonable sized businesses have a web presence and offer some options for online service. However dig below the surface, i.e. start making orders, enquiries, complaints etc online, and you will find that the same poor service culture exists online just the same as offline. Many times I have used an email for enquiries, quotes etc and not received a reply. The attitude seems to be 'out of sight, out of mind' and the online message is often. You need to get on the phone (if you can get a response there) or go down to see someone face to face.

As an example I needed 4 new tires for our car and decided to save money by getting a deal online (my local tire changing garage charges at least twice as much as they should). There are a lot of options once you do a search and I got what looked like a good deal from webneumaticos.es and all seemed well on the surface with automated payment, email confirmation etc I then arranged a garage to do the fitting again finding one with a website and all the trappings of modern service and communications. Without boring you with the details needless to say I soon got bogged down in a host of problems and it has taken me 2 weeks of chasing, unreturned phone calls and broken promises to get the job done.

Advoco has written before about how Spain can lift its economy out of recession and focused on a better deal for autonomos and employers. Maybe businesses need to start getting serious about service culture. It can be changed. Pre-Thatcher Britain used to be equally rubbish but now I would say most businesses are good on service because they have to be. Even in Spain I have noticed that Telefonica (or is it Movistar) seemed to have improved their previously appalling customer service record of late.

Related article at Advoco.es - 30 ways to market your business in Spain

Labour reform: fiddling while Spain burns

With 4 million unemployed, the economy practically paralysed and the public finances in crisis, something has to be done. Even if inside Spain there does not seem to be a clamour for radical action on the economy (people still in employment too comfy with the status quo and fearful of change?), the EU and the IMF are demanding reform. First came the austerity package (see post Spain's economic crisis turns nasty) and now the government is pushing through labour market reforms.

They are causing a lot of fuss. The unions are threatening a general strike over the reforms but the government has vowed to press ahead anyway (Zapatero to approve reforms with or without agreement) . They have been negotiating changes to a system which clearly does not work for almost two years now. Even with 44% of young people out of work and numerous others working in the black economy, the unions are unhappy because redundancy pay rights are being reduced.

But even if the reforms get pushed through will they make much difference? Looking at the fine print and they are not exactly earth-shattering - redundancy pay down from 45 days pay for every year worked to 33 days. Even that small reduction is only for new contracts not existing workers.

It will still be very expensive to hire and fire workers which is why so many employers needing staff get them unofficially - "sin contrato" - although they need to be wary as one of the new measures is to increase the number of labour inspections specifically to pick up such illegal practices.

The other measures in the package are mainly shuffling subsidies around and actually increasing the burden on employers e.g. by making it harder to offer temporary contracts and extending the requirement to pay redundancy packages. Full details here - Employing Staff in Spain

If Spain was serious about tackling the horrendous employment situation they need a dramatic cut in social security payments by employers and the self-employed, right across the board. Perhaps they could pay for it with an end to the 3 billion € a year they spend on subsidies for encouraging employment which clearly do not work.

IVA tips for Spanish businesses

A good proportion of the queries we get from our Spanish business and autonomo clients concern IVA (Impuesto sobre el Valor Anadido) or VAT as we call it in Britain. The system operates much the same as it does in the UK: you charge VAT on your sales and hand it over once a quarter to the tax office but first of all you deduct the VAT you have had to pay on your costs.

Simples, says the meerkat?

At its most basic it is simple, but it doesn't take long before complications arise. Here are some of the things that have come up during the last year:

Declaration thresholds: There aren't any in Spain unlike the UK where small businesses can get out of charging VAT altogether.

IVA exemptions: the only Spanish businesses that don't charge IVA are those making exempt supplies, such as those relating to education, culture, sport and insurance.

Reduced rate IVA: the general rate of IVA is 16% (due to rise to 18% on July 1st). But there are two reduced rates - 7% (will rise to 8%) for things like airline tickets, restaurants and hotels and 4% for food, books, newspapers and medicines.

Costs exceeding income: can you get your IVA back? Sometimes, but not right away. If, during a particular quarter, you have paid more IVA out on your costs than you've charged on your income, you will not have to pay anything over to the tax office but they won't pay you the excess. Instead you carry the difference forward to the next quarter and claim it against IVA charged on your income then. If you get to the end of the year still in excess (i.e. you've made a loss) then you can reclaim it.

Reclaiming IVA if you don't charge it: if you pay IVA on your costs but don't charge it on your sales (e.g. because they are exempt or exported) then you can't reclaim the IVA you have suffered.

Exemption from making quarterly declarations: you do not have to declare if you have no IVA on your sales because of exemptions

Invoicing abroad: You don't have to charge IVA on exports of goods but you sometimes do on services. If you are invoicing a non-business customer (i.e. one without a VAT number in their own country) you do charge IVA, but you don't if it's a business customer. That's a general rule and there are exceptions - see this explanation Invoicing to and from Spain - New VAT rules

Getting IVA back on your expenses: You can only recover IVA with a proper invoice made out to you with your company or autonomo CIF (id) number on it. You will have to request a proper invoice from the provider of the service. EG if you are in a shop or garage ask for a factura and they should give you a proper one as opposed to a receipt.

For more information about the different rates of IVA that apply in Spain: Spanish IVA rates

For more tips like this check out the Advoco website, for example the autonomo guide:

http://www.advoco.es/home/22-latest/43-guide-to-spains-autonomo-system.html

Are brands as valuable as they say?

I decided to write my latest Alrroya.com article on brand valuations after reading a survey called The Top 100 Global Brands for 2010. It purported to show which global brands added the most profits for their owners and thus were the most valuable. Here are the top 21:

1 Google 2 IBM 3 Apple 4 Microsoft 5 Coke 6 McDonalds 7 Marlboro 8 China mobile 9 GE 10 Vodafone 11 ICBC Asia 12 HP 13 Walmart 14 Blackberry 15 Amazon 16 UPS 17 Tesco 18 Visa 19 Oracle 20 Verizon 21 SAP

The top UK brands were : 1. Vodafone 2. Tesco 3. HSBC 4. BP 5. Shell 6. O2 7. Barclays 8. Standard Chartered 9. Marks and Spencer 10. Smirnoff

Spain was represented by Movistar, BBVA, Santander and Zara.

I noted that 12 out of the top 21 were tech-related: computer/internet/mobile. Ever suspicious I began to have my doubts about the list with such concentration of names from one sector. For sure you would expect names like Google and Microsoft to be up there on the list but so many tech names had to be more than a coincidence.

Brands earn their keep by allowing their owners to charge a premium price for their product or service because they are highly thought, because they are perceived to be cool or simply because they are long-established and consumers feel comfortable with them (think Cadburys, Heinz). My suspicion is that the compilers of this list saw the high profits that these tech companies were making and put that down in large part to brand. But actually, in the technology arena, at least brand is actually less important. Why do you buy an iPod? Because it has an Apple logo on? No, because it is a clever, useful gadget. If Sony made a better one you'd buy that and Apple's profits would disappear. Same with Microsoft, no 4 on the list. It's actually not got that great a brand image and people buy their products because they practically have no choice.

When you move away from technology then brand becomes more genuinely important and you can't really argue with the high values given to such names as Coke, McDonalds and the luxury marques like Hermes. But hopefully the article will make people who read it a bit more wary of just accepting the claims of this report and others similar. We buy products and pay premium prices for lots of reasons and are not quite the unthinking slaves to branding that the marketing folks would have us believe. Here's my article:

http://english.alrroya.com/node/42045

Subsidies for Spanish self employed autonomos

Free money! The Spanish government may be so short of cash it is being downgraded by the ratings agencies, and being bailed out by the Germans, but there is still plenty of money sloshing around if you know where to look.

There are so many subsidies and programs available for new and existing businesses, either funded by the government, the regional government or the EU, that it's impossible to keep up with them. There is a whole network of government offices in Andalucia whose sole job it is is to guide potential claimants to these bags of loot (these are the CADE offices - see website here).

But there is a snag or two of course. State handouts wouldn't be state handouts without strings attached, hoops to jumps through to get and a bias in the system to certain favoured groups. I attended a seminar at the Marbella CADE office this week to learn about an autonomo subsidy program which I have described in full on the Advoco website -

http://www.advoco.es/hot-topics/54-subsidies-for-newly-self-employed-autonomos.html

To be fair it looked fairly straightforward in terms of applying although it is only available for certain times of the year (for the next month and then again in September). There is also a big bias in favour of certain favoured groups. The subsidy starts at €5.000 for an ordinary bloke and climbs steadily with each feature you have which the government deem to be a disadvantage e.g. women (€2.000 more), disabled (€3.000), immigrant (€3.000) etc A bit unfair and patronising maybe? The €11.000 jackpot goes to unemployed, disabled women who have been victims of domestic violence.

Spain won't recover without encouraging its autonomos

How's this recovery thing working out for you? 2010 is supposed to be the year of recovery and maybe it is taking off in the rest of the world (China's growing too fast I read this week "China's GDP surges 11.9%"). But there's precious little sight of a recovery in Spain. The newspapers are still full of bad news stories, the property market is stalled and shops are still being boarded up. Even the weather, usually a consolation, has been letting us down.

What's stopping things getting back to normal or at least improving? Mostly I suppose it comes down the severity of the downturn that Spain suffered. As in Britain the housing boom and bust left a mountain of mortgages and personal debt as well as businesses used to a level of demand that simply wasn't sustainable. We badly need something to take the place of the housing boom but on a more sustainable basis; new enterprise to fill up the empty shops and premises, provide employment and get demand growing again.

But that needs new businesses starting small and hopefully growing and sparking a recovery. Unfortunately Spain's system of self-employment or "autonomo" is putting off a lot of people from even trying to begin a business and provide themselves (and others) with work.

We get a lot of enquiries from people who have an idea for a business but as soon as they hear what's involved with autonomo they are put off: the high minimum social security costs (you have to pay at least 250€ a month even with zero income), the need to charge VAT (there's no small business exemption) and the quarterly reporting and bureaucracy all put people off. The rules also seem to do everything possible to discourage small businesses - e.g. autonomo's don't get unemployment benefit and have lower tax allowances.

You start to realise why the number of people going autonomo has fallen for 23 months in sucession (see article) and why so many people go into business unofficially i.e. illegally without registering or paying tax. There must be millions of business plans that have been shelved or entered into "negro" (black economy). This is damaging in so many ways: potential business owners stay on the dole, they don't pay taxes on the "lost" business and there is no chance of them employing anyone themselves.

Reform is long overdue but there are a few good things about Autonomo and lots of people are giving it a go. There is even an exemption from those social security charges and some subisidies available. For details see our Autonomo guide.

Social Security exemption for autonomos

A lot of people living in Spain and thinking of starting their own business are put off going self employed by the high fixed social security contributions. Anyone registering as “autonomo” with the Tax Office is also obliged to sign up for self-employed social security which costs a minimum of €250 a month. If you are starting a small business with uncertain revenues or if it is only a minor concern where you know the income is going to be pretty minimal this is very offputting.

The situation is worse when you do not need the social security because, for example, your family has private health insurance or you do not need to make any more state pensions contributions (e.g. because you paid the maximum already in the UK).

There is a possible exemption which may make a small business viable in this position. If your are registered autonomo but this is not a full time regular income generating occupation then you can be exempt from joining autonomo social security (known as “RETA” or Regimen Especial Trabajadores Autonomo ). The law does not give a hard and fast definition of how an “occasional” autonomo should be classified but case law has suggested that, in the absence of any other factors, earning less than the annual minimum wage would suffice.

The minimum wage, or the “salario minimo” or “salario minimo interprofesional” (“SMI”), is €7,599.60 for 2010. It is most commonly referred to as a monthly amount ( currently 633,30), and is changed annually by the Bank of Spain.

Once someone earns more than this monthly amount they won’t be able to claim the exemption from social security. It should also be noted that they won’t be able to claim any benefits or benefits from social security while they are not making payments.

More information can be found at the new Autonomo page of the Advoco website which also includes a video guide to the autonomo.

Fleecing satellites

One irritant about living in Spain is having to rely on huge satellite dishes for our TV. Southern Spain is right on the edge of the satellite footprint for Sky and Freeview and a 1.1m dish is required to get a sufficient signal. Even then it has to be perfectly aligned and some bad weather can interrupt your signal (normally when an important football match is on).

But we should count out our blessings I suppose as at least for most of the time we have TV just like at home. This reliance on satellite does of course mean there has long been an army of tradesmen specialising in satellite sales, repairs and installations. They are mostly one man bands and of varying quality and trustfulness. With the bad apples it's not so much a case of not knowing their stuff but not being reliable and sometimes taking advantage. I got a phone call recently from a distressed Brit who had just been ripped off by a cowboy satellite man. His picture had gone on the blink and the man convinced him he needed to buy a new set top box and charged him 170€ for a Freeview one. It worked OK for a while but just before Xmas last year went on the blink just as his grandkids arrived expecting their fill of CBeebeies and seasonal films. Naturally enough the John Wayne of the satellite dish world failed to show up or even answer calls. My caller asked another satellite man to take a look and he realised at once that the dish simply needed realigning and fixing in place to improve the signal. The original joker had simply wanted to sell an unneeded box for an inflated price (about 300% mark-up).

It's hard to know how to protect yourself in this situation. The said cowboy advertised prominently and had been active in the area for some time and was still a rip-off merchant. If you can't get a personal recommendation perhaps contact a British estate agent or letting agent for an opinion as they deal with these engineers all the time and won't put up with monkeys taking the mickey. If anyone living in the Baza area wants the name of the man to be avoided let me know. I never did work out what that song "Sleeping Satellites" was about.

http://www.youtube.com/watch?v=1iL926w2Lpc

http://www.advoco.es/home/22-latest/37-spanish-tax-form-210.html