Going Solo: Dennis Howlett – The Joys of Tax and Finance

If you live in the UK, you’ll have seen the ad, “Tax doesn’t have to be taxing”, yeah, right. We’ve all got to pay tax, so get on with it and get over it, but you don’t need to leave a tip. You don’t need to pay more than you’re legally bound to. Avoidance is legal, but use the rules; evasion is illegal and there are hefty fines, government grabs assets and there may be jail time. In France, if you fall foul of the tax guys there, they seize your assets and freeze your bank account and ask questions later.

Beware the exotic when it comes to tax avoidance – if it looks weird it’s probably dodgy.

Don’t be stupid. Don’t be a smart ass. You’ll get caught.

Offshoring. Different countries have different attitudes. Some don’t like tax, but some actively hate it. What that means is:

UK – into avoidance
Fr 27-30% of GDP in shadow economy
Germany – actively avoid and evade
UK – will avoid, sometimes dumb
Spain – Evasion is a national sport, 25% of economy is in cash. Dennis had to pay 33% of his house price in cash. Even the government takes property tax only in cash.
Italy – three sets of accounts – go figure! “One for me, one for the government, one for the tax man”

Spain has found it so difficult to collect income tax they tax property instead Location is important, where you conduct your business is important. If you have a British business, doesn’t matter where you live you’ll pay tax. Tiny Roland was one of a very small no. of person who could legitimately claim he didn’t live anywhere.
Where you are born matters, esp UK/US as if you’re American you’ll have to pay tax wherever you are.
Rules are not consistent around the world.

Mostly you’re taxed where you live, except if you’re a US citizen you are taxed regardless of where yul live and/or. If you were not born but live and work in the UK you can get tax free income.

Company – operating through a company may bring no benefit if the structure isn’t right. £150 to set up a company in the UK, in France is now €1, was €7500. You are using it to avoid tax plus. Special problems in the UK with Managed Service Companies.

Not just income tax, but also wealth tax and social security costs.

UK: is probably best, 48% top tax rate
France: 61%
Spain: expensive, but only if you pay it.

In some European countries it is not worth employing people as a person running a small business. This can mean it’s not worth being in business at all. France is very difficult for employing people, so in summer, there are bars and restaurants that shut whilst the owners go away because they can’t afford to employ people.

If you live somewhere because of the lifestyle it will be expensive. Usually social security costs – mandatory pensions etc – that cost the money.

Don’t move anywhere for tax reasons, live where you want to and deal with the tax. Get good local advice, and not the guys down the pub. Tax is complicated and the guy down the pub doesn’t know.

Accounting stuff:
Keep it simple. DIY or get help? There is no right answer. If you feel comfortable with it, fine, if not, get help because time is money and you don’t want to get it wrong. Most electronic accounting systems are based on a theory that’s 6000 years old, and weren’t invented with you in mind.

Alternatives, used or engaged with by Dennis at some point:
Blinksale – for invoicing
Freshbooks – does time, billing, etc.
FreeAgent – soup to nuts, does billing and taxes along the way

There are country-specific alternatives.

Spreadsheets – accountants love them but they are prone to error and difficult to maintain.

Need to save. Few people do. But save as much as the government will allow you, no less than 10%.

Think about how you manage money
– 40-50% for taxes
– claim everything you’re allowed
– keep account simple
– take advice
– save 10%
– enjoy the rest!

Q: Where do you find advice?
Dennis: Ask your network, someone will know someone who can do this. People only recommend people that they trust. Look for others who’ve done something similar, then getting advice.
Stowe: There are benefits to being in the US, you can write off a lot more, the tax is lower, but in general it’s lower.
Dennis: When you bring it all together, yes. But when you add health insurance it gets expensive, and that’s another form of tax.

Q: Tips for cross border billing, e.g. billing from Portugal and billing in the US, there’s the currency angle, but anything tax-wise?
Dennis: No tax issues, as in most places you’re taxed on what you earn not what currency it is in.

Q: Billing in Europe, if you’re in Switzerland, and I have to deal with a lot of Euros, and Swiss banks are very expensive for Euros, so we have an account in Germany because that’s cheaper, save thousands of Euros a year. Other thing about Switzerland, depends on which canton you’re dealing with. Have one canton the tax man is helpful, elsewhere they’ll shoot you first.
Dennis: Same in France.

Q: There are rules you don’t know about, so good to hire a professional accountant?
Dennis: Distinction, you can keep your own books and records so you can manage your cash. Small business people are quire poor at doing that. But always get help on specifics.

Moving from one place to another, need to learn a whole new system, so if you enjoy it and like it that’s fine, but otherwise need advice.

Q: Is my hairdresser a business expense?
Dennis: No. The rule is that if you could use it in another context, then it’s not a business expense. If you’re a musician or artist and you have clothes that are only used on stage, they are a business expense. It’s a pretty universal rule, but there are local nuances.

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