Cyprus Bailout Shocks The Eurozone

The Cypriot government announced plans to introduce a levy on all bank deposits in order to secure an EU bailout for its troubled banks. The initial proposal for all bank deposits to be levied with a 6.75% charge with accounts over €100,000 being subject to a charge of 9.9% was rejected by the Cypriot parliament. Banks in Cyprus were closed for over a week to prevent bank runs in this unprecedented debacle.

New proposals were agreed late on Wednesday to protect all deposits up to €100,000 as is consistent with EU regulations. Cyprus’s second largest bank, Laiki will be closed. All deposits of over €100,000 will be transferred to a “bad bank” and could be lost entirely. Those with smaller deposits at Laiki will see their balances transferred to the Bank of Cyprus. All lenders to Laiki will need to write off their investments as the bank is unable to honour its bonds. The recently elected president, Nicos Anastasiades has had a whirlwind start to his new role.

The Bank of Cyprus faces a huge restructuring with shareholders and bondholders being hit. Depositors with over €100,000 face a levy of approximately 30%. According to The Financial Times, Russian nationals hold more than €20 billion of the €68 billion deposited in Cypriot banks and are likely to be hit the hardest.

Much of the world will be watching the crisis unfold in Cyprus with interest. This unprecedented move by the EU is a sign that cash may no longer be safe in the bank, particularly in stricken economies such as Spain, Portugal and Greece which are likely to require future bailouts.

The upshot of the Cyprus bailout is that the second largest bank has actually gone bust. This is more akin to a default than a raid on savers. However, there are fears that this could be the beginning of the end for the Eurozone. The initial proposal to tax all deposits shows a blatant disregard for savers and the willingness of the EU to tax these individuals is a major concern, particularly since they appear to have ignored the fact that all accounts up to €100,000 (£85,000) must be protected under EU legislation. For a relatively minor member of the EU, the ramifications could be significant if they lead to contagion in the form of bank runs in larger countries such as Spain.

The crisis will have significant repercussions to the Cypriot economy. Cyprus was seen as a tax haven with many of its bank paying interest of 4% or more on bank deposits. The loss of confidence will inevitably lead to mass withdrawals from the country. The banks have been closed for over a week meaning that depositors have been unable to access their accounts during this time.  Transactions in Cyprus have been reduced to a cash only basis during this time with many people beginning to run out of money. Tough restrictions have been imposed on bank withdrawals since the banks reopened on Thursday and it will take some time for business to resume as normal. It is unclear whether Cyprus would have been better off having left the EU. Cyprus faces years of deep recession.

The stock market however, appears to sidestepped the issue of Cyprus and any potential Eurozone crisis. The S&P 500 rose to another record high on Friday. Perhaps equities are now considered to be the new safe haven for investors.

2013 Budget Highlights

Treasury Chancellor George Osborne has announced his 2013 Budget today. Here is the summary of the Budget:

• An increased income tax allowance from £9,440 in 2013 to £10,000 from April 2014, an increase which is one year earlier than expected.
  
  
• The main rate of corporation tax will be cut from 23% in 2013 to 22% in 2014, then down to 20% from April 2015.
  
  
• Around 450,000 small businesses will pay no Employer National Insurance after the introduction of a new Employment Allowance.
  
  
• The economy is expected to grow by 0.6% in 2013, which is half of the previously forecasted 1.2%.
  
  
• In the future anyone wanting to buy a new-build property will be able to access a 20% government loan as long as they have a 5% deposit.
  
  
• A crack down on tax avoidance will bring in £4.6bn over the next five years.
  
  
• The planned 3p rise in fuel duty has been discarded; the price of beer will be reduced by 1p per pint.

Whilst the 2013 budget did not bring any huge surprises, George Osborne placed emphasis on helping businesses to grow and establishing the UK as the most attractive place to innovate and do business. SME’s will be provided assistance to create jobs and the reduction of the main rate of corporation tax to 20% by 2015 will result in the UK having one the most competitive rates in Europe. This is a welcome move given the backdrop of weak economic growth in the UK.

A more detailed analysis of the Budget will follow. Please monitor the website for updates. Belsize Accountancy are specialist accountants for contractors and small businesses.

Small Businesses Must Prepare For RTI Effective April 2013

The HMRC will launch the new Real Time Information (RTI) System, effective from April 2013. Research has found that many small businesses are not adequately prepared for the new rules which will require changes to their current payroll systems. Most employers and pension providers will be legally required to submit PAYE information in real time from April 2013 and all employers must do so by October 2013.

The new RTI rules require all employers to make online submissions to HMRC to provide additional information about payments to employees, tax, National Insurance and other deductions. The new system will mean that HMRC and the Department for Work and Pensions (DWP) will have up to date information about employee’s incomes meaning that the HMRC tax coding is more likely to be up to date and that employees may no longer have to wait till the end of the tax year before it is established that an adjustment is required to their tax return.

RTI will require employee payroll details to be correctly entered onto the monthly submissions to HMRC in order for the system to work effectively. RTI submissions must match the information held by the HMRC including the full names of employees, their Dates of Birth and National Insurance numbers. The introduction of RTI means that P35’s and P14’s will no longer be required.

Small businesses must ensure that their payroll software is compatible with RTI and will enable the relevant PAYE information to be submitted electronically to HMRC. If you require assistance with RTI or would like to outsource your payroll, feel free to contact Belsize Accountancy on 0207 043 0052 or submit your request to RTI@BelsizeAccountancy.co.uk.

The new RTI legislation will apply to all businesses including small businesses and individual contractors. You are advised to act now in preparation for the change.