Interesting times ahead?

Rising inflation raises concerns over interest rates

The UK Consumer Price Index annual rate of inflation rose to 4.5% in April 2011, its highest level since October 2008, according to figures released today. This has led to speculation that the Bank of England may raise interest rates in the coming months, causing more problems for struggling businesses.

A survey carried out by R3 found that many business owners are predicting that any rise in interest rates will have a serious impact on their business, with 7% of small business owners believing that they are likely to become insolvent if interest rates rise to between 2% and 3.5%. If rates climb to between 4% and 5%, the number of businesses at risk increases to 18%. The base rate was 5% in 2007.

The Office for National Statistics reported that inflation rose to 4.4% in February 2011, followed by a slight fall to 4% in March before increasing to 4.5% in April, way above the Bank of England’s target of 2%, which is likely to put pressure on the Monetary Policy Committee to increase rates.

Many commentators have suggested that historically low interest rates have helped to keep the number of business failures artificially low in recent months as debt interest payments are tied to the base rate for many businesses. However any increase in the cost of borrowing is likely to have an adverse effect on cash flow and may be the last straw for many ailing businesses.

Consumers will also feel the impact of any rise in interest rates as the cost of mortgages increases. An increase of two percentage points, whilst still low in historic terms, would add £166 per month to the cost of a £100,000 mortgage.

Rising prices put additional pressure on businesses and individuals, and increasing costs are likely to damage any fragile signs of recovery, adding to the finacial problems of many.

Moorhead Savage has the expertise and experience to help sort out financial problems - even when things seem bleak. For a free, no obligation consultation and an unbiased summary of which solutions are right for you, call Paul Moorhead today on 01709 331300. It's always good to talk.

Missed the tax deadline? It isn't the end of the world but act quickly

£90m penalties windfall for HMRC for late tax payments and tax returns

If you have missed the 31 January deadline for filing your Self Assessment Tax return, you are in good company. You are one of 9 million people who has yet to file their tax return for 2010-11. HM Revenue and Customs are looking forward to collecting around £90m in penalty fees from people who have filed their self assessment tax returns and/or paid the tax due after the 31 January deadline.

But don't be disheartened  - act quickly and you can avoid the situation getting any worse. The penalties charged by HMRC for late filed returns and late payments of tax rise as the delay increases, so if it's simply a question of an oversight, get it in ASAP and you'll save yourself some hard-earned cash.

And the good news is that if you have a 'reasonable excuse' for missing the deadline then you won't have to pay any penalty. But the bad news is that HMRC is unlikely to consider excuses relating to forgetfulness, the consumption of documents by pets, or delays due to overseas excursions, to be 'reasonable.' The rather short list of examples on their website includes documents lost through theft, fire or flood that can't be replaced in time, life-threatening illness, for example a heart attack that prevents you dealing with your tax affairs and the death of a partner shortly before the deadline.

If, however, the reason for the delay is that you know that you cannot afford to pay the tax due on last year's trading, then there is good news. By filing the tax return, even if the tax is unaffordable, you are then in a position to negotiate with HMRC for a 'time to pay' agreement. As long as your returns are filed up to date and you have a reasonable record of compliance with the tax authorities, you can put forward a repayment proposal. HMRC are generally willing to discuss sensible repayment plans, particularly if you approach them at the earliest opportunity.

If tax debts are part of a wider debt problem, it may be that a Voluntary Arrangement is the answer. These come in two flavours - Individual Voluntary Arrangments (IVAs) and Company Voluntary Arrangements (CVAs) depending on whether you trade through a limited company or are a sole trader. VAs of either variety can be a good way to solve cashflow problems and HMRC have a specialist department which deals with IVAs and CVAs, so they know what to look for in a well thought through proposal.

We have lots of experience in dealing with debt problems involving HMRC, so for expert, impartial and confidential advice, call us today on 01709 331300.

More help for troubled companies?

Government consults over 'restructuring moratorium'

The Government has announced proposals for a restructuring moratorium to protect companies whilst a rescue plan is put in place to help save businesses and preserve jobs.  A moratorium is basically a protected ‘breathing space’ during which no action can be taken against the company by its creditors. The moratorium is aimed at companies where the underlying business is fundamentally viable but because of the prospect of future insolvency or financial distress there is a need to protect the business from creditors whilst some restructuring is carried out. The moratorium is proposed for use alongside the existing Company Voluntary Arrangement or Scheme of Arrangement procedures.

The proposals provide for a moratorium which would last for three months, which would commence following a court hearing at which creditors could be represented. The company would continue to operate under the existing management and directors however they would be bound by a set of obligations and potential sanctions for misuse of the procedure. A licensed insolvency practitioner would be involved at key stages to help safeguard the interests of creditors and other stakeholders.

I welcome this consultation as I have been an advocate of this type of moratorium for many years. The CVA procedure is often frustrated by the lack of any effective moratorium – although a moratorium is technically available to qualifying companies that are proposing a CVA, the requirements are widely considered to be so onerous that they are seldom used by IPs. This is in stark contrast to the Interim Order that is available for debtors who are proposing Individual Voluntary Arrangements (IVAs) where rapid and straightforward protection is available to allow a breathing space whilst an IVA isformulated and put forward to creditors.

The consultation ends in the middle of October so I eagerly await the Government’s response. This could be a timely measure which could have a real impact in terms of saving businesses and jobs.

Budget offers help for struggling businesses

Chancellor pledges more help for firms with unaffordable tax bills

In his Budget speech, the Chancellor of the Exchequer Alistair Darling announced that the Business Payment Support Scheme will be extended for the life of the next Parliament.

Under the scheme, HM Revenue and Customs will agree to requests from businesses to defer unaffordable tax payments in an attempt to safeguard jobs and prevent the damaging effects of high numbers of insolvencies. Since the scheme was introduced in November 2008, over £5bn in unpaid taxes has been re-negotiated by 160,000 businesses employing more than 1.4 million people.

There had been speculation that the scheme would be abolished during 2010 as the Treasury tried to maximise tax revenue as part of the Government’s efforts to cope with the record levels of public borrowing. However, the scheme has been popular and is considered to have been instrumental in saving many businesses and jobs.

However, in a separate announcement the Government has announced that from 1 April 2010 any requests for time to pay agreements for tax debts in excess of £1m will need to be accompanied by an independent business review to demonstrate the long term viability of the business. HMRC estimates that this will affect approximately 1 in every thousand requests.

This announcement will affect few firms but I’ve seen that even small firms are being increasingly asked to provide accounts when requesting time to pay agreements.

If your business is facing unaffordable tax bills, call Paul Moorhead today on 01709 331300 for help and advice. We can help arrange a time to pay agreement with HMRC.