Tag Archive | "debt"

Does the Treasury know what’s going on in the UK?

According to MPs, the Treasury has not got to grips with financial trends, nor has it made plans to deal with them, online accountants may be interested to learn.

The Commons Public Accounts Committee was amazed when the Treasury confessed its surprise at the news that HMRC had written off £10.9 billion in unpaid tax in just one year. The Treasury had no idea of the estimate until it was revealed in the WGA for 2009-10. Furthermore, it was in the dark over recent trends in claims against the NHS for clinical negligence, or whether there were any plans to reduce the £15.7 billion it has been estimated is needed to meet those claims.

According to Margaret Hodge, the committee chair, the Whole of Government Accounts are not representative of the country’s financial position.

Although the WGA could help the government detect risks that need to be managed, it took 20 months for the accounts to be prepared – twice as long as Australia, France and the USA who take less than nine months to produce similar information.

A spokesman for the Treasury explained that the UK was doing what no other country has done and consolidating all public sector organisations in a single statement of accounts. The department is now working hard to improve future publications and remove any qualifications.

He went on to explain that HMRC collects virtually all of the tax it is due and write-offs are low. Furthermore, about 90% of the write-offs are due to companies going insolvent and it is illegal to pursue that debt.

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HMRC gives out wrong information claims ACCA’s Roy-Chowdhury

Chas Roy-Chowdhury, the head of taxation at ACCA, claims that HMRC is giving out incorrect advice about the possibility of a refund of VAT in cases of personal insolvency.

Earlier this year, the Revenue lost a case against Paymex, a debt advice business, and as a result the supervisory role of practitioners in personal insolvency cases is now VAT exempt.

However, last month HMRC published guidance on reclaiming VAT and it contained what Roy-Chowdhury says is a “veiled threat” warning practitioners that they should not dig too deeply into the past. If an independent practitioner does not want to disturb the past, the Revenue will not do so either and it is totally up to the IP whether or not to claim a VAT refund.

Mr Roy-Chowdhury said HMRC needs to set the record straight so that IPs understand their position regarding tax. He believes the latest guidance goes against that issued by recognised professional licensing bodies in the summer.

He said the licensing forces, including CIMA, ICAEW and IPA, should unite and seek discussions to clarify the problem with the Revenue. Furthermore, he estimates that HMRC could owe hundreds of millions of pounds to insolvency practitioners in VAT refunds.

The Paymex case centred around an Individual Voluntary Arrangement and Roy-Chowdhury believes the VAT exemption could apply to insolvency procedures that work in a similar way – such as a Company Voluntary Arrangement. But, HMRC is not proactive when it comes to clarifying whether IPs with a supervisory role in corporate administrations are also exempt.

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Customer service at HMRC is inadequate says ICAS

The Association of Taxation Technicians claims that HMRC is breathing down the neck of small businesses to make sure they are keeping accurate books.

The ICAS has also found that all but the largest organisations are dissatisfied with the service they receive from the Revenue.

Local compliance offices deal with the tax affairs of businesses and 65% of ICAS members say the efficiency and effectiveness of these offices is either poor or very poor. The Revenue’s Debt management and banking division, which deals with debt recovery, tax payments and time to pay arrangements, doesn’t fare much better at 60%.

ICAS says these figures are disappointing and highlight the difficulties contractor accountants and tax professionals face. This also raises further concerns about the impact on taxpayers without professional representation. Whilst the ICAS supports government moves to make sure everybody pays the correct amount of tax, HMRC must make it easier for firms to comply.

Furthermore, the survey shows that debt management processes within the Revenue are disjointed. Aggressive tactics are often used to chase taxpayers who do not owe money and different sections within HMRC need to improve their communications.

Elspeth Orcharton, ICAS’ assistant director of tax, said the largest UK organisations receive a good standard of service through HMRC customer relationship managers, but this demand on resources has led to smaller businesses receiving a poorer service. The operating and staffing systems within the Revenue cannot cope with supporting compliance of our very complicated self assessment tax system.

Nearly 50% of ICAS members were happy with the technical skills of Revenue staff once they found somebody with the requisite knowledge, but the problem was getting to that person. HMRC appear to have too many employees who don’t have the necessary knowledge and spend all their time asking questions of others.

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Do large organisations pay accountants for contractors late?

The problem of late payments is still dogging businesses and contractor accountants, according to the latest data from Experian.

UK firms still took an average of 25 days too long to settle their debts in the first quarter of this year, the same as the comparable period in 2010.

The harsh winter weather could be blamed for payment delays at the end of 2010, but figures did not improve despite the better weather in the first quarter of 2011.

Large organisations, with more than 500 staff, are still the worst offenders settling their debts 34 days late. The smallest firms are seen as the best payers but even they didn’t settle until bills became 20 days overdue.

The postal and telecoms sector are the slowest payers, not settling up until bills are an average of 46 days overdue whilst the oil sector and agriculture, forestry and fishing industries came out best with an average of less than 15 days late.

Bibby Financial Services says that this concern over late payment has encouraged more companies and limited company contractors to take out bad debt protection. The invoice finance specialist’s research shows that 37% of businesses say customers are taking longer to settle up than they did a year ago.

The Asset Based Finance Association reports that the number of companies protecting against bad debt increased by 23% in Q4 last year compared to the final quarter of 2009.

Despite this, there has been a 15% increase in the number of firms experiencing significant or critical financial distress. In the first quarter of this year 186,554 UK firms were flagged in the Begbies Traynor Red Flag Report, compared to 161,601 in the comparable quarter last year.

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Contractor accountants need a financial contingency plan

Contractor accountants and other professional freelancers must be prepared for financial changes, especially in these times of economic uncertainty.

The MD of the Debt Advice Foundation, David Rodger, said that everybody should have a Plan B, even if they believe their job is secure.

Rodger pointed out that redundancy might have a massive financial impact on a person’s household budget so having the foresight to plan ahead can lessen the chance of future difficulties.

This is simple to do, he says. Set yourself a realistic budget so that you do not overstretch your finances or spend large amounts on credit and keep a “rainy day” fund to tide you over if you have the misfortune to lose your job.

Contractor accountants working through umbrella companies might find that they are in and out of work due to the nature of freelancing. It is therefore vital for them to have a reserve cash fund in case work dries up for several weeks at a time.

The threat of more job cuts in 2011, coupled with the increase in VAT, could mean that more people fall into financial difficulties. The Money Advice Trust has already forecast that the number of people seeking advice on debt is going to reach a record high soon. Surprisingly, only around 16% of people who currently have money troubles seek advice.

However, consumers are showing signs of concern when it comes to debt, according to quarter four data from R3. 47% are worried about their credit card debt, 28% about their overdraft and 23% are concerned about meeting mortgage repayments.

Last week, the government launched a consultation into the regulation of consumer credit. It wants to transfer the responsibility from the OFT to a new authority; the consumer protection and markets authority. The government hopes this would provide more protection for consumers and remove regulatory burdens on businesses.

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Rainy day savings are making a comeback

The recession has fuelled an increase in rainy day savings, according to Jonathan Davis, an economist at Jonathan Davis Wealth Management.

In fact a recent survey from Mintel found that around 43% of Britons have prioritised saving for a rainy day this year, up from just 15% last year.

Davis said the credit crisis was a wake-up call for a lot of people, who realised that for the last ten years they have based their life on debt.

This is a little like closing the stable door after the horse has bolted but it is still encouraging that people are now looking to give themselves a financial cushion in case of a disaster such as redundancy. Savers should have a reserve fund equal to at least six months average spending, to get them through unforeseen difficulties, advised Davis.

Although rainy day saving may be on the increase, few people are saving for their retirement and this is of paramount importance, the expert added.

Savers may not be so happy to learn that the Bank of England has forecast that inflation is going to stay above its 2% target well into next year. Currently the CPI is standing at an annual rate of 3.1%, meaning a basic rate taxpayer needs a savings account that pays at least 3.8% in order to protect the value of their investment.

Now could well be the time for contractors to sit down with their contractor accountant and take a good look at incomings and outgoings and decide how to maximise your assets.

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HMRC looks to debt collection agencies for help

Online accountants might want to warn their clients that in a bid to collect more in outstanding taxes, HMRC has signed contracts with 4 debt collection agencies.

The government hopes this will bring in another £140m over the current financial year.

The Revenue will give taxpayers the opportunity to pay, or make an arrangement to pay, before passing the outstanding debt on to one of the following limited company debt collection agencies; iQor Recovery Services, Credit Solutions, Fairfax Solicitors, Commercial Collection Services.

It was announced in the Emergency Budget in June that DCAs would be used to help HMRC pursue lower value debts. This decision followed a successful pilot scheme and the government has put safeguards in place to ensure the chosen companies operate to HMRC and industry standards.

The director of Debt Management and Banking at HMRC said that the Revenue understands that there are some individuals and businesses that cannot settle their outstanding tax liabilities and measures have been put in place to help people who are really struggling. But people who refuse to pay need to be chased and this partnership with the DCAs will ensure that they are.

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HMRC wants to claim county court costs from defaulters

At present, HMRC cannot claim costs from people when they take them to county court to recover unpaid taxes. But if it gets its way, that will change as from next April.

Up until April 2010, the Revenue had lodged 10,905 cases against people, including limited company contractors, who had not settled their tax bills and it is now asking for the court costs to be tacked on.

A lot of business groups and advisers are behind the move, but they want to see safeguards included. The main concern is that any changes to the current regime will not add court costs onto the existing debts of people who are genuinely not able to pay.

Bodies such as the FSB, PCG and Chartered Institute of Taxation say it would be inappropriate for the Revenue to be awarded costs in cases where a taxpayer is in real hardship or if the case involves tax credit overpayment.

Business groups only want reasonable and genuinely incurred costs to be included in the awards, but not the cost of HMRC wages. They also warn against basing the award based on the percentage of the sum contested.

With the current system, the state covers some costs but the taxpayer has no right to costs. There are concerns that people who feel they have a genuine grievance against the taxman will be discouraged from proceeding if costs are likely to be awarded to the Revenue.

An HMRC spokesman said that they were not trying to force people into further debt, merely recover what is legally owing to them from taxpayers who have the funds to pay. The taxman does not knowingly pursue court action against somebody he knows cannot pay.

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