Shops 'til they drop

What has caused the sudden wave of retail insolvencies?

It has been a bad few days for retailers. A number of well-known names have succumbed to the effects of the retail slow-down, with Jane Norman and Habitat appointing administrators, TJ Hughes reportedly on the brink of entering administration and an announcement from chocolatier Thorntons that they intend to close up to half of their high street shops.This has come in the wake of retail figures for May that showed sales had slumped by 1.4%, reversing an increase of 1.1% the previous month.

Many retailers have been struggling for some time to keep their heads above water, with shoppers choosing to put off major purchases in the face of increasing economic uncertainty. Increasing food and fuel prices have hit consumers hard and many are concerned about job insecurity. The easy availability of credit that stoked the high street spending boom of the last decade is long gone. Shops have suffered from poor cashflow and slim margins, particularly where they are servicing high levels of borrowing.

But why the sudden wave of insolvencies? Traditionally, landlords collect rental payments from their tenants on a quarterly basis, in advance. The end of June sees another 'quarter day' when many retailers' rents will fall due for payment. With little opportunity to re-let shops to new tenants, landlords will be tempted to enforce harshly the terms of their existing leases, to prevent a melt-down of rental income. However, if landlords fail to work with their tenants when times are hard, they face the possibility of losing their tenant altogether if the tenant becomes insolvent. By using an administration procedure, struggling retailers are protected from their landlords taking action to lock them out whilst a new buyer is found, and a potential purchaser will often have the upper hand in any negotiations over future rents.

And what effect will this have on suppliers? When large firms become insolvent, they often leave many small suppliers high and dry, with little or no prospect of repayment. This can have a knock-on effect on their viability, and I'm afraid that many smaller businesses may be hit hard by the failure of these high street names.

But as always, the message is that help is at hand, and the sooner that advice is sought, the more palatable the options will be. Just because a major customer has let you down, it doesn't have to mean the end of your business as well. Call Paul Moorhead of Moorhead Savage today on 01709 331300 and find out what we can do to help.

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.

Net property borrowing falls further

Homeowners' equity increases (but only because they are paying down debt)

UK homeowners repaid a record £7 billion in the final quarter of 2010 according to figures released today by the Bank of England. This is the eleventh quarter in a row that net property debts have decreased and the highest net repayment since records began in 1970.

It is likely that the reduction in debt is a result of more stringent lending policies by lenders who have been shaken by the banking meltdown in recent years. In addition a number of secured lenders have pulled out of the market all together as house prices  have plummeted, wiping out equity a d leaving many homeowners (and lenders) highly geared and dangerously exposed.
   
It seems clear that lax lending policies had a direct and devastating impact on the financial markets and the previous unsustainably high levels of lending have now been scaled back. But it also appears that consumers are not in a position to increase borrowing in order to take advantage of the lowest base rates in 315 years, which is an ominous development for high street spending and house prices in the coming months.

The challenge for banks is to ensure that the pendulum does not swing too far the other way, denying sensible levels of credit to responsible borrowers. A competitive market for sensible levels of credit is essential in a fully functioning free market economy, fostering enterprise and wealth creation. But anecdotal evidence suggests that the over-correction is in full swing.

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.