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Hints that interest rates could rise

Archive for February, 2018

Hints that interest rates could rise

Wednesday, February 14th, 2018

Figures released at the end of January revealed that the final quarter of 2017 saw the economy expand by 0.5%. The Bank of England has now indicated that the pace of interest rate rises could speed up if the outlook remains positive.

Although Mark Carney and his colleagues voted to keep interest rates on hold at 0.5% at their latest meeting, they did indicate that the rates will need to rise “earlier” and by “a somewhat greater extent” than previously thought. As a result of the Bank’s comments, the value of the pound jumped by about 1% against both the dollar and the euro.

When the Bank put the rates up for the first time in ten years last November, it hinted there could be two more increases of 0.25% over three years, but it now appears there could be a third one and sooner than expected. There is speculation the next rise could come as soon as May.

As well as the growth in the economy, the growing numbers of people in employment have contributed to this belief. 32.2 million people were in work in the three months to November 2017, marking the highest total since 1971 when records began and a joint high record employment rate of 75.3%. Whilst average earnings increased 2.5% in the year to November, the growth of pay was below the rate of inflation for the tenth month in a row. The Bank does now think, however, that wages will start to increase.

If interest rates are increased, this will undoubtedly affect those households who currently have a standard variable rate or tracker rate. Of the 8.1 million households in the UK, approximately 50% are thought to be on this type of mortgage and interest rates would be likely to increase to match the Bank of England rates.

On the plus side, however, an increase rate rise would be welcome for savers as the High Street banks would generally follow suit.

Due to the boost in the UK economy, the Bank has raised its growth forecast 1.7% this year from the previous figure of 1.5%. It is worth noting, however, that this forecast is based on a “smooth” adjustment to Britain’s departure from the European Union. In the meantime, we wait to see what the Bank will actually do regarding interest rates in May.

Who owns your bank?

Wednesday, February 14th, 2018

Following the financial crisis of 2008 when a number of big British banks came close to collapsing, the Financial Services Compensation Scheme (FSCS) was strengthened by the government. As such, the FSCS 100% guarantees the first £85,000 of a person’s cash savings per banking licence in total, including interest. This means that a couple with a joint account holding up to £170,000 will have every penny of this covered.

But what does ‘per banking licence’ mean? Simply put, one banking licence can cover a number of different banks, building societies or brands. It’s important therefore to spread your cash across more than one provider, as it could mean some of your hard-earned money isn’t as safe as you think in the event of a future collapse.

With that in mind, below is a list of the biggest banks and building societies in the UK and all the brands which fall under their banking licence. That means if you hold more than £85,000 across different brands but under the same licence, you could be in a position to lose out should the worst happen.

HBOS (Halifax/Bank of Scotland group):

  • AA
  • Bank of Scotland
  • Birmingham Midshires
  • Halifax
  • Intelligent Finance
  • Saga

Lloyds Banking Group*:

  • Cheltenham and Gloucester
  • Lloyds Bank

*HBOS was acquired by Lloyds Bank, but both HBOS and Lloyds Banking Group have continued to operate under separate banking licences.

TSB:

  • TSB

Barclays:

  • Barclays
  • Barclays Direct (formerly ING Direct)
  • Standard Life
  • Woolwich

HSBC:

  • First Direct
  • HSBC

Royal Bank of Scotland (RBS)**:

  • RBS

NatWest:

  • NatWest

Ulster Bank:

  • Ulster Bank

Coutts & Co:

  • Coutts

**NatWest, Ulster Bank and Coutts are all subsidiaries of RBS, but have their own separate banking licences. As such, someone with accounts in each of these banks would be covered for up to £85,000 in each bank.

Santander UK:

  • Cahoot
  • Santander

The Co-operative Bank:

  • Britannia BS
  • Smile
  • The Co-operative Bank

Bank of Ireland UK:

  • Bank of Ireland UK
  • Post Office

Clydesdale Bank PLC:

  • Clydesdale Bank
  • Yorkshire Bank

Sainsbury’s Bank:

  • Sainsbury’s Bank

Tesco Bank:

  • Tesco Bank

Virgin Money:

  • Virgin Money

Nationwide BS:

  • Cheshire BS
  • Derbyshire BS
  • Dunfermline BS
  • Nationwide BS

Yorkshire BS:

  • Barnsley BS
  • Chelsea BS
  • Egg
  • Norwich and Peterborough BS
  • Yorkshire BS

Coventry BS:

  • Coventry BS
  • Stroud and Swindon BS

Skipton BS:

  • Chesham BS (renamed Skipton BS)
  • Scarborough BS (renamed Skipton BS)
  • Skipton BS

So, what about banks outside the UK? Whilst most banks which accept British savings are not covered by the FSCS, some within the European Economic Area are covered by their home country’s compensation scheme through the ‘savings passport’ scheme. One of the most prominent examples is Triodos Bank in the Netherlands, which is covered by the Dutch equivalent of the FSCS up to €100,000 per person. There are also some international banks which are covered by the FSCS, including:

  • Axis Bank UK
  • ICICI Bank UK
  • State Bank of India UK

National Savings & Investments (NS&I) is also covered by the FSCS – but as it’s owned by the government, the expectation is that all deposits into NS&I (both up to and over £85,000) would be covered apart from in the most extreme financial circumstances.

The Harley Owners Group VAT battle

Thursday, February 8th, 2018

The new year has brought with it reports of another victory for taxpayers in a mixed supply case. The case involves the VAT liable on membership fees paid to Harley-Davidson Europe Ltd by members of the Harley Owners Group (HOG).

HOG was not a conventional distinct legal entity, society or club, but rather a business unit of Harley-Davidson Europe Ltd. For the £55 annual subscription for full membership of HOG, members received a membership card; a hard copy magazine four times a year; a leather wallet; a touring map, including a guide to events; access to a number of websites, including the ability to publish photos; and opportunities for discounts at hotels and other businesses. The £55 payment was wholly standard rated as a supply of membership according to HMRC. However, the taxpayer argued that each specific benefit should be considered for individual VAT liability. For example, as printed matter, the magazines members received should be zero-rated.

Whilst cases such as these continue to be a grey area for VAT, each mixed supply case has four questions which need to be addressed:

  • Firstly, is each benefit or supply distinct and independent from the others?
  • Secondly, what does the typical customer consider he/she is buying?
  • Thirdly, is there a main supply, with other benefits being supplemental to this principal element?
  • Fourthly, are some supplies a way of enhancing the enjoyment of the main supply, or is each supply an aim in itself?

A good example to understand what this means is to compare a cheap flight during which the passengers are given complimentary tea or coffee, with a four course meal with wine on the Orient Express. The hot drinks are a way of helping passengers to enjoy their zero-rated flight, rather than a supply of standard rated catering. In contrast, a customer would rightfully complain if they didn’t receive their food and drink on the train journey, as they expect to experience both the journey and fine dining experience. As such, the flight and beverages are a single supply, whereas the Orient Express excursion and meal are clearly a mixed supply.

In the case of the HOG membership fee, the tribunal concluded that ‘the typical member… places real value on the tangible items’, meaning that the individual items received were more important than the esteem of the link to the Harley Davidson name. Additionally, the company carried out a survey of its members where 89% described the quarterly magazine as ‘somewhat or very important’, backing up the conclusion of the tribunal.

It’s also worth noting that, had Harley-Davidson Europe Ltc been a ‘not for profit’ organisation, the case would not have reached the tribunal as the magazine could have been zero-rated without issue. This is because of a concession which exists for splitting different VAT rates for benefits packages for members of such organisations, which include charities and members’ golf clubs.

4 tips for keeping your books in order in 2018

Thursday, February 8th, 2018

Whether you’re someone who prides themselves on having their accounts in order every year, or you’ve just had yet another last-minute scramble to submit your tax return before the deadline at the end of January, the start of a new calendar year is a great time to review your books and ensure they’re all in order for the twelve months ahead. Here are our top four tips for 2018 in terms of your accounts, ensuring your bottom line is secure and most likely giving it a bit of a boost too.

  1. Get the tax man on your side – okay, maybe you’re unlikely to be inviting ‘the tax man’ to the pub on a Friday night, but it’s a good idea to keep HMRC on side for your business. The HMRC website is the best way to get up to speed with everything you need to know and all the latest accountancy developments for your business. And, if you’re in doubt about anything, get in touch with the tax authorities sooner rather than later and find out the answer. Forewarned is forearmed, as they say.
  2. Make your accountant’s life as easy as possible – your accountant’s job shouldn’t be to make sense of your business’s incomplete and poorly kept books. Not only does keeping your records in a reasonable order for them keep your costs low and reduce the likelihood of any unexpected fines coming back to haunt you, but it also frees up the time you’re paying your accountant for – to offer advice and save your business money over time. So, with that in mind…
  3. … When it comes to finances, keep everything – all your receipts and invoices need to be logged and traceable. Digital technology makes this easier now than ever, as paperwork can often be provided electronically and anything that can’t, can be scanned and linked to your records. As long as you keep your records up to date, you shouldn’t find yourself turning your business upside down for that one vital receipt you can’t find come the next tax deadline.
  4. Simplicity is key – Keeping financial records doesn’t have to be complicated; in fact, the simpler you can make your system, the better. That way you’re not having to decipher your own labyrinthine puzzle to understand your own business accounts. This will also make it far less likely that you’ll miss any unpaid invoices and have to chase them several months down the line. If your records have got out of control, the new year is a great time to start afresh with a modern system that works for you and your accountant.

The collapse of Carillion – lessons for businesses

Thursday, February 8th, 2018

The collapse of Carillion in January 2018 has already triggered disruption throughout the construction industry. Businesses subcontracted by Carillion will soon feel the effects of the liquidation of the second largest construction company in the UK, with smaller private companies likely to be hit the hardest. The domino effect of the collapse of such a massive company is unfortunately unavoidable at this stage. But what lessons could businesses learn from the fallout of Carillion’s demise?

  1. A robust and strategic business plan – Carillion saw its debts double in only a few years thanks to a few big contracts being far less profitable than expected. This put the company in a position where it needed money quickly to maintain cash-flow and pay suppliers, but banks were refusing its loan applications. As such, bids were put in for contracts for impractically low profit margins. Without any room for manoeuvre through cash reserves or contingency plans in case of overruns or complications, it only took three or four unprofitable contracts out of around 450 in total to push Carillion into insolvency. Of the many cautionary tales being told here, perhaps the key one is that businesses should never allow lenders or suppliers to hold sway over their business strategy.
  2. Never underestimate the importance of cash – the primary indicator of Carillion’s cash-flow crisis was the company extending its supplier payment terms to 120 days, double the accepted industry standard. Following Carillion’s profit warnings in July last year, more stringent terms would have been demanded by many of its subcontractors, which only made the flow of cash out of the company even worse. With the usual sources of finance run dry, Carillion was forced to ask banks to settle invoices worth £350 million so that essential contracts could continue, spiralling the company into further debt.
  3. If things aren’t working, don’t ignore it – the construction market is volatile, so if Carillion had admitted things weren’t going well and asked for help and advice earlier, the company may not have entered liquidation as it has. Other companies in the sector, such as Balfour Beatty and Serco, spent considerable time and money restructuring their businesses in the UK and avoided collapse. Simply put, realism not optimism should always be employed when considering the profitability of work. If restructuring is necessary, it should be done sooner rather than later – leaving things to the last moment won’t fix anything.

Lasting Power of Attorney – claim a fee refund

Wednesday, February 7th, 2018

If you paid to register a Power of Attorney in England or Wales between 1 April 2013 and 31 March 2017, you’re owed a refund of up to £54.

When you register a Power of Attorney, you’re charged an application fee, set by the Ministry of Justice and paid to the Office of the Public Guardian.

Between 2013 and 2017, the operating costs of the Office of the Public Guardian decreased, but the application fee stayed the same, at £110. As the fee is supposed to simply cover operating costs, the Government’s now repaying the difference between what applicants paid and what they should have paid, plus interest.

On 1 April 2017, the application fee for registering a Power of Attorney was reduced from £110 to £82. If you applied after that date, you can’t reclaim.

How much you get depends on when you paid the fees. You’ll also get 0.5% interest.  You can still claim a refund even if you don’t know when you paid the fees.

When you paid the fee Refund for each power of attorney
April to September 2013 £54
October 2013 to March 2014 £34
April 2014 to March 2015 £37
April 2015 to March 2016 £38
April 2016 to March 2017 £45

You’ll get half the refund if you paid a reduced fee (‘remission’).

To apply, you can either claim a refund online or phone the Office of the Public Guardian’s helpline on 0300 456 0300 and select option six. You don’t need the Power of Attorney document itself, but you will need:

  • The donor’s name, address and date of birth
  • Their UK bank account number and sort code
  • The name of one of the attorneys on the Power of Attorney