The Real Costs Of Government

Blog, Disruption, Peter McCaffrey

When talking about the cost of government the most obvious cost is the direct cost – the taxes we pay.

But rules and regulations can impose significant costs on individuals and businesses – sometimes even greater than taxes.

Here’s a great example from the blog of a new UK start-up software company, that involves a little bit of both.

They are being forced to pay a sales tax that they shouldn’t be paying, simply because the rules around the tax haven’t been updated since the internet was invented:

Usually when you sell an item, you don’t have to pay VAT if the customer is outside the EU. However, as we distribute our Construct 2 licenses digitally, HMRC have decided we have to pay VAT on all our sales regardless of where the sale originated.

If we send a physical CD in the post with a Construct license on it, this would count as a physical good. We wouldn’t have to pay VAT on the sale if the customer is outside the EU. Thanks for buying Construct 2! We’ve followed AOL’s footsteps and decided to send it to you as a CD in the post!

If we were to send the license file in paper format, this could possibly also count as a physical good. Thanks for buying Construct 2, here’s your license certificate, please copy all 9 lines out to a text file without making any mistakes at all!

And if we simply send an email, we get charged significantly more tax.

Scirra currently sell licences for their software to businesses for £229. Even including the costs of a blank CD, case, burning and postage, they could save £34 PER SALE by sending a physical copy of their very small text file:

So we have a couple of options:

  • Email the licenses, pay the VAT and suck up a big loss
  • Send CDs and paper licenses to customers not in the EU

It’s not exactly an easy choice to make. The majority of our sales come from outside the EU. The second option is ridiculous, but could save enough money to hire someone.

Ridiculous and out of date government rules and regulations cost real money and real jobs, cause inconvenience and, in this case, hurt the environment too.

The solution isn’t to keep government rules and regulations up to date – government is already far too big to keep track of itself.

The solution is to have as few rules and regulations as possible and to ensure that those that are necessary are kept simple and easy to follow.