Tag Archive | "recession"

How many contractor accountants went into liquidation in final quarter of 2011?


The latest company liquidation figures published by the Insolvency Service have been released.

The fourth quarter of 2011 saw a 14% increase in the number of compulsory company liquidations. 4,260 companies went into liquidation in the final quarter; 1,389 of those were compulsory. 191 companies took advantage of voluntary arrangements, 234 called in the receivers and 658 went into administration. Creditors voluntary liquidations stood at 2,871 – a quarter on quarter decrease of 5.1%, but an increase of 3.4% on the comparable quarter of 2010.

Frances Coulson, the president of R3, said time to pay arrangements from the Revenue and low interest rates have created zombie companies that are just managing to keep their heads above water. Some of these companies will eventually sink, she predicted.

She went on to say that current insolvency figures are down on previous recessions and the latest data could represent the “calm before the storm”. In order for an economic recovery to take place, some businesses must fail so that viable ones can thrive.

R3 research shows that 29% of SMEs are experiencing decreased sales volumes and will need additional support this year.

Andrew Dixon from Bibby Financial Services blamed the increase in insolvencies on the lack of available funding. Less than 33% of small business applied for funding from external sources last year, and only 4% took advantage of government run initiatives such as the Enterprise Finance Guarantee of the Business Growth Fund.

He said the latest insolvency figures show that small businesses need more effective support. Businesses are now turning to asset based funding such as invoice finance in a bid to improve their cashflow, because they do not know where else to turn.

He added that government agencies and the financial services industry should work together to develop greater awareness of the funding options available to UK businesses.

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Does the Anglo-Swiss tax agreement breach EU law?


As if the Chancellor hasn’t got enough on his mind trying to keep the UK from dropping back into recession, lawyers from the European Commission are unhappy about the recent Anglo-Swiss tax agreement.

According to the lawyers, the deal breaches European Union laws that take a tougher stance on tax evasion. George Osborne has been told to renegotiate the recently signed deal or be sued by the EU.

The new agreement protects the secrecy of UK residents who have Swiss bank accounts in return for a withholding tax and a large percentage of their capital.  The German government has also brokered a similar deal for its citizens and has now entered into new talks with Switzerland.

However, the EU claims the deal goes against the European Union Savings Directive. The EU’s tax commissioner, Algirdas Semeta, explained that if the problem cannot be easily resolved, the EU will have to pursue the matter through the courts.

Meanwhile, the Institute of Directors has said the UK government is not doing enough to attract overseas investors. The country’s tax system needs to be more competitive and the coalition should introduce incentives to encourage foreign businesses to invest in the UK and help fuel job growth.

The IoD’s director-general, Simon Walker, said the UK should be seen as the country of choice for international investors, and somewhere with a tax system that favours enterprise and hard work.

The tax system we have at present puts us in the middle of the 34 OECD nations, not in the front, he added.

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Contractor accountants told global economy is in a bad state


Trevor Williams, the corporate chief economist for Lloyds TSB, recently took the stage at the Meet the Experts conference to tell contractor accountants that the global economy is in a bad state.

Of course, this news will come as no surprise to anyone; we know the world is struggling to recover from the 2008 credit crisis, and in fact problems in the Eurozone are increasing the risk of a double-dip.

Williams told accountants they must pay close attention to funding costs and liquidity trends and keep an eye on default rates if they are thinking about applying for credit.

He went on to say that the probability of Greece defaulting on their debts in the coming few years is more than 100%. Surprisingly, he felt the probability of an Italian default was just over 5%, and for Ireland about 10%.

In the wake of all this worldwide doom and gloom, the CBI has cut its growth predictions for the UK economy. Previously the business organisation predicted growth of 1.3% this year and 2.2% next. These figures have been lowered to 0.9% and 1.2% respectively. The CBI also expects unemployment to rise to 8.5% next year.

On the positive side, the UK is expected to narrowly avoid dropping back into recession this winter but the government must continue with its spending cuts if we are to protect our AAA credit rating. The CBI also pointed out that if mainland Europe goes into recession, UK exports would be badly hit.

Finally, the CBI agrees with the Bank of England’s prediction that inflation will start to ease next year and by 2013 it will have dropped to the Bank’s 2% target rate.

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Many SMEs in construction sector are struggling to survive


Accountants for contractors with clients in the construction sector may be unsurprised at the news that SMEs in this sector are having difficulties recovering from the recession.

Baker Tilly has surveyed construction SMEs whose annual turnover is between £5 million and £25 million and discovered that more than 25% of them have seen sales decrease by at least 20%.

The study also found that one in six construction SMEs is at risk of failing to repay its short and medium term debts. Furthermore, nearly 33% have seen their Profit Before Tax decrease by more than 50%. Despite this, liquidity in the construction sector is stronger than it is for SMEs across all sectors.

Mark Wilson, one of Baker Tilly’s partners, explained that some construction companies may have cash reserves but a lot will find the cash starts to run out as sales and profits continue to decrease. Slashing prices to win contracts does not help the bottom line and is not a sustainable solution in the long term.

He went on to say that the impact of government spending cuts and rising costs will increase the pressure on small firms in the construction sector. The cost of raw materials is rising throughout the world and this is hitting construction companies’ profits harder than firms in other sectors.

Denis Baker, the chief executive of Company Watch, also commented on the research findings saying that as well as highlighting liquidity issues, the fall in profitability and revenues will concern contractors, clients and suppliers who should take a proactive role in minimising their exposure to possible construction company failures.

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Disqualification orders against directors continue to rise


Reynolds Porter Chamberlain LLP, the city law firm, has reported that 1,437 disqualification orders were placed on directors of companies, including the clients of contractor accountants, that had gone into insolvency last year, a 4 % increase on the number imposed in 2009.

Five years ago there were only 1,173 disqualification orders but since then 6,422 directors have found themselves disqualified. A disqualification order forbids a director of an insolvent company becoming a director or creating or promoting a limited company for anything up to 15 years.

Company insolvencies reached a peak in the third quarter of 2009 when the UK was in the middle of the economic downturn.

Jonathan Davies, a partner at RPC, commented on the results saying that a disqualification order can be career threatening for a director as the director is unable to set up or participate in the creation of a new business for such a long time.

Administrators and liquidators look to blame somebody when a company goes insolvent and company directors have felt the brunt. There was a substantial increase in insolvencies during the economic crisis and as a direct result we have witnessed this increase in disqualification orders.

The law firm also pointed out that the government has clamped down on corporate governance issues since the start of the recession and company directors should protect themselves by obtaining Directors & Officers insurance. A lot of small firms and limited company contractors forego this cover and end up paying enormous legal costs if their company is investigated.

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Will the base rate remain at 0.5% for the rest of 2011?


Savers and online accountants who have been hoping to see the Bank of England’s MPC raise interest rates sooner rather than later will be dismayed to learn that the Institute of Directors has said there is no case for rates to rise this year.

It said that it would be an unprecedented move to raise rates when the broad money supply was not experiencing double digit growth. Furthermore, a rise now could plunge the UK back into recession.

The BCC and the CBI both supported the decision to keep the base rate at its historic low 0.5% at the last MPC meeting.

David Kern, the BCC’s chief economist, said the MPC was right to keep the base rate down in order to help the fragile economic recovery and relieve some of the pressures both individuals and businesses are currently facing.

He went on to point out that the MPC is concerned about the current high rate of inflation and the prospect that it may rise further in coming months. However, it would be a major mistake to tighten policy at this stage. Increasing the base rate prematurely could damage economic growth and lead to more redundancies.

He added that the MPC could consider increasing the quantitative easing programme if the economy were to weaken any further.

The CBI’s chief economic adviser, Ian McCafferty, said the MPC was in a difficult position and will have to draw a fine balance over the coming months. However, he feels that if inflation reaches 5% by the autumn, the MPC might consider a change of policy before the year ends.

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Online accountants should embrace social media


The Chartered Institute of Management Accountants has urged contractor accountants to embrace web 2.0 solutions to enhance their offerings.

The CIMA says that online accountants must use social media tools to streamline their business processes if they are to improve accounting practices. As the organisation recently discovered, very few accountants use social networking on a regular basis, but those that do reported that their effectiveness improved.

Web 2.0 technologies improve coordination, provide greater accessibility to knowledge and build up team relationships but accountants find it difficult to quantify these benefits.

CIMA’s R&D manager, Naomi Smith, pointed out that the younger generation of accountants are suing modern technologies to a much greater extent than their older counterparts. But she pointed out that all accountants should be taking advantage of the opportunities provided by social networking tools. Web 2.0 offers new ways of communicating with business colleagues, especially those based far away.

She went on to say that using these tools empowers employees to take more responsibility for organising business processes, knowledge and workplaces.

It seems strange that accountants are reluctant to use these new tools. Social networking sites, such as LinkedIn, are great places to capture new business through referrals. As we emerge from the recession, contractor accountants may want to expand their client base. And social media is an excellent way to do this.

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90% of Britains think the economy is in a bad state


Only 10% of people in Britain think the economy is good, ranking us amongst the gloomiest nations in the world, according to a new survey.

24 of the world’s largest economies were polled and it transpired that Japanese and Hungarian citizens were the only nationalities that were more negative than us. And the Japanese have a good excuse after suffering the massive earthquake and tsunami earlier this year.

In contrast, at least 70% of citizens in Australia, China, India, Saudi Arabia and Sweden think their country’s economy is good.

The majority of us can’t see a light at the end of the tunnel either. Only 10% expect the economy to strengthen over the next six months.

The survey was conducted by Ipsos MORI and its MD, Bobby Duffy, said the level of gloom was understandable. We have absurd house prices and the cost of living is rising a lot faster than earnings. It is not surprising that people feel pessimistic and this will impact growth.

It’s not only the man in the street who feels less than happy about the state of the British economy. The BCC has now downgraded its expectations for growth for this year and next.

The Chamber has knocked 0.1 percentage points off its GDP forecasts and at the same time increased the forecasts for annual CPI inflation.

In slightly better news, the organisation now expects just 2.6 million people to be unemployed 15 months from now, instead of the 2.65 million it predicted 3 months ago.

The director general of the BCC, David Frost, said the economy still faces difficult challenges. However, he believes the coalition is right to continue with its plans to reduce the budget deficit. But, the government must also come up with policies that enable businesses to drive the recovery, he added.

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Cost saving ideas can win the day for contractor accountants


Contractor accountants may want to consider working alongside their clients to come up with cost saving measures after the ICAEW said this year promises to be extremely difficult financially for many companies.

The combination of low consumer confidence and public sector spending cuts will have a considerable impact on their revenue generating ability, the Institute warns.

ICAEW’s head of enterprise, Clive Lewis, said that despite the recent decrease, inflation is still high, but this is only one of many pressures facing companies at the moment.

In order to offset increased costs, the Institute has put forward a number of suggestions which could interest accountants, such as whether profit margins can be increased. It also suggests re-examining the fundamentals of products and services but warns against switching to cheap materials which could damage a brand and affect sales.

A lot of suppliers are offering incentives and there could be benefits to changing. There are now new suppliers with competitive prices in the market place and things could have changed significantly since a company’s supplier base was last reviewed.

Businesses should also tackle overheads such as energy costs, human resources and space. Significant improvements can be gleaned by more effective organisation of workloads and workspaces.

Leveraging the power of technology enables employees to work better, reduces the need for meetings and cuts down on communication costs, the Institute advises and companies can further cut down by taking advantage of all the tax allowances and reliefs they are entitled to.

KPMG recently reported that businesses could see £90bn added to their costs as the savings they made during the recession get wiped out. 80% of business leaders say the cost of finance is outstripping their cost-cutting efforts, whilst 76% blame salary inflation.

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24% of employees are seeking out new horizons


The latest ‘Employee Outlook’ survey from the CIPD suggests that UK workers are feeling increasingly insecure about their jobs.

21% of employees now think it is likely that they will be made redundant as a result of the recession, a rise of one percentage point on the previous quarter.

Not surprisingly, the highest level of concern is found in the public sector, with 30% of employees believing they are likely to lose their job. 27% of those in voluntary sector share the same sentiment but only 19% of private sector workers express concern.

Job satisfaction fell five points during the quarter to +34. Employees in the voluntary sector are most satisfied whilst those in the private sector are least satisfied.

The survey also discovered that 24% of respondents were looking for a new position with a new company, up from 19% in the previous quarter.

Research from staffbay.com suggests that figure could be even higher. It claims that since the two consecutive bank holidays, there are now four times the normal level of people looking for new employment.

The founder of the online recruitment platform explained that bank holidays give us the chance to reflect on our career path and back to work blues hit people strongly enough to encourage them to apply for new positions.

However, according to the latest Reed Job index, there was a 2% drop in vacancy numbers last month. Since December 2009, 25% more job opportunities have been created in the private sector and year on year demand is 22% higher.

Demand in banking and leisure and tourism fell back last month whilst customer service, engineering, IT and manufacturing were among the sectors to record an increased job demand.

The bank holidays may have played a part in the drop in demand as UK businesses experienced a disjointed period with the two long weekends, suggested the MD of reed.co.uk, Martin Warnes.

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Intra Company Transfers – a BIG step in the right direction


It seems there has been a major step forward in the battle to bring a little sanity to the importing of non-EU workers under the Intra Company Transfer visa rules. This has long been a bone of contention, most notably in the IT contractor market, but also in some other areas such as engineering. Today’s change in the rules marks a step change that should benefit UK PLC

Firstly let’s be very clear that there is nothing wrong with the concept of ICTs. Given the multinational nature of many big companies these days, it would be foolish to put artificial barriers in the way of being able to move key staff around to where they are needed. And listening to the screams of protest from some corners – most notably, that of St Vince of Cable who, you might think, ought to know better – limiting ICTs will only spell doom and disaster for the UK economy.

Or will it?

Well, no, to be honest. If you look at the numbers carefully, it is clear that there is a baseline of ICTs that has remained pretty much constant for some time. This, we can assume, represents the number of key people that are moving in and out for good reason. However, the overall number of ICTs has been growing, and growing at an increasing rate, for some time. This coincides very closely with the increasing use of off-shoring work to save money. That is something that started in the mid 80s but which has been steadily accelerating ever since and is now something of an epidemic. But, and it’s a big but, in recent years the growth exceeds the amount of work to be done; especially in a time of recession and business slowdown. Which puts good people out of work.

OK, so businesses need to optimise their bottom line, and going to the cheapest supplier is a way to do it. Provided, of course, the quality is comparable which, to be blunt, it quite often isn’t.

But where it’s really gone wrong is in the use of ICTs. These are meant to be used to bring in specialists for short term purposes. With the greatest will in the world, a specialist is not someone you would expect to be taken into a training regime to learn how to do the job they are supposed to be a specialist in. And that is what has been happening. ICT visas have been used to bring in technical staff that, while technically qualified, can’t do the job. They are here to learn how to do it and then take their new skills back home. The only reason that can work, economically, is if the cost of transport, accommodation and salary is low enough to produce a viable profit. Which it is, but only if the wages in question are really low; on a par, for the sake of an example, with what a well qualified coder will get in, say, Mumbai.

So what has changed then?

Basically, HMG has responded to a long and hard fought campaign by the likes of the PCG that tried to demonstrate that ICTs were being abused in order to keep the economies of importing staff viable. As a result they’ve made a very simple change: if your ICT is for a year or less, you must be paid £24,000, if it’s any longer, you must be paid £40,000. Which are still a bit less than the going market rate for the skills in question, but a lot more than what has been the norm. And, of course, totally irrelevant if you are bringing in an established, skilled employee who will no doubt already be on a market rate salary.

It’s early days to see what impact this will have: there are several ways the new rules can be neutralised. Indeed, one of the issues in proving abuse of ICTs exists has been the total lack of any documentary proof about how much people were being paid in salary and expenses and there’s no reason to believe the suppliers will willingly give up a very lucrative market. But it is a big step in the right direction.

PCG – and one or two very dedicated individuals – are to be congratulated for achieving a major success. Not least by the several thousand UK-based contractors whose jobs are now an awful lot safer.

About the author: Alan Watts

Alan has worked in IT for most of the last 35 years, and first went freelance in 1996. He has been a PCG member from its start and has been spreading the message that freelancing is a professional career choice for many years. Alan also runs Malvolio’s Blog, a personal but highly informative take on the life of the modern freelance.

Alan Watts, Principal Consultant, LPW Computer Services

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Are contractor accountants’ clients going bust?


Administrations dropped by 24% in the final quarter of 2010 compared to Q4 the year before, according to research conducted by Baker Tilly.

London and the South East of England saw a drop in corporate insolvencies of 37%, whilst in the rest of England, the drop averaged out at 14%. However, the South West of England did not fare so well. In the fourth quarter of 2009, the region recorded 29 insolvencies, but in the corresponding period last year, the figure had increase by 31%, to 38.

RSM Tenon believes that we will see corporate insolvencies increasing this year. Carl Jackson who heads the recovery team at RSM Tenon said that the 2010 figures did not give a true picture of UK businesses because the insolvency level in 2009 was abnormally high.

He also said that this year would be difficult for businesses and the UK is now facing the serious risk of a double dip recession. Several businesses are already on a knife edge and if the Bank of England’s MPC bows to pressure and increases interest rates more businesses will fold.

Sectors such as retail and hospitality, which depend on discretionary spend, will continue to struggle due to increasing inflation and the VAT rise, he added.

The problem could be further compounded by HMRC’s tougher stance on the deferment of taxes. Last year the Revenue turned down 5.8% of Time to Pay arrangements, compared to 2.7% in 2009. The Time to Pay scheme was a lifeline for many companies who struggled during the global downturn but with the banks still not lending, if HMRC really is clamping down, the future looks bleak for firms with financial difficulties.

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Who’d be an accountant?


Contractor accountants could receive an unexpected, but welcome, surprise when it comes to bonus time this year.

A recent survey of 500 businesses revealed that UK accountants and other professional finance workers are likely to get a Christmas bonus of around 10.8% of their annual base salary. As the average salary for accountants is £42,000, the average bonus will equal £4,536, which is nearly £900 more than they were expecting. The total bonus pot will be £1.3bn, based on the amount of private sector qualified accountants.

60% of businesses plan to give their finance staff a bonus this year and 80% say they will either award a bonus or increase salaries in 2011. Only 20% are not planning to offer some form of salary increase or performance related pay in the next 12 months.

However, accountants may not get everything they wish for. When questioned about their salary expectations in 2011, an average 5% salary increase was predicted. Businesses on the other hand said that if they did award a salary increase it would be an average of 2.6%.

An accountant’s life isn’t necessarily a happy one. Apparently, many turn to drink or drugs to help forget the
stress of office life.

The Chartered Accountants Benevolent Association exists to offer accountants assistance on a range of issues. Traditionally, older accountants availed of its services when they neared retirement but in recent years the CABA has seen an increase in calls from younger accountants with problems such as alcohol and substance abuse.

The CABA’s chief executive, Kath Haines, pointed out that many of the younger callers not only found the recession hard to cope with but also suffered family, health and financial problems. In a recent survey of 1,126 accountants, the majority of them said stress, the long working hours and resulting imbalance between work and social life were their main concerns. At least freelance accountants should be able to get a more suitable work/home life balance!

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£100 billion is washed down the drain each year in red tape


Basic administrative tasks relating to bookkeeping, invoicing and billing and filling out timesheets take the average worker in the UK 37 days every year, according to Keboko, the cloud service provider.

The cost of all this red tape amounts to more than £100 billion and could encourage freelancers to get help from a contractor accountant in a bid to reduce the amount of time they spend carrying out administrative duties.

Charlie Cowan, the CEO of Keboko, commented that companies should be trying to rebuild after the recession but instead many workers are finding it hard to do this as they are bogged down with tasks such as data input and updating reports. UK businesses are basically throwing the money spent on these tasks down the drain.

The burden of dealing with the taxman is also costing businesses dear, the IoD reported earlier this week. The Institute surveyed its members and discovered that there is still considerable room for reform to reduce the administrative burden surrounding taxes. The survey also discovered that 30% of businessmen would actually advise someone not to start up their own business because of the weight of the tax burden.

An overwhelming number of directors want to see the regulations concerning PAYE and National Insurance simplified. Business people sometimes struggle to understand the tax rules and have difficulty finding out the correct information when they contact HMRC. Only 15% of respondents said it was easy to get the right information when they called the HMRC helpline while a third said it was very or fairly difficult.

HMRC’s website does not fair any better either. 16% said they could find the information they needed easily but again 33% struggled to find what they needed to know.

Since the PAYE coding errors earlier this year, businesses have found it increasingly difficult to get through to the Revenue’s helpline. 37% of the directors who did manage it feel that the majority of HMRC officials have a poor understanding of the nature of their business.

Half of the directors surveyed said they want the OTS to simplify the PAYE and NI system and 28% said the taxation of employee benefits was the area most in need of simplification.

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