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.

Plans to widen debt relief scheme

DRO eligibility to be amended

The Government today announced plans to make more people eligible for a debt relief scheme that allows individuals to write off unaffordable debt. The Debt Relief Order (DRO) was introduced in April 2009 and has been dubbed 'bankruptcy lite' - debts are written off in the same way as in bankruptcy, but the DRO is designed for people with very low value assets and little spare income after living expenses, where the full rigour of bankruptcy is unnecessarily cumbersome. Effectively, it is a way for over-indebted consumers to remove the burden of crippling debt that can never realistically be repaid. The idea is to draw a distinction between cases where debt is disputed or where the debtor may be able to repay but chooses not to, and cases where the debt is not in any doubt and nor is the fact that the debtor will never be able to repay it.

The main criteria for a DRO is debts of less than £15,000, surplus income after reasonable living expenses of less than £50 per month and total assets worth less than £300 (not including a car which may be worth up to £1,000). This makes a DRO available to a slender but statistically significant group of over-indebted individuals.

The plans unveiled today are to exempt pension plans from the asset cap. Previously, having a pension would mean that a debtor would fail the low asset requirement (assuming that the pension fund is worth more than £300.) As almost all pension policies are 'locked away' for use in retirement and aren't available for paying debts, it seems fair to exempt pensions from the equation. In addition, the Government is firmly entrenched in a policy of encouraging everyone to save for their retirement. It therefore makes sense to amend the criteria in a way which will have little effect on the likelihood of creditors recovering their debts.

More people than ever are becoming insolvent

Insolvency statistics give cause for concern

Official figures released by the Government’s Insolvency Service today show a 5% increase in the number of people getting into serious financial difficulties in the last three months. Although the number of bankruptcies has dropped by nearly 20% in the past year, the overall number of people becoming insolvent has increased as greater use is made of alternative ways of tackling high debt levels.

It seems clear that many people are struggling to cope with the effects of the downturn and record numbers are becoming insolvent. Job losses and cuts in overtime payments are making life difficult for households. This means that debt that was previously affordable can become a real problem. And as public sector spending cuts start to kick in, the situation is likely to get even worse.

In the first six months of 2010, over 70,000 people have become insolvent – the equivalent of a town the size of Barnsley or Chesterfield.

The cost of becoming bankrupt has increased in recent months and this may have encouraged people to look at alternatives. In particular, the new Debt Relief Order has become more popular since it was introduced last year. The good news is that there is help available – but I would recommend that anyone in difficulties should take advice from a reputable organisation. Beware of unsolicited calls offering advice that sounds too good to be true.

To find out what all your options are, call me today on 01709 331300.

Ostrich mentality to debt is still a big problem

Sticking your head in the sand will not help deal with debt problems

Research published today shows that many people are too ashamed to ask for help with their debt problems, preferring to ignore them in the hope that they will go away. A poll carried out for 'R3', the insolvency profession's leading association (of which I am a member) shows that 21% of people with debt problems haven't contacted anyone for help because "It's easier not thinking about it" whilst 14% are worried what people will think if they seek help about their debts. In addition, 30% of people with money problems haven't even told their partner or family about their situation.

Unfortunately I see this situation all the time. People come to me when the situation is really desperate, where someone has put off taking advice sooner because they were worried about what people would think or what their partner or family might say. (Sometimes people are even worried about what I would think - trust me, I've seen it all, nothing shocks me any more!)

The old saying 'better late than never' is true and there are things that can be done to ease the situation even when things seem bleak. But the sooner that someone takes advice about debt problems, there will be more options and the options themselves will be more palatable and more attractive to creditors.

So if you are worried about your debts, whether they are business or personal, why not give me a call on 01709 331300. You can meet with me free of charge and I'll help you to find out what all your options are. It's confidential and I promise that I won't judge or be shocked: I'll just try to help.

David Cameron announces proposed change to 'insolvency threshold'

Conservatives indicate willingness to tinker with insolvency rules

On The Andrew Marr Show on BBC1 yesterday, Conservative leader David Cameron announced plans to boost small busineses as part of a package of measures to stimulate jobs, wealth and enterprise and to allow the country to "trade its way out of recession." As well as reducing the amount of time it takes to set up a new business and encouraging social landlords to permit tenants to operate a business from their homes, Cameron announced that a Conservative Government would raise the "insolvency threshold" to £2,000 from the current level of £750. He stated that more small businesses had gone "bankrupt" in this recession than previous ones and that "a number have been pushed there by the government itself."

At present, a creditor can petition for an individual's bankruptcy if they are owed more than £750, whilst a company can be wound up following a statutory demand for a debt in excess of £750. But a company can also be wound up by the court if a creditor obtains a judgment for any amount and is then unable to enforce it - for instance, if bailiffs report that there are no valuable assets to remove. So increasing the threshold for companies won't necessarily make it more difficult for a creditor to wind up a struggling company, but it will give some protection for sole traders, who make up the majority of small businesses in the UK.

The threshold of £750 hasn't changed since the Insolvency Act gained Royal Assent in 1986 so it seems reasonable to revisit it. In the 24 years since the legislation was passed, inflation alone would mean that £750 would be more like £1,700 in today's money. I suspect that the threshold hasn't been revisited sooner because the legislation was poorly drafted: the threshold relating to bankruptcy can be changed by statutory instrument but there is no corresponding provision for company winding-up, making it all a bit messy.

But there is another issue: by raising the insolvency threshold, will this lead to more businesses experiencing further problems of non-payment by customers? Would this send out the wrong message to businesses, encouraging them to delay payment? I hope not.

Place your bets... airline insolvency speculation gone too far?

Bookmakers offer odds on the next airline to go bust

The effects of the global economic downturn were felt clearly in 2009, not least by the large number of well-known businesses that became insolvent. Over the past 12 months, these have included Borders, Blacks Leisure, JJB Sports and Cobra Beer. More recently, Flyglobespan, Scotland's biggest airline, collapsed when it's parent company went into administration, leaving thousands of passengers stranded. Airlines are particularly vulnerable in a recession, as they tend to rely heavily on discretionary spending and healthy levels of international trade, and a number of aviation businesses have crashed and burned recently. But even in this macro-economic context, it appears to be pretty poor taste to encourage speculation over which airline will be the next to collapse into insolvency, particularly given the chaos and upset for travellers.

Yet it would appear that Irish bookmaker Paddy Power is only too happy to offer odds on the next aviation insolvency. Monarch Airline is the bookie's favourite with odds of 4/1 that it will be the next to go bust and ground it's fleet. Fancy a flutter? You can get odds of 14/1 that British Airways will be the next victim of the credit crunch, or 18/1 that Bmibaby will be the latest to succumb. Virgin Atlantic and easyJet are relative outsiders at 80/1 but it seems that the bookies are putting their faith in God and and Uncle Sam: Vatican Airways and Barack Obama's Air Force One presidential jet fleet are 500/1 and 1000/1 respectively. God bless America!

If your business is having financial problems, I can help. Give me a call on 01709 331300.