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.

QE2 and the soaring cost of fine wine

If you think that the US Federal Reserve's announcement of a $600bn second slug of quantitative easing (QE2 as it has been dubbed) is just what the US and World economies need right now, think again. It is rare that mere monetary manipulation is the springboard for a solid and lasting cycle of productive economic activity. I will allow that an economy that has suffered a shock fall in its money supply, because of major banks going under say and taking depositors's cash with them, could do with an infusion of cash from the central bank. But the US and most of the World is not in such a position.

Bank bail outs and the last lot of QE have stabilised the banking system, at least for now. No depositor in the US or UK lost a penny. Money supply and the velocity with which it has been circulating round the economy, have been growing briskly on both sides of the Atlantic after an understandable slow down in the aftermath of the crisis, caused by a reluctance to lend, borrow, invest and consume in the private sector. Retail price inflation is positive and rising in the US (about 1%, much higher in the UK). The economic recovery is slow but what would you expect if the private sector is working off its excessive debts and banks rebuilding their capital?

So the new money is not filling a hole in the money supply, or warding off the supposed horrors of deflation or needed to refloat the financial system. The Fed chairman justified the extraordinary move by claiming prices are not high enough - he wants high consumer inflation and higher share prices.

“Higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending," Ben Bernanke

So the Fed is printing 600 billion to buy US government debt on top of the 1,700 billion it has already printed to make sure its citizens pay more for what they need to live on and in the hope of a trickledown effect from booming stock markets. But what will happen in practice?

A clue was to be found this week in news reports of a boom in fine wine prices and a new world record for a single bottle:

An 1869 vintage wine of Chateau Lafite-Rothschild was recently sold at auction in Hong Kong for a record 147,020 pounds, leading experts to warn that fine wines could soon become unaffordable. (CityAM)

And this is before QE2. The free money, printing press economics that are being followed by our monetary masters around the globe are predictably fuelling inflation, even though the main consumer indices are reasonably becalmed. The money is finding its way through to speculative property deals, emerging markets, takeovers, precious metals, rents, commodities, luxuries, art - the price of anything that isn't being held down by the deadweight of unemployment misery and industrial ruin.

A tidal wave of money has been unleashed supposedly because we are all suffering from low prices at a time when energy prices are rising sharply and food basics like rice, sugar and wheat are soaring in price. The fact that emerging markets and speculative investments are booming suggests that the excess liquidity is not being invested in real investment in the Western economies but is simply flowing abroad, jacking up the prices of essentials and causing chaos.

I think there is some sort of recovery taking hold in some of the Western countries and am not unrelentingly doom and gloom, but this latest piece of economic policy making beggars belief. I hope the UK doesn't follow suit. And I certainly don't expect a healthy round of balanced economic growth any time soon.

Latest article on the main website: Prospects for the UK state pension

More coffin nails for the Spanish economy?

Spain has always been a long way behind when it comes to making efforts to ban smoking from public places. When I first started to live here I was amazed to find bank tellers and government officials smoking while they attended you. I was outraged when I went to register the birth of my first child and found the Registro office so smoky that my 2 week old baby had to be kept out in the corridor while we attended to the paperwork. A year or two later when I helped set up a play centre in the local town, I had to accept that smoking would be allowed in the café or “no one would come”. But it seems this is about to change and Spain is about to get some of the toughest anti-smoking laws in Europe.

After a botched and watered down attempt at a ban on smoking in bars and other public places a couple of years ago, this new “antitabaco” law looks like the real deal. The new law would, from 2^nd January 2011, ban smoking in all bars, restaurants and other enclosed public spaces with very few exceptions. Also some outdoor places like the grounds of health centres and playgrounds are included in the ban. Terraces attached to bars which are not enclosed by three or more walls will be exempt. There are exceptions for some private clubs and certain proportions of space in hotels and prisons.

Another victory for health campaigners then and, despite not being militantly anti-smoking myself, I think on balance these kinds of laws quickly become accepted as the norm and the vast majority of people – smokers included – find them an improvement after a short time. The issue though is less about smokers’ rights and more about the effects on business, specifically the large and vitally important catering and hospitality industry which has been lobbying against the ban. Some people also think tax revenues from cigarette sales will hit the government’s finances and tobacconists are expected to suffer.

"The new law enrages barowners "

http://noticias.lainformacion.com/noticias/la-nueva-ley-antitabaco-enfada-a-hosteleros-y-estanqueros_L35ilG1cO6AdcBznocQyv3/

There could be something in these economic warnings. The Spanish economy and the government’s finances are in a precarious enough state and the UK’s experience that banning smoking, however desirable public health grounds, has had a negative effect on takings at some types of premises. I haven’t heard restaurants or hotels complaining about the smoking ban but pubs and clubs have certainly seen revenues decline over recent years. Not all their woes can be blamed on the new legislation: social trends which go back decades have left traditional pubs and places like working men’s clubs and bingo halls losing market share. The recession has taken its toll. We have been drinking less and less beer as a country for years. And there is more competition, including websites and the lottery in the case of bingo and supermarkets in the case of pubs. Some pubs, like the Wetherspoons chain, have taken on the decline and changed their offerings to, for example, capture the breakfast and coffee crowds.

What does all that mean for Spain? I think the effects could be quite significant. The small café and bar is a staple of Spanish life as, sadly, is unabashed smoking in front of other people. I can see the firm ban hitting business and shutting some of the weaker establishments. This is not a justification for putting off doing something that could save lives and set a better example for children but it’s one more reason to think 2011 won’t see any kind of rapid turnaround in the Spanish economy.

related http://www.independent.co.uk/news/uk/politics/smoking-ban-should-not-cover-pubs-and-clubs-2105331.html

From our website -

Spanish tax forms explained

Is there such a thing as an autonomo free lunch?

Going self-employed in Spain - "autonomo" in the local parlance - has many attractions for foreigners living here, not least of which is that good paying contracted jobs are in short supply, particularly for foreigners without much Spanish. Many foreigners in Spain run their own business, er, "informally" without registering or paying any tax but would prefer to be legal either because they fear investigation and prosecution or because of the limitations of working in the black economy e.g. not being the equivalent of "VAT registered" and being able to issue proper invoices or not being able to sign a lease, take a loan or employ people.

That all points to registration and formalising your business but many people are put off by the taxes and social security. Without going into massive detail (there is a guide on the firm's website which covers all of this - Autonomo Guide) the main sticking point is social security for most people. It is a minimum of 251€ per month and can be more if certain unemployment, sickness insurances are taken in addition to the basic cover. Even if you don't make a profit (or make losses) this monthly payment never goes down, although younger autonomos can get a 30% discount for their first 15 months registered.

The "solution" if you want to register as autonomo but don't fancy this hefty outlay is sometimes touted as opting out due to low earnings. Spain has a national minimum wage and theoretically autonomos who earn less than it can apply to opt out of social security. But there are conditions which make it only applicable to a minority.

- you must always earn under the minimum wage so anyone earning irregular amounts which sometimes exceed the minimum could not apply

- you must be working occasionally - if you are doing a regular contract or regular work you cannot apply

- you cannot have a permanent place of business

This is why the bulk of people continue to have to pay social security if they are self-employed in Spain. Besides unless you pay into the system you cannot apply for the benefits, mainly health and pensions related which could ultimately be worth hundreds of thousands of euros (see article Spanish pension benefits )

When will the Spanish pensions system collapse?

You might notice my deliberate and provocative use of the word "when" in the title rather than "might" or "if". I have just been doing an article for my website about Spanish pensions ("Spanish Pension Benefits") and was shocked by some of the figures I found during my research.

The article talks about how much someone in Spain can expect to get by way of a state pension, the answer being somewhere between 340€ a month up to nearly 3.000€ a month if you have made the maximum contributions. The majority will I guess be retiring on something between the minimum and double that, and bear in mind that in Spain you get 14 monthly payments (double at Christmas and Summer holiday time which is a nice system I think.

Not overly generous then but as everyone knows there is a pensions timebomb ticking in every developed country due to population ageing. Spain's ageing profile was what really surprised me and it is this and not the generosity of the payments that will sink the system. These are some UN figures comparing the ratio of working age Spaniards with oldies in 2050 with the ratio at the turn of the century:

2000

Spain Working age (15-65) 27 million

Spain retirement age (65+) 7 million

Spain ratio - 4 workers to every pensioner

2050

Spain Working age (15-65) 16 million

Spain retirement age (65+) 12 million

Spain ratio - 1.4 workers to every pensioner

(source UN Ageing Report

http://www.un.org/esa/population/publications/worldageing19502050/)

So, Spain has an 11% public sector deficit now ( ie is borrowing to pay current pensions) and that is barely 10 years into this dramatic demographic shift. It seems inconceivable that Spain will be able to finance state pensions with 11 million fewer workers and 5 million more pensioners. It just can't happen. So what will happen?

A big shift towards encouraging rather than deterring immigration? That may partially happen but the problem is rich countries tend to attract the poor and unskilled who may not exactly be an unmitigated economic boon.

Cuts in benefits and later higher retirement ages? For sure and these are being talked about at the moment with a report from 100 economists suggesting reforms along these lines (http://www.valenciaplaza.com/ver/10894/El-modelo-sueco-y-los-100-economistas.html) but the reforms seem quite timid, with a rise of only 2 years in the retirement age and an increase of 5 years in the number of years' contributions required to get the maximum pension (it is now 35). Hardly enough to rescue the system you would have thought.

Essentially the government is making promises it cannot keep and cannot renege on explicitly for fear of a political backlash. The outcome will eventually be a default on its pensions promises by stealth - pensioners will get the nominal pension they have paid for but the government will borrow and print the money to pay for it so inflation erodes its effective value. At some point in the next couple of decades 70s style inflation will wipe out much of the real value of state pensions.

Other recent articles: Spanish non resident tax

10 reasons you've got to love the internet

It's funny how it was only after the Dot Com bubble that the internet really took off for ordinary people. Lots of crumby online businesses came and went (bankrupt) and we were mainly left with Amazon, eBay and online travel booking. A lot of the good stuff has only really become ingrained since broadband became ubiquitous in the last 5 years. I couldn't believe it when I read YouTube was only 5 years old the other day; it seems to have been around forever. That site is one of my top ten reasons why the net is now ingrained into my life and doing without a connection would be unthinkable, like losing water or electricity. Here's my list (in no particular order) of 10 reasons the internet has made life better:

1. TV on demand

A really recent one this because it was unthinkable just a couple of years ago when there wasn't enough bandwidth to contemplate everybody streaming TV shows over the internet, but now with 4OD, iPlayer and countless others, it is routine to get almost any viewing you want, when you want. Now that these services are being improved and built into TV sets (Virgin already do it) you can never complain again that "there's nothing on". Annoyingly much of the UK material is not streamable in Spain.

2. Settling arguments

There used to be a time when petty arguments over silly things could fester unresolved indefinitely but now the ultimate resolver of disputes is on hand to hand out judgement. I once had a passionate dispute with someone who was convinced that 9/11 occurred in the 90s and it was only when I brought up (several) news reports that they backed down. I have lost plent of arguments in a similar way.

3. Travel

When did you last go to a travel agents? How about checking in online? How much do you think flights would cost today if the internet hadn't happened.

4. Business

The 1980s and Mrs Thatcher did a great deal for small business and entrepreneurs. The internet has done a lot more.

5. Music

The reason I love YouTube so much is purely for music. Think of any song by any artist in any era and it will be there. You can save your favourites and use it like a radio. There's also a ton of music you can download legally and freely. It used to be to discover new music you had to listen to the radio; now you can browse countless sites and see your favourites as well as hear them. And you can listen to any radio station you want.

6. Shopping

My sister has just published a book. It is fantastic and full of recipes for the sort of (mainly) British favourites that I used to enjoy as a kid. I thought I would buy several copies to give away. Problem - the list price is 20£ (it's a big glossy hardback) and the discounted price on Amazon around 13£ I think. But a quick search using Google's Shopping results section and a 7.99£ offer inlcuding delivery popped up. I bought three and they threw in a free book because of a special offer. The book is called Ramblers Rewards and the cheap bookseller TheBookPeople.

7. Blogging

Writing and reading other non-professional opinions is one of the ways the internet has made life more democratic.

8. Reviews

You never have to take a chance on anything these days, be it book, film, product, holiday destination etc. They are all exhaustively reviewed online.

9. Facebook

Say what you like about social networking but it is amazingly easy to keep in touch and make new connections using sites like Facebook.

10. Information for life

Well, of course, I couldn't go without mentioning sites like our's which provide the information you need for doing anything from paying your taxes to fixing your computer to diagnosing that funny pain you've been feeling in your big toe.

That's my list but I am sure everyone will have their own particular ways that the internet works for them.

Talking rubbish

There are a few things about living in Spain that turn me from a mild mannered accountant into the most Meldrew-ish of Grumpy Old Man in a flash. Usually the bugbears relate to breath-takingly bad customer service (e.g. see Will Spanish Business Ever Get the Internet?) or something car-related (does anybody use indicators any more?). Recently though I think it is rubbish that has wound me up the most. Specifically the laziness of people when it comes to its disposal.

It seems that Spain had no equivalent of the Keep Britain Tidy campaign that I remember from my childhood. Chucking takeaway cartons onto the street, leaving bags and cans on the beach and throwing rubbish out of the car, seem to be perfectly accepted disposal techniques.

But what really winds me up is the people who either make no attempt to recycle or leave their rubbish on the road next to, rather than in, the bins. If you have some papers or plastic bottles is it too much to ask to throw them in the right container which is right next to the green bin?

What I find especially infuriating is the people who have gathered up their recycling (say bottles) in a bag and who, because the particular rubbish stop they have parked at does not have the right container, leave it by the side of the bins. It's like they are say "look I've done my bit collecting the stuff but do you really expect me to go to any trouble finding the right container".

And what of people who leave cardboard boxes beside the blue paper bins rather than crushing them and actually putting them in the bin. Are they that busy or feeble that they can't finish the job. I DON’T BELIEVE IT!

I really must take a lie down and stop getting so worked up.

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