I provided some of the data used in this article (via FOI-request, used at sqwyre.com).
The scale of the number of the hereditaments (taxable units) is remarkable and overloads local tax authorities. We're talking thousands, with regular tenant changes. Even in central London, there are only a handful of municipal staff to deal with all businesses.
What you end up with is equivalent to a denial-of-service attack against rates authority staff. They're overwhelmed.
That's the real risk to communities. If tax relief claims are industrialised, it puts endless pressure on the services those taxes were supposed to pay for. These are local taxes, so that's libraries, community centres, road maintenance, etc.
WeWork may not be a tech company when it comes to what they're selling, but it is when it comes to how they deal with tax.
> If tax relief claims are industrialised, it puts endless pressure on the services those taxes were supposed to pay for. These are local taxes, so that's libraries, community centres, road maintenance, etc.
I can understand how the existing system may have issues with this - but the total presence of WeWork definitely doesn't qualify for a rebate... and if the filing rate of the company seems absurd then the government should reject all the filings by that company and fine the company trying to abuse the system.
Unlike computer logic where weird edge cases can be exploited due to the speed and complexity of the system... when it comes to taxes this stuff is going in front of human beings and the government can always bring a hammer down.
Doesn’t it stand to reason that the taxation authority should scale or become more efficient like any business when there is an increased demand for services?
> What you end up with is equivalent to a denial-of-service attack against rates authority staff. They're overwhelmed.
On the other side it provides pressure on tax authorities to finally digitize their processes and automate what's possible. Ideally, an application review should not be more than 10 or 15 minutes - clerk opens digital file, reviews attached floor plannings and previous tax filings/business plans (or the system automatically has the flag "this is a small business" attached), clicks on either approve or deny button, system automatically sends paperwork to the applicant.
The only way that forces authorities to modernize their processes is when the demand grows large enough that the ROI calculation proves it.
This is a massively complicated and nuanced issue that has kicked around the Supreme Court in the UK.
Here's the game:
1) There are taxes levied on business users of commercial office property in the UK.
2) Independent small businesses may apply for tax relief if they rent a space that has a rateable value of less than £15,000. (1)
3) The intention of this relief was to provide small business users with a fighting chance to be able to afford office space.
4) The "total rateable" value" of a massive open coworking space is obviously higher than £15,000 but if you're a business renting 2 desks maybe you should qualify for the small business relief?
5) Coworking landlords figured out that they could qualify for the tax breaks THEMSELVES if they cut their own properties into dozens (or hundreds) of small plots or pieces called hereditaments.
6) Then in effect you have these hundreds of hereditaments claiming the small business tax and collecting rent from a small business.
WeWork is a slightly worse abuser of the game played by virtually all coworking operators in the UK.
The "coworking" lobby has published a study outlining their view (1).
At the core Her Majesty's Revenue and Customs set up a system that didn't count on the inevitable "enterprise" player paying tax attorneys to abuse them, and the two sides should probably sit down and sort out something reasonable.
But instead they're suing eachother to oblivion and employing armies of attorneys :).
Laws are hard and the legal system is complicated but (4) is where it breaks down to me. If there was a company leasing 100k worth of space in total they clearly shouldn't qualify, if the client is leasing 10k worth of space, maybe they should qualify... if that company mostly closes but has time to run out on their lease which they use by sub-leasing the property then still, _maybe_ they should qualify, their sub-leasors probably should qualify assuming the property isn't marked up in the sub-leasing.
Any company attempting to declare stewardship of multiple hereditaments should have the book thrown at them. Anyone using subsidiary companies to distribute their hereditaments should also have the book thrown at them... I'll just assume the UK got into this weird tax system because real-estate investors tend to have an out spoken amount of power in politics and tend to create some of the most absurd tax loop holes... especially since there is a specific coworking lobby.
At the core Her Majesty's Revenue and Customs set up a system that didn't count on the inevitable "enterprise" player paying tax attorneys to abuse them...
Which, to be honest, is falling down on the job. Britain has been around long enough.
I've been assembling commercial ratepayer data across the UK quarterly for the last three years. While WeWork is certainly not alone, what is remarkable is the explosion in micro-hereditaments over the past year. We're talking median office sizes at 4-6m2,where some of the more established services are significantly larger. And the approach of fragmenting offices into ever-tinier spaces is accelerating.
Sounds like an opportunity for a HaaS business (Hereditaments as a Service) where small businesses could band together and reap the benefits themselves, rather than it flowing to an aggregator like WeWork.
Any company with local revenue of over $100 million and world wide revenue of nearly a billion should just not be eligible for tax breaks. It's really just that simple.
Frankly just remove tax breaks completely and make the whole system simpler and cheaper.
Tax breaks and similar incentives exist to nudge the market in the direction the government would like. I may not approve, as a conservative person, as I always advocate for a simple flat tax on all entities. But I'm not the politicians who decide they want to incentivize various behaviors in the market.
The real point I want to make is in order to simplify the tax structure, you rob the politicians of their main economic design power. No more tax incentives for solar, high efficiency windows, developing in high crime areas, and the like. I'm willing to pay that price, but are you? (The royal you, i.e. us).
The final point, the real crux of the matter, is that politicians cannot predict all the consequences of the tax breaks they create. If tax breaks exist, people should try to get them, otherwise the whole incentive structure doesn't operate. Then some people who were not intended to get the break find edge cases in the legal language to exploit. If the politicians can't predict all the edge cases of the incentives they design (which they can't) then we end up with things that seem outrageous until you read the law and go "oh, that's the loophole. Shitty, but seems legal.". This is why the federal code is so complicated. People making the tax code more complicated over time to try to specifically target the incentives. Just like a legacy codebase, in fact. Except that it's subjective when you evaluate it.
Why? A low-margin high-revenue high-employment company is great for the local economy if the margins are low due to labour costs. City admins absolutely want that company way more than a hundred guys each making a hundredth at way higher margin. This way labour eats up more surplus and that's what you want if you're running a city.
"Revolutionized" is a frequently-abused superlative, but they have made some significant improvements to the coworking space model. In NYC, they have multiple locations. You can pay for membership and use whichever space is convenient for you. Their facilities are great. They have some nice perks, ranging from minor expected conveniences (WiFi, copy room, kitchen, etc.), to silly hipster nonsense (who the hell actually likes kombucha enough to keep it on tap?), to things they do better than others (mail room, easily-scheduled conference rooms, exceptional and constant cleaning). They also allow businesses to scale up by offering private mini-offices inside the larger coworking space, which is a nice place to call home while you transition from a two-person moonshot to a twelve-person startup. They didn't invent anything new, but they do it really well, conveniently, and with multiple locations so that you can deal with one company in multiple geographic locations. I don't know if that counts as revolutionary, but no one else does it that well.
I don't think they invented any of the things they do, but they made them much more prevalent.
Renting commercial space and brining it up to spec to be usable is a lot of work and overhead that a small or startup business very much should probably be allocating elsewhere (building out conference rooms, wiring for power and networking, placing WiFi, entry security, decoration, etc. etc. etc.) It all ends up being extremely time consuming and taking twice as long as best estimates generally disrupting everything, not to mention the years long leases, enormous deposits, contract negotiations and other upfront costs. It is at least somewhat revolutionary to have turn-key office space become prevalent.
Not only did it revolutionize the commercial property business - it also then proceeded to disrupt that revolution with a counter-revolution.
(And no, it absolutely hasn't revolutionized anything, but when you're a tech company everyone feels obligated to give you more credit for some reason)
My attempt to read this potentially important article on my iPhone X was murdered by four successive layers of popup screens asking for cookie consent, then a subscription, then 2 advertisements.
WeWork remains woefully insecure [1] -- IP is likely leaking out of it like a sieve -- and with a real-estate structure that's positioned as a too-big-too-fail [2], what could possibly go wrong...
[1] The Cyber-Insecurity of WeWork – Shared Offices and Cracking WiFi with Weak WPA2 Passwords
Re: The Cyber-Insecurity of WeWork – Shared Offices and Cracking WiFi with Weak WPA2 Passwords
Sorry, but the password complaint is just ridiculous. What's exactly the point of a strong password if it's still shared with a million (or whatever) WeWork members across the globe, and could easily be figured out by simply asking just about anyone (of course, noone actually remembers it, as you only enter it once), or by taking advantage of one of the many ways to get a sample of the offering?
This reminds me of when I worked overseas for Lucent; they hired an accountant who tried to file such that they would get a tax deduction that was supposed to go to the employee. Fortunately IRS saw through that shenanigan.
WeWork trying to sell themselves as a billion dollar company seems pretty overambitious, but I don't think it's anywhere near the level of repeatedly lying about actually doing business and the progress of research and development.
If WeWork were filling with S1 never having actually rented out space in practice - then they'd be like Theranos.
In return for offering tenants flexible month to month office space at heavily discounted rent, WeWork get’s the business tax break. I don’t see any reason for outrage.
Here's the specific way they're accomplishing eligibility from the article:
> Here’s how the tax arrangements work: WeWork divides each of its properties into dozens or even hundreds of individual areas. Each of those spaces, known as hereditaments, is then separately assessed for tax purposes.
> That allows the company to claim back the taxes on any area that is empty or small enough to be eligible for relief if they are occupied by a small company with no other offices.
I feel like pretty much any company could qualify under these conditions, if you declared your office building a desk access pool and declared income on each segment as an individual employee. It seems super weird that WeWork should be able to consider contiguous office space as separate isolated offices.
[+] [-] Turukawa|6 years ago|reply
The scale of the number of the hereditaments (taxable units) is remarkable and overloads local tax authorities. We're talking thousands, with regular tenant changes. Even in central London, there are only a handful of municipal staff to deal with all businesses.
What you end up with is equivalent to a denial-of-service attack against rates authority staff. They're overwhelmed.
That's the real risk to communities. If tax relief claims are industrialised, it puts endless pressure on the services those taxes were supposed to pay for. These are local taxes, so that's libraries, community centres, road maintenance, etc.
WeWork may not be a tech company when it comes to what they're selling, but it is when it comes to how they deal with tax.
[+] [-] munk-a|6 years ago|reply
I can understand how the existing system may have issues with this - but the total presence of WeWork definitely doesn't qualify for a rebate... and if the filing rate of the company seems absurd then the government should reject all the filings by that company and fine the company trying to abuse the system.
Unlike computer logic where weird edge cases can be exploited due to the speed and complexity of the system... when it comes to taxes this stuff is going in front of human beings and the government can always bring a hammer down.
[+] [-] fergie|6 years ago|reply
I've never thought about it that way before- interesting.
[+] [-] airstrike|6 years ago|reply
Not sure what this is supposed to mean. Companies finding ways to pay less taxes isn't a privilege of the Tech industry
[+] [-] sprafa|6 years ago|reply
[+] [-] wdb|6 years ago|reply
[+] [-] IAmGraydon|6 years ago|reply
[+] [-] SquishyPanda23|6 years ago|reply
This is presumably part of the point of deliberately underfunding tax agencies.
[+] [-] mschuster91|6 years ago|reply
On the other side it provides pressure on tax authorities to finally digitize their processes and automate what's possible. Ideally, an application review should not be more than 10 or 15 minutes - clerk opens digital file, reviews attached floor plannings and previous tax filings/business plans (or the system automatically has the flag "this is a small business" attached), clicks on either approve or deny button, system automatically sends paperwork to the applicant.
The only way that forces authorities to modernize their processes is when the demand grows large enough that the ROI calculation proves it.
[+] [-] aresant|6 years ago|reply
Here's the game:
1) There are taxes levied on business users of commercial office property in the UK.
2) Independent small businesses may apply for tax relief if they rent a space that has a rateable value of less than £15,000. (1)
3) The intention of this relief was to provide small business users with a fighting chance to be able to afford office space.
4) The "total rateable" value" of a massive open coworking space is obviously higher than £15,000 but if you're a business renting 2 desks maybe you should qualify for the small business relief?
5) Coworking landlords figured out that they could qualify for the tax breaks THEMSELVES if they cut their own properties into dozens (or hundreds) of small plots or pieces called hereditaments.
6) Then in effect you have these hundreds of hereditaments claiming the small business tax and collecting rent from a small business.
WeWork is a slightly worse abuser of the game played by virtually all coworking operators in the UK.
The "coworking" lobby has published a study outlining their view (1).
At the core Her Majesty's Revenue and Customs set up a system that didn't count on the inevitable "enterprise" player paying tax attorneys to abuse them, and the two sides should probably sit down and sort out something reasonable.
But instead they're suing eachother to oblivion and employing armies of attorneys :).
(1) https://www.gov.uk/apply-for-business-rate-relief/small-busi...
(2) https://lep.london/sites/default/files/The%20affordability%2...
[+] [-] munk-a|6 years ago|reply
Any company attempting to declare stewardship of multiple hereditaments should have the book thrown at them. Anyone using subsidiary companies to distribute their hereditaments should also have the book thrown at them... I'll just assume the UK got into this weird tax system because real-estate investors tend to have an out spoken amount of power in politics and tend to create some of the most absurd tax loop holes... especially since there is a specific coworking lobby.
[+] [-] solidsnack9000|6 years ago|reply
Which, to be honest, is falling down on the job. Britain has been around long enough.
[+] [-] Turukawa|6 years ago|reply
[+] [-] moron4hire|6 years ago|reply
[+] [-] beachy|6 years ago|reply
[+] [-] paxys|6 years ago|reply
[+] [-] Guthur|6 years ago|reply
Frankly just remove tax breaks completely and make the whole system simpler and cheaper.
[+] [-] squirrelicus|6 years ago|reply
The real point I want to make is in order to simplify the tax structure, you rob the politicians of their main economic design power. No more tax incentives for solar, high efficiency windows, developing in high crime areas, and the like. I'm willing to pay that price, but are you? (The royal you, i.e. us).
The final point, the real crux of the matter, is that politicians cannot predict all the consequences of the tax breaks they create. If tax breaks exist, people should try to get them, otherwise the whole incentive structure doesn't operate. Then some people who were not intended to get the break find edge cases in the legal language to exploit. If the politicians can't predict all the edge cases of the incentives they design (which they can't) then we end up with things that seem outrageous until you read the law and go "oh, that's the loophole. Shitty, but seems legal.". This is why the federal code is so complicated. People making the tax code more complicated over time to try to specifically target the incentives. Just like a legacy codebase, in fact. Except that it's subjective when you evaluate it.
Edit: typos
[+] [-] EpicEng|6 years ago|reply
it's really not, and it certainly isn't when you speak in terms of revenue instead of profit.
[+] [-] scarejunba|6 years ago|reply
[+] [-] gtirloni|6 years ago|reply
Has it?
[+] [-] scarmig|6 years ago|reply
[+] [-] caymanjim|6 years ago|reply
[+] [-] colechristensen|6 years ago|reply
Renting commercial space and brining it up to spec to be usable is a lot of work and overhead that a small or startup business very much should probably be allocating elsewhere (building out conference rooms, wiring for power and networking, placing WiFi, entry security, decoration, etc. etc. etc.) It all ends up being extremely time consuming and taking twice as long as best estimates generally disrupting everything, not to mention the years long leases, enormous deposits, contract negotiations and other upfront costs. It is at least somewhat revolutionary to have turn-key office space become prevalent.
[+] [-] munk-a|6 years ago|reply
(And no, it absolutely hasn't revolutionized anything, but when you're a tech company everyone feels obligated to give you more credit for some reason)
[+] [-] rabbitonrails|6 years ago|reply
[+] [-] sdorker|6 years ago|reply
[+] [-] espeed|6 years ago|reply
[1] The Cyber-Insecurity of WeWork – Shared Offices and Cracking WiFi with Weak WPA2 Passwords
https://www.digitaloperatives.com/2018/10/10/the-cyber-insec...
[2] The CBINSIGHTS research report (WeWork strategy teardown)...
"WeWork’s $47 Billion Dream: The Lavishly Funded Startup That Could Disrupt Commercial Real Estate"
https://www.cbinsights.com/research/report/wework-strategy-t...
[+] [-] cnst|6 years ago|reply
Sorry, but the password complaint is just ridiculous. What's exactly the point of a strong password if it's still shared with a million (or whatever) WeWork members across the globe, and could easily be figured out by simply asking just about anyone (of course, noone actually remembers it, as you only enter it once), or by taking advantage of one of the many ways to get a sample of the offering?
They list https://www.xkcd.com/936/, which is indeed a great one, but what WeWork should reply to them is this, https://xkcd.com/538/, which is the truth.
[+] [-] fulafel|6 years ago|reply
[+] [-] benj111|6 years ago|reply
[+] [-] Turukawa|6 years ago|reply
[+] [-] jessaustin|6 years ago|reply
[+] [-] anigbrowl|6 years ago|reply
[+] [-] munk-a|6 years ago|reply
If WeWork were filling with S1 never having actually rented out space in practice - then they'd be like Theranos.
[+] [-] paxys|6 years ago|reply
[+] [-] sabujp|6 years ago|reply
[+] [-] nodesocket|6 years ago|reply
[+] [-] munk-a|6 years ago|reply
> Here’s how the tax arrangements work: WeWork divides each of its properties into dozens or even hundreds of individual areas. Each of those spaces, known as hereditaments, is then separately assessed for tax purposes.
> That allows the company to claim back the taxes on any area that is empty or small enough to be eligible for relief if they are occupied by a small company with no other offices.
I feel like pretty much any company could qualify under these conditions, if you declared your office building a desk access pool and declared income on each segment as an individual employee. It seems super weird that WeWork should be able to consider contiguous office space as separate isolated offices.
[+] [-] Turukawa|6 years ago|reply