Archives for posts with tag: Income

Value Added Tax, now there’s a misnomer if ever there was one. Is it a tax on value added goods, or in fact almost anything of value? Or is it the tax itself that is adding value? It’s confusing. Is it virtually fat-free milk or virtually fat-free milk?

We pay tax on our income, we pay a national insurance contribution, and depending on the country we reside in we pay a range of other taxes as well, like the Irish ‘universal social charge’, corporation tax, property tax, community tax and inheritance tax. Nothing wrong with tax of course, as long as national and local governments are providing good value in the form of social services for the income they make. There’s that word value again.

Scandinavian countries pay very high taxes, but people are very highly paid too and those countries lay on a superb array of social services.

Value Added Tax, or VAT for short, is a huge earner for governments, and an increasingly large number of different goods and services get drawn into the VAT net. How long before children’s items and basic items are forced to join the fold?

The level of VAT varies too. In Ireland it’s 23% for example. In the UK it’s 20% but a glance at the history books will tell you that it’s been creeping up from a low of 8%.

But really it’s the name that jars with me. Before VAT was called VAT in the UK it was called purchase tax, which is much closer to the mark.

I think I’ve always preferred the US term ‘sales tax’. Because that’s what it is. Simple, really. It’s no longer a tax on ‘value added’ good and services, it’s a tax on most things that are sold.

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When you’re an employee, you’re paid for working 52 weeks a year, and in many European countries you get about 4 weeks off, plus national holidays. You’re paid for those holidays, which is great, so the challenge is being able to switch off and not think about work when you’re on a well-earned holiday.

Nothing new there of course. When you’re working for yourself, in a consulting capacity, you can only charge for the time you’re spending on a customer’s work. When you’re not working, you’re not earning. You surrender a good deal of certainty, benefits and a regular monthly cheque for a good deal of flexibility.

I’ve been working in a consulting or contracting capacity for something like 6 out of the last 30 years, but, tellingly I suppose, 6 out of the last 15, and exclusively the last 4-plus years.

I should be used to the ebbs and flows of the consulting life, and I am, mostly. Except that when I have periods of not earning, I find myself worrying more, and the worry increases proportionately to the length of the period of not earning. This is an interesting dynamic when you’re working on a speculative project, like a pitch for work, or an idea for a new business, or book and so on. There’s an opportunity cost to choosing to spend your critical time on a non-paying project, which might turn out to be a pipe dream, over both a paid project and a proposal for a project. You’re not getting paid for the work you’re doing, but you are investing your time in the hope of a decent return. Still, it can sometimes make you feel uncertain, and makes you examine a bit more carefully your choices of what you choose to spend time on.

I don’t know about you, but it makes me very conscious of not wasting these non-earning days. I want to make them productive, because in effect I’m sacrificing income. Conversely, when I elect to take the day as a day off, I make sure to treat it as a day off, as if I was an employee.

Doesn’t always work though…