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.

What a (debt) hangover

New Year brings debt misery for millions

Six million people fear that they will not have enough money to pay their Festive bills by the end of January according to statistics published by R3, the leading insolvency trade body. This means that 10% more people will be struggling this year than in 2010.

It's all too easy to spend a bit too much over Christmas - we've all done it at some time or other. The problem is where that extra spending is the 'straw that broke the camel's back' - the additional debt that proves to be the start of serious problems. Almost everyone has debt of some description, the key thing is to ensure that it is affordable and in line with income and expenditure. The wide availability of credit, from credit cards, loans, overdrafts, store cards, car finance and so on, means that it is all too easy to run up debts that simply aren't affordable. And Christmas is a big temptation to get into debt, with unplanned spending and ill-placed but well-meaning over-indulgence in credit for presents and parties!

The increase in VAT and rises in living expenses such as food and fuel prices will add extra pressure to household budgets this year and many more people will find that they are getting behind with payments to banks, credit card companies and so on.

The good news is that there are many options for dealing with debt that has snowballed and become unmanageable. Taking advice as soon as possible will open up these options and allow youto make an informed decision. Ignoring the warning signs will only make the situation worse.

If you, or someone you know, is struggling to get by from month to month, call me on 01709 331300. We don't charge for an initial consultation, where I can outline the all the options and recommend the best route - there's no obligation and it's completely confidential.

Paul's New Year predictions

Increase in insolvencies forecast for 2011

As we say goodbye to 2010 and look forward to the start of 2011, I thought that I would give my predictions for 2011 from an insolvency point of view.

Overall, 2010 was a surprising year insofar as the overall numbers of people and companies getting into serious difficulties started to edge downwards, rather than continuing to skyrocket upwards as many had expected. My view is that there are different factors at work in relation to individuals and companies.

For the 'over-indebted consumer' there are a huge number of 'debt management companies' being set up and they are marketing themselves in increasingly effective ways to people with debt problems. There are good and bad firms amongst these organisations and the quality of the advice on offer varies wildly from one firm to another. Most of the solutions offered by these businesses are 'informal' arrangements - ie they aren't legally binding arrangements under the Insolvency Act 1986. This means that they are only lightly regulated and they don't show up on the official statistics, hence they hide the full extent of the nation's personal debt problem.

In relation to companies, whilst the headline figure of liquidations is on a downward trajectory, my view is that the numbers are artificially low because of a number of factors that are keeping terminally ill businesses going for longer than may have been the case in the aftermath of previous recessions. Firstly, interest rates are at historically low levels, aiding struggling businesses by keeping interest payments low. This, of course, cannot last and as interest rates inevitably increase, so will the number of businesses going to the wall.

Secondly, banks are in no rush to pull the rug out from under struggling businesses, as they are aware that much of their security is over valued and they will be unlikely to recover all their debts from a fire-sale. So, as long as a business can service the debt (ie pay the interest) the banks are unlikely to demand repayment and end up testing whether their security really is worth as much as the debt.

Thirdly, HM Revenue and Customs have been uncharacteristically lenient towards businesses that are struggling to pay their tax debts and a huge number of 'Time to Pay' agreements have been made, allowing companies more time to pay off any arrears. But this will not, and cannot, last for ever and there are signs that HMRC are becoming more forceful in their treatment of debtor businesses.

So, my rather gloomy prediction for the year ahead is a sharp increase in failures amongst small to medium sized companies as interest rates edge upwards and the banks and HMRC take a more robust approach to defaulting businesses. Also, bankruptcies and Debt Relief Orders will increase as further job losses occur as a result of public sector cuts. How high will these numbers go? I'm afraid that I'm not going to stick my neck out and put a definite figure on it, but I will watch with interest the official figures for the next 12 months.

But, as always, my message is a positive one: the situation is never as bleak as it may seem and by taking advice as soon as possible, there are things that can be done to rescue a business and avoid bankruptcy. If you would like to discuss the options for either yourself, or for a client, just give me a call 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.

Small businesses at risk in public sector cuts

150,000 small firms at risk if their public sector contracts cease

Research published today by R3, the insolvency trade body, reveal that one in ten or 150,000 businesses in the UK face insolvency if the work they carry out for the public sector is cut as a result of cuts in public sector spending.

The reduction of the UK's structural deficit is an important objective for the Government and a wide ranging review of public sector spending is underway with the aim of making significant savings for the public purse.

The findings show that huge numbers of businesses are at risk if their contracts come to an end and small businesses are particularly vulnerable as many will find it difficult to replace the business which is lost.

It is a sobering thought that around 26,000 firms are forecast to go bust during 2010, according to the current failure rate. If just some of those 150,000 businesses at risk find that they are unable to continue, it looks like 2011 will be a record breaking year for company insolvencies, for all the wrong reasons.

The good news is that businesses can work with their creditors to reach an arrangement to deal with unpaid bills if the worst happens and major contracts are lost. This mechanism will buy a company time to rebuild its customer base and return to profitability, safe in the knowledge that creditors won't be threatening to wind up the business.

If you want to know more about how this could work for your business, call me today on 01709 331300 for a free, no-obligation chat.

Good news for homeowners - but will it last?

Repossessions fall - but is this the calm before the storm?

The Council of Mortgage Lenders (CML) today announced a decline in the number of housed repossessed by mortgage lenders in the second quarter of 2010. In the three months to the end of June, there were 9.400 repossessions, down from 9,800 in the previous quarter and considerably below the same quarter last year, when 11,800 properties were taken back by first charge mortgage lenders.

As a result, the CML have revised down their forecasts for repossessions in 2010 as a whole from 53,000 to 39,000, a reduction of around 25%.

The number of mortgages in arrears has also reduced, with 178,200 mortgages in arrears equivalent to 2.5% or more of the mortgage balance. This is 5% lower than at the end of March and a whopping 17% lower than the same period last year.

These figures have surprised many in the industry, with mortgage difficulties being contained below the levels that the CML expected at the start of the year, and in comparison to the recession at the start of the 1990s.

I don’t want to be accused of talking down this good news. But I’m afraid that this is just a lull, an aberration, before things get worse. There are some important factors that make this downturn different to the 1990s recession. Firstly, the headline interest rate is at an historic low: at some stage, rates will start to increase and many homeowners who are currently struggling to keep their heads above water will sink beneath the waves. Secondly, the Government is struggling to cope with crippling levels of debt and has indicated that wide-ranging cuts in public spending will be used to help balance the books. Nobody knows for certain what the effects of those cuts will be, but rising unemployment and increased job insecurity will surely become a reality for many more homeowners in the months and years to come.

If you have financial problems and are worried about how this will affect your home, call me today on 01709 331300 for a free, no-obligation and confidential chat.

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.