VAT is Changing


As well as going up from 15% to 17.5% and who knows maybe higher still in 2010, VAT is also moving permanently online. The short and simple 9 box paper form that many traders know and, indeed perhaps, love is being retired (for all companies with turnovers greater than £100,000 – those companies get another couple of years).

In 2000 and 2001, working at the Inland Revenue and then the Office of the e-Envoy, we talked a lot about compulsion to carry out government transactions online, about incentivising people to do so (both by charging for the paper version or by offering “discounts” for using online services). The Inland Revenue were the first to try this with the 2001 Self Assessment form – offering £10 to all those who sent their return in online. It wasn’t a great success. The world wasn’t read for SA online and, truth be told, SA online wasn’t ready for the world.

Since then, the Carter report was published, where he said:

The Government has invested over £500 million in HM Revenue and Customs online services. The return on this investment takes the form of improved services for its customers, lower operating costs and greater service delivery flexibility. To maximise the benefits the services need to be robust and customer orientated, HMRC is planning to spend around £170 million in systems designed to deliver these proposals between now and 2012. The investment will be focussed on improving the existing services so that they are resilient and tailored to users’ needs.

Over one third of Income Tax Self Assessment returns are now received online and this has grown year on year since the service was introduced in 2000-01. Almost 2.9 million people filed their 2006-07 return online by 31 January 2007, with the system coping with a peak demand of 14,500 returns per hour. This was a major test of the robustness of the HMRC online service, and the upgraded systems performed very well.

However, take up of the online services for the main business tax returns has been slower to date.

A corporation tax (CT) online filing service was introduced in 2003, and HMRC received over 25,000 company tax returns through this service in 2005-06.

An electronic VAT return was first introduced in 2001 and 10% of VAT traders have signed up to make returns online since an improved online VAT service was launched in 2004.

And went on to say

This shows that slow but steady progress in increasing levels of take-up of online services can be achieved through voluntary adoption. However, the Government has concluded that more pro-active measures will be needed if the benefits are to be fully realised within a reasonable timescale. Following Patrick Carter’s Review of Payroll Services in 2001, the Government announced a three-stage move to universal online filing of employers’ end of year returns. The first stage, for large employers, was implemented in Spring 2005 and there has been a dramatic increase in the use of the PAYE service. These measures included financial incentives for smaller employers to move to online filing ahead of the planned requirement for them to do so – 65% of small employers took advantage of this in 2005/06.

And, specifically for VAT:

– Online filing of VAT returns, and electronic VAT payments required for traders with an annual turnover of more than £100,000 for accounting periods starting after 31 March 2010.
– Online filing of VAT returns, and electronic payment of VAT, required for traders newly registering for VAT after 31 March 2010;
– Traders with an annual turnover below £100,000 will be encouraged, but not required to file online. The continuing need for this exemption will be reviewed in the run up to 2012, in line with Lord Carter’s recommendation that HMRC should aim for universal electronic delivery of the main business tax returns by 2012.

It’s interesting to see how this has played out.

Back in 2000, some of us put together this vision for how things would evolve with online services in the Inland Revenue. We didn’t know how things would turn out and, honestly, thought the move online would be much quicker than it has been …


We also put this slide up


It feels like the IR (now HMRC) are still in that middle box – getting a meaningful usage percentage for online VAT is one of the last challenges (the last is probably online corporation tax using standard messaging]. I’m no longer close to the strategic thinking in that department. I wonder if they have plans for the right hand box? I wonder also if that’s even relevant anymore.

What we were thinking about back then was

1) start a company with companies house, online, but via your bank who have pre-checked your identity

2) get your IR details (PAYE, VAT, CT etc) tied to your company details tied to your bank details – so one reference number shared across them, one userid .. perhaps multiple passwords (to allow for different roles)

3) solely online communication with government regarding your company

The same could be reasonably true for a person as opposed to a company – the hook from the bank might be even easier

All that said, I’m not sure I’d have gone with the reminder stickers seen at the top of this post.

New Business Opportunity

Very soon MPs will no longer be able to hire members of their immediate family as part of their support team. So, within months, a couple of hundred people intimately familiar with the workings of parliament, &politics at a local and national level will be looking for work.

So the new business opportunity is to create an agency that supplies support staff for MPs – the first 100 hires will be the wives, daughters, sons and close relatives of MPs … they go back to work in Parliament, but not for their relatives.

The agency takes a spread and manages all the invoicing, time record checking and so on. Sounds simple. Someone is bound to do it.

Driving Miss Daisy

I have but one contribution to make to the debate about driving the economy forward with appropriate fiscal stimulation:200910282235.jpg

Everyone who drives should have to retake their driving test every 5 years

I took a StreetCar out a couple of weeks ago – the first time I’ve driven a car in the UK for about a year – and was shocked about how terrible most people are. Mirror, Signal, Manoeuvre seems to have disappeared from the lexicon. And let’s not even talk about how people drive on motorways.

So my proposal is simple. Everyone retakes their test, every 5 years.

The benefits would be simple, directly quantifiable and good for everyone

– Fewer accidents on the road

– Lower healthcare costs because of fewer accidents

– Reduced disruption to traffic because of accidents and so improved productivity

– Higher employment for driving instructors and so a new career opportunity for many

– Lower insurance premiums because of fewer accidents

Plainly this isn’t a simple thing to introduce – we’d need, first, to build capacity in the driving school and test centres and come up with a way to prioritise those who needed to take a test first. Those with a recent conviction for driving offences (but no loss of licence) could perhaps go first along with those who last took a test when the speed limit was still 2mph … or those who last took a test 20 years ago or more.

Mobile Winners

To make a small fortune in the mobile industry, start with a large one (Motorola, Palm)

To make a big splash in the small device operating system market, start with a completely different business that throws off billions that you can throwaway invest (Apple, Google, Microsoft)

Is there another RIMM out there to counter these thoughts?

If Nokia Loses … Who Wins? Android Literally Exploding

Funny … I write something about Nokia losing market share to Apple, Google and then everyone writes it. Must be the Zeitgeist. Would that I could claim to have been the opinion leader here. Robert Scoble (who posted about exactly the same kind of lockin I mused on a few days after me) I am not. These articles each make Apple versus Google the key competition (by inference, Nokia has already lost and has been consigned to history or at least to the mobile wastebasket).

The FT says:

Android-based phones – handsets that use the open source Google mobile operating system – are on the march as non-iPhone carriers look for a rival to Apple’s device.

According to Eric Schmidt this month, “Android adoption is literally about to explode.” [literally!]

Gartner, the research group, sees Android eating into Nokia’s leading market share and featuring on 18 per cent of smartphones by 2012, up from 1.6 per cent in the first quarter of 2009. That would put it ahead of RIM on 13.9 per cent and Apple on 13.6 per cent.

Android will inevitably beat the iPhone, according to Ken Dulaney, a Gartner analyst, if only because it will feature on many more handset models. Apple has only the iPhone and does not license its operating system or technology.

The NY Times says:

Twelve Android handsets have been announced this year, with dozens more expected next year. Motorola has dropped Windows Mobile from its line entirely in a switch to Android. HTC, a major cellphone maker, expects half its phones sold this year to run Android. Dell is using Android for its entry into the cellphone market.

One part of the appeal is that, unlike other operating systems, Android is open source software, so anyone can use or change it. “We have access to the source code,” said Sanjay Jha, the co-chief executive of Motorola. “To do that on any other platform would be very difficult.

Android is on only 1.8 percent of smartphones worldwide, according to Gartner, and Windows Mobile software still dwarfs Android. But Microsoft is slipping. The percentage of smartphones using the Windows Mobile system has plummeted to 9.3 percent, from 12 percent in the second quarter of 2008. Microsoft fell behind Apple, which shot up to 13.3 percent, from 2.8 percent.

Android’s supporters say that in contrast, Google’s software and the devices that run it are evolving very quickly.

“They started with the base layer of capabilities,” Kevin Packingham, senior vice president for product and technology development at Sprint. “What was missing from the first generation was the user interface that really gets to consumers.”

There’s some caution needed here before everyone rushes on raving about the speed of evolution of Android software. If everyone takes hold of a copy of Android and changes it, adding features and capabilities, pretty soon it’s not Android and the consumer will be confused about which apps run on which phone. You’re then in a world where you have to look at the “minimum specifications” before you can download an app.
Rapid innovation of the operating system is also risky in a multi-version proliferation. Each manufacturer will have to take the new build and modify it to work with their phones, delaying release to their existing customers – or saving a new release for a new phone (which is pretty much where Microsoft is now – if you want the new version, you have to wait until you can upgrade within your existing contract).
I would have thought some control would be necessary to ensure that the market doesn’t fragment down too many subversions of Android – not as much control, perhaps, as Apple has with a single release, but control nonetheless.
It is, though, interesting to hear the increasing clamour regarding every mobile phone manufacturer except Nokia. Who would have thought that even 24 months ago? It seems most think Nokia is gone, going or soon to go.
Alas poor Nokia … I knew him, Horatio!

A New Kind Of Lock In – Is This The End Of Nokia?

Six and a half years ago I wrote this letter to Nokia and posted it here on my blog. I received no reply from Nokia and, not long after, stopped using their phones. I’ve re-posted an edited version of the letter here:

Sunday, February 16, 2003

Fone Frustrations

Dear Nokia

I’ve been a long-time customer of yours, but it’s getting harder and harder to buy your phones now. Back in 1989 I had a Motorola 8800X, then an NEC-P9 but then I found Nokia. I started with the 2110, from there to 6150s, 6190s, 8800, 6210, 8850, 8890, 6310, 6310i, 8910, 7650 and, finally, the 6610. I’m a bit of a phone junky, I think that’s obvious. From the first Nokia to today, I’ve only had one non-Nokia phone, the Ericsson T68i – because I wanted a triband phone and had lost my 8890. Today, nothing would make me buy another Motorola or an Ericsson.

This weekend I spent a good two hours trying to take the settings from my 7650 (a Symbian phone) to the 6610 (not a Symbian phone). Why would I do that? Well, the 7650 is a great phone, with some useful and well-designed features. But, it has a terrible battery life. It rarely lasts a day, usually perhaps only until about 5pm – and that’s after fully draining and re-charging. So, despite the fact that I think it’s Nokia’s best phone yet, it had to go.

So, dear Nokia people, here are some things for to consider for your next few versions:

– Make better sync software and keep it the same so that every phone can use it

– Figure out a way to make the T9 dictionary portable between phones

– Let me move contacts with assigned ringtones and photos between phones

– If you come up with a good idea, like programmable function keys on the front panel, keep them in future phones

– A joystiq works better than a 4 way button set

– People need to move contacts between devices more than anything; make that incredibly simple and make it compatible with e.g. Outlook

– Fix your bugs, regularly

The sad news is that I’ll have to stick to this phone for a while. The battery life looks good, it’s triband, 300 contacts is enough for now (although I’m sitting at 289 right now), the polyphonic tunes are reasonable (but not as good as the 7650) and it’s small and lightweight. But my Nokia friends, if anyone ever figures out how to do a phone at least as good as yours, I’ll be gone in a flash. Just because Motorola and Ericsson aren’t doing what you’re doing, don’t get complacent. Others will soon figure it out.

Given that the UK market looks pretty saturated, the odds are that most people are either going through or are about to go through their first upgrade – colour screens, polyphonics, cameras etc are all beckoning. I imagine that few of them will have stored all of their contacts on the SIM (which is no use if you store more than one phone number per person), many will have figured out predictive text and so filled up their T9 dictionaries and they’ll want to move phones easily and quickly. Good luck to all those who try.

That was a long letter and a long time ago. My essential complaint, in a sentence, was that Nokia made moving from one phone in their range to another in the range very, very hard. Essentially they relied on you liking the interface of a Nokia phone as reason enough to switch to a new phone – and, for a time, that worked; lots of people I knew loved that the interface was consistent. But I was telling them, in that last paragraph, that this wouldn’t last. They failed to lock you into Nokia both emotionally and technically by not delivering on a simple method to move data between phones.

Not so Apple.

I observed to a colleague at work today that Apple had pretty much secured me as a phone customer for life. I see no way of ever switching to a phone other than an iPhone. This is a whole new kind of lock in. why?

  1. Apple have ensured, probably accidentally, that there’s an application for everything. For instance, I control the music systems in my house using a free application, Sonos. If I didn’t use my phone, I’d have to pay £270 for a controller and perhaps one in every room. Is there another phone with this app? No, not yet. And if there was, I’d move to a list of other apps that I seem to use and need more and more – ones that aren’t available elsewhere.
  2. For a long time, the only way to get bugs fixed on a phone was to change phones. The Treo managed occasional software upgrades but they seemed to bring new bugs as well as fixing old ones. Phone software wasn’t ever tested, it was just released. Witness the first Microsoft phones, the SPV released by Orange in the UK, which crashed whenever a text was received and you were on the phone at the same time. Apple fixes bugs and releases new capability several times a year – FOR NOTHING
  3. The iPhone just works. By itself. I have no idea how or why, I know that it does. I read about people having trouble with their iPhones – exploding screens, rapidly draining batteries and so on. I don’t have those problems – I have had each of the new iPhones as have many people I know, and no one has reported such problems. Well, ok, the battery drain seems a bit of a problem but if you must play games for the entire tube journey to work, what do you expect?
  4. My contacts, my email, my calendar, everything syncs between the Macs I have at home, the laptop I carry, the phone and the web. I can’t seem to lose anything because it’s always in multiple places. I imagine a bulk delete would soon replicate, but that’s what time machine is for.
  5. I could go on

This didn’t start off as a pro-Apple post, it started off as a warning for Nokia so let me return to that theme.

I think Nokia is in trouble. Back at the end of August I said, via Twitter:

Will nokia be the next Chrysler? Acquired, sold to Private Equity, bankrupt, competitively acquired? How long until that?

I think that process is accelerating. Nokia isn’t going away, at least no time soon – after all, look at the numbers

  • Last year, Nokia sold 472 million phones
  • Its global market share in 2008 was 38.6%
  • In 2007, it had 49.4% share of the global smartphone market; that fell to 43.7% in 2008 and is falling further; in Q1 2009, it’s share in this important (read high margin) market was only 41.2%
  • In 2008, Nokia’s revenue was $70 billion
  • 2008 profits were $7 billion
  • It is the 88th largest company in the world by revenue
  • 1.1 billion people use or have used Nokia products
  • Nokia’s next 3 competitors together account for only 32% market share
  • Their latest phones are getting poor reviews – Wired scored the new N97 only 6 out of 10 (the iPhone was 8 out of 10 and the Samsung i8910 also scored 8)

Nokia has so far engaged in a me-too battle. Apple brought out a market-changing product and everyone is playing catchup. Whilst me-too products will capture some of the market, they won’t break the hold of genuine innovative players who will gain increasing share. My own experience, anecdotal as it is, says that once you’re an iPhone owner you may very well stay one forever – so every customer Apple gains is one that Nokia will never get back.

Nokia’s market share will decline precipitously in smartphones and, to replace that lost market share, they will increasingly chase higher volumes of lower margin phones in emerging economies. Those emerging economies won’t be satisfied for long with low end phones and they too will chase more capability.

As the volume of smartphones grows Nokia will find its overall market share shrinks. Revenues will fall, but not as fast as profits. Lower and lower margin phones will reduce how much Nokia can spend on research and development, so curbing their potential to bring out new, mould breaking, phones.

How long will this take? A couple of years perhaps. It’s a long way down from $70 billion in revenue, but stranger things have happened. The rot is already setting in. Barrons published this story online in mid-October:

Yesterday’s nasty Q3 financial reportfrom Nokia(NOK)continues to have ripple effects, and the stock remains under pressure.

  • Nokia has made some management changes. CFO Rick Simonsonbecomes head of the Mobile Phones segment of the company’s Devices unit, as well as head of strategic sourcing for all of Devices, which includes both Mobile Phones and Smart Phones. Timo Ihamuotila, now head of sales, becomes CFO.
  • Moody’stoday downgraded Nokia’s senior debtto A2 from A1 to reflect the rating agency’s view that the mobile phone market will become more challenging for Nokia due to more modest long-term growth and more formidable competition. Moody’s says that Nokia “is unlikely to return near-term to the superior credit metrics that have marked the company’s credit profile for many years.” The agency also said that it believes the mobile phone market is “nearing saturation.” And it asserts that the Nokia Siemens venture may require more restructuring.
  • Bloomberg notesthat Nokia yesterday took a $1.35 billion writedown of its stake in Nokia Siemens, and that that partnership may be “unraveling.” Just what would happen is unclear; neither side seems eager to buy out the stake of the other, and an IPO would seem problematic given the troubles in the business.

It is not just Apple who are eating Nokia’s lunch of course. Apple with one phone physically upgraded only once per year may never take a significant market share – but it may be that they continue to take the slice of the market with the highest margins and the largest wow factor for a time.

Other providers are working hard to take share off Nokia – and it is likely these other players who will do the most damage

  • Microsoft has committed billions to their mobile platform and recent conversations with Steve Balmer suggest that they will continue to do the same. The old joke was that it took Microsoft three versions to get it right; they are way past that now at v6.5 but it could be that they’ve finally made it, especially with the customised interfaces that some providers lay on top of windows to mask some of its inadequacies.
  • RIMM is mainly battling with Microsoft for share of the corporate email marketplace (and many will rightly argue that RIMM won by a knockout long ago), but RIMM is extending more and more into consumer phones. The new storm, v2, looks like it has corrected many of the faults of the first version and could sell well, albeit mainly a me too phone with its main selling point being a haptic touch screen (probably proving the point that anything that has to be explained won’t prove to be a selling point – one of the defining moments of Apple’s iPhone launch has to be the cry of “you had me at scrolling”)
  • HTC is aggressively providing phones for network providers that they can rebadge whilst also creating its own, well positioned, brand. They’ve come a long way, in a very short time, from their first smartphone, the HTC touch
  • Other vendors, certainly Samsung and perhaps even a resurgent Motorola are going to be working hard to take share away and, for a new customer looking for their first mobile phone, what would tie them to Nokia?
  • Google is the wildcard for me. They have the money and the proven innovation capability coupled with a huge box of tools (gmail, gearth, gcal etc) to create some stunning products. Android v1 didn’t wow too many people but v2 is looking quite different. Given that google isn’t particularly trying to make money off the operating system, but is relying on increased traffic and therefore ads, anyone building to the Android spec may have a lower cost advantage. Whilst the ad business is growing so well, the shareholders will indulge google in the mobile space, but at some point they might start demanding specific returns – that point is some way off, if it ever comes.

There is, though, one fact that so far plays into Apple’s and perhaps Google’s hands. When you write an app for their phones you instantly know how many people could potentially download it. Every phone is not quite the same – compass and video were all introduced in the most recent phone as was a bump in processing capability – but broadly, an app will work on any iPhone and perhaps any Android phone (although I’m a little less clear there). Other vendors will battle that: touch screen or not, keyboard or not, wide screen or not, small screen versus large screen, joystiq or buttons etc. Every variant increases the development cost and reduces the potential market share. The sheer variety of models might be what kills off Nokia – after all, car manufacturers learned a decade ago that you want as few variants at the base level as possible. It’s the software that should handle the complexity. l

Ten years ago, one reason for having a Nokia phone was that everyone around you had one – and you could, in theory at least, beam information between the phones using infrared. As Nokia’s market share falls, new customers looking at what their friends have will increasingly not see Nokia phones in their hands and so will choose another brand. That will accelerate Nokia’s decline.

Two years from now, is it possible that Nokia’s market share will be less than 20% of the global total with a single digit percentage share in smartphones? It sounds far fetched, but it’s possible. Were that to happen, it strikes me that acquirers would move in – and Nokia’s response would be to close down failing businesses and make significant cost reductions to fend them off. Would the Finnish government allow a foreign company to acquire all or large parts of Nokia? We will, perhaps, see. Place your bets – are you long or short Nokia?

Separately, Apple increasingly looks like it is becoming the new gold. Even in tough economic times, Apple is selling more and more product, magnifying the halo effect that sees iPhone buyers trade in their PCs for Macs. Amazing to watch. Apple is the new gold. I can see a new logo coming; the Golden Apple.

You might be short Apple now but I bet you’re not short Apple for the long term.