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their specialized…sounding names； can help with every aspect of IP；
including finding you a local adviser。
。 The British Library （bl。uk 》 Collections 》 Patents； trade marks
& designs 》 Key patent databases） links to free databases for patent
searching to see if someone else has registered your innovation。 The
library is willing to offer limited advice to enquirers。
。 Business Link （businesslink。gov。uk 》 IT & e…merce 》 Emerce
》 Web hosting options） has prehensive up…to…date information
on choosing a domain name and registering and protecting
that name。
。 Guidance Notes entitled ‘Choosing a pany Name’ are available
from panies House （wwwpanieshouse。gov。uk 》 Guidance
Booklets）。
PRINCIPLES OF TAXATION
Tax in its various forms can account for up to half of a business’s turnover。
Taxes constitute the largest single creditor； the most likely event to cause a
business to fold and ranks first in the pecking order when it es to the
disposal of assets in such an event。 These two judgments against the Inland
Revenue missioner gave the spur to the ‘inventive’ approach taken to
the subject of tax by many businesses and their accountants：
。 Lord Tomkin – IRC v Duke of Westminster （1936）： ‘Every man is
entitled if he can to order his affairs so as that the tax a。。aching under
the appropriate Acts is less than it otherwise would be。 If he succeeds in
ordering them so as to secure the result； then； however unappreciative
the missioners of Inland Revenue or his fellow taxpayer may be of
his ingenuity； he cannot be pelled to pay an increased tax。’
。 Lord Clyde – Ayrshire Pullman Motor Services and Ritchie v IRC
（1929）： ‘No man in this country is under the smallest obligation； moral
or other； so to arrange his legal relations to his business or his property
as to enable the Inland Revenue to put the largest possible shovel into
his stores。’
Business Law 191
For business people the justification for tax minimization is overwhelming。
No other activity can enhance net profits so dramatically。 Every pound in
tax saved drops straight to the bo。。om line。
Tax evasion； avoidance and mitigation
The opportunities are endless； from the seemingly prudent – Marks &
Spencer seeking to obtain group tax relief in respect of losses incurred by
certain European subsidiary panies in Belgium； France and Germany
– to the plain criminal – stuffing the business with false invoices。 （China
has the dubious distinction of being the world capital of false invoicing。
In 2007/8 police there investigated 3；511 cases involving issuing false or
tax…offse。。ing invoices； arrested 2；979 suspects； confiscated 10；510；000 fake
invoices； smashed 101 illegal invoice…printing operations and retrieved 9。2
billion yuan （￡640 million） in under…declared taxes。）
The challenge for directors and managers is to recognize the distinction
between different types of behaviour when it es to tax law：
。 Tax fraud； o。。en called tax evasion to so。。en the underlying meaning：
This involves the intentional behaviour or actual knowledge of the
wrongdoing； for example reducing the tax burden by underreporting
ine； overstating deductions； or using illegal tax shelters； this is a
criminal ma。。er。
。 Tax mitigation involves the taxpayer taking advantage of a fiscally
a。。ractive option afforded to him by the tax legislation and ‘genuinely
suffers the economic consequences that Parliament intended to be
suffered by those taking advantage of the option’； as one Law Lord summed
the subject up。 So； for example； if a business is allowed to offset the
cost of an asset against tax； then so long as it actually buys the asset it is
mitigating its tax position。
。 Tax avoidance lies in the blurred line between tax mitigation and tax
fraud and is usually defined by the test of whether your dominant
purpose – or your sole purpose – was to reduce or eliminate tax
liability。
Tax types
As a business you are responsible for paying a number of taxes and other
dues to the government of the day； both on your own behalf and for any
employees you may have as well as being an unpaid tax collector required
to account for end consumers’ expenditure。
There are penalties for misdemeanours and you are required to keep
your accounts for six years so that at any point； should tax authorities
192 The Thirty…Day MBA
bee suspicious； they can dig into the past even a。。er they have agreed
your figures。 In the case of suspected fraud there is no limit to how far back
the digging can go。
Corporation tax
panies pay tax on their profits at varying rates dependent on their
size and the amount of profit made。 Small panies； described as those
making less than around ￡300；000 a year in profits； currently pay tax at 20
per cent。 The rest pay at 28 per cent。 Both these tax rates and the break point
can be adjusted each year in the Budget。 The current rates are published
on the HM Revenue and Customs website （hmrc。gov。uk/rates/corp。
htm）。 Corporation tax in many other countries is much lower。 Bulgaria； for
example； at the time of writing charges 10 per cent； the lowest in the EU。
Corporation tax covers the profit made in an accounting period； usually
of one…year duration but can be shorter under special circumstances； but
never longer。 panies are responsible for working out their own tax
liability； paying the tax due and filing their tax return no later than 12
months a。。er the end of the accounting period。
Capital allowances
The purchase of capital items such as plant； machinery and equipment；
buildings and any such long…term assets is treated for tax purposes in a
particular manner。 In the profit and loss account these costs are usually
shown as an item of depreciation spread over the working life of the asset（s）
concerned。 For tax purposes； however； depreciation is not an allowable
expense； rather； it is replaced with a ‘writing…down allowance’； the amount
of which varies according to the policies favoured by the government of
the day。
At the time of writing； businesses of any size that meet certain prescribed
conditions will be entitled to 100 per cent tax relief for the first ￡50；000 of
most types of investment in the year in which that investment is made。
Otherwise the amount that can be offset against tax varies from 10 per
cent to over 140 per cent。 HM Revenue and Customs （hmrc。gov。uk/
capital_allowances/investmentschemes。htm） publishes the current rules
and rates。
Capital gains tax
Any asset a business disposes of； other than the goods it normally trades
in； is liable； in the event of there being a profit； to pay capital gains tax
（CGT）。 Once； that tax was plicated and subject to tapers and indexing
dependent on the type of asset and how long it was owned for。 Now； in
the UK as in many other countries； a single rate of tax； in the case of the
Business Law 193
UK 18 per cent； is applied。 As tax on ine is 10 per cent higher； there
is much effort devoted to trying hard to switch profits made from one
category to the other。 Mostly these efforts are illegal or at best dubious and
most fail the avoidance test in that the primary； o。。en only； purpose of such
schemes is to avoid tax and not the normal pursuit of business activities。
HM Revenue and Customs （hmrc。gov。uk/cgt/index。htm） provides
the latest information on these taxes。
Capital losses
Many sales of assets； old vehicles； puters and so forth； involve a loss
rather than a gain。 Subject to offse。。ing any tax relief already claimed from
writing down allowances during the asset’s life； such losses are usually
offset against gains made on the sale of other assets within a set time period；
usually several years。
Pay as you earn （PAYE）
Employers are responsible for deducting ine tax from employees’
pay and making the relevant payment to HMRC。 If you trade as a limited
pany then； as a director； any salary you receive will be subject to PAYE。
You will need to work out the tax due。 HM Revenue and Customs （
hmrc。gov。uk/employers/employers…pack。htm） gives details on PAYE in this
Employers Pack。 This is a plex area； as no two employees are likely to
have the same tax circumstances due to the myriad of tax credits on offer
for various circumstances。
Subcontractors
panies o。。en seek to circumvent the plexities of PAYE and employment
law by using subcontractors。 This is particularly so in industries such
as construction； but here there are strict and precise rules。 Subcontractors
must hold either a Registration Card or a Subcontractors Tax Certificate。
Where a subcontractor holds a Registration Card； the ‘employer’ must make
a deduction for the subcontractor’s tax and National Insurance contribution
（NIC） liability。 Where the subcontractor holds a Subcontractors Tax Certificate；
the contractor will pay salary gross； leaving the tax to be paid by
them。 At the end of the day； if tax is not paid there is every likelihood that
the employer will be pursued by the tax authorities。
National Insurance （NI）
Almost everyone who works has to pay a separate tax； National Insurance；
collected by HMRC that； in theory at least； goes towards the state pension
and other benefits。 NI is paid at different rates and self…employed people
pay Class 4 contributions calculated each year on the self…assessment tax
form。
194 The Thirty…Day MBA
The amount of National Insurance paid depends on a mass of different
factors； married women； volunteer development workers； share fishermen；
self…employed and small earnings are all factors that a。。ract NI rates of
between 1 and 12 per cent。 HMRC （hmrc。gov。uk 》 Library 》 Rates &
Allowances 》 National Insurance Contributions） provide tables showing
the current contribution rates and elsewhere on the site （hmrc。gov。
uk 》 employers 》 National Insurance） you can download an Employers
Annual Pack with all the plexities of NI paperwork。
Value added tax （VAT）
VAT； a tax mon throughout Europe though charged at different rates； is
a tax on consumer spending； collected by businesses。 Basically it is a game
of pass the parcel； with businesses that are registered for VAT charging
each other VAT and deducting VAT charged。 At the end of each accounting
period the amount of VAT you have paid out is deducted from the amount
you have charged out and the balance is paid over to HM Revenue and
Customs。 In the UK the standard rate is 17。5 per cent； while some types
of business charge lower rates and some are exempt altogether。 In the
UK； businesses should register for VAT if their sales are expected to reach
around ￡65；000。
The way VAT is handled on goods and services sold to and bought
from other European countries is subject to another set of rules and procedures。
HM Revenue and Customs （hmrc。gov。uk 》 Businesses and
Corporations 》 VAT） publishes a series of guides； such as ‘Should you be
registered for VAT？’ and a General Guide。
VAT is a legal minefield with fine judgments being the order of the day；
as Marks & Spencer can confirm。 For decades it was obliged to pay VAT
on its chocolate teacakes as the Revenue categorized them as a biscuit； a
luxury rather than ‘food’ and hence liable to VAT。 M&S has persuaded the
European Advocate General that the Revenue was wrong and so is in line
for a ￡3。5 million refund。
Economics
。 Schools of economic thought
。 Market structures and petition
。 Managing growth
。 Understanding business cycles
。 Fiscal and monetary policy considerations
。 Assessing economic success
The jury is out on who the got the whole subject of economics under way；
but two serious contenders are Aristotle （382–322 。。。。） who； in his work
Topics； got the subject of human production under way； and Chanakya；
whose treatise Arthasastra （economics）； wri。。en in the period 321–296 。。。。；
laid out a framework for the economic management of India’s agriculture；
forestry； wildlife； mining； transport and trade。
Alfred Marshall； the dominant figure in British economics until his
death in 1924； defined economics in his influential textbook Principles
of Economics as： ‘a study of mankind in the ordinary business of life； it