Accountancy Highlights

Reducing Your Marginal Rate of Tax


Umbrella Vs Limited Company set-up


Treasury to clamp down on stamp duty avoidance


Growth in the market for contractors in the UK


Proposal to merge PAYE and National Insurance

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LATEST NEWS

Sunday
Nov182012

Current Banking Crisis May Provide Opportunities for Corporate Bondholders

The banking sector has been subject to numerous scandals over the past few years. First there was the credit crunch followed by corporate governance issues over the casino banking culture at the major banks. Derivatives have not been managed well with banks entering into increasingly complex and risky transactions.  This was followed by the government bailout of Lloyds, RBS and Northern Rock in the UK. The issues have been replicated across Europe with the Spanish banks making the major headlines with several banks being subject to bailout conditions.

The bad news doesn’t stop there. The mis-selling of PPI insurance is still ongoing with most major banks involved in the UK. Last year we had the issue of unacceptable bonuses being paid at Barclays followed by the Libor scandal which spelt the end for Chief Executive Bob Diamond. In March 2012, a leaked document revealed that a senior manager at Goldman Sachs was found to have referred to his clients as “muppets”. We also have the money laundering allegations concerning Standard Chartered and HSBC who were fined earlier in the year.

Many feel that the banks have been largely responsible for the Euro crisis. The new Basle regulations reveal that a number of the major international banks have solvency issues and need to recapitalise their balance sheets. The Rating agencies have downgraded the credit rating of a number of major banks to reflect this. Even the big named banks are not immune to the recent spate of downgrades.

Both the Bank of England and the European Central Bank have engaged on a program of quantitative easing (QE) to print money and effectively recapitalise the weaker banks. However, despite the recent bouts of QE the banks have yet to repair their balance sheets and are reluctant to lend to eachother. This in turn, means that businesses are finding it difficult to obtain credit from the major banks.

The credit downgrades mean that the Banks find it difficult to raise money internationally and that the cost of funds has increased to the extent that it is above that of most large corporations. Major multinational corporations tend to be cash generative and are therefore in a better position to receive cheap credit. This has given rise to the opportunity for large corporations such as Tesco, Severn Trent and the National Grid to provide competitive bonds to the market.

Corporate bonds are now providing higher yields than both bank and government securities. The cash rich corporates often represent a lower credit risk than dealing with sovereign states, some of which have been downgraded in Europe. Corporate bonds could be a useful option for investors. Cash rich businesses and wealthy contractors should explore these options if they are looking to invest excess funds.

In the UK we have an increased reliance on the top 4 clearing banks which pretty much dominate the market. The effects of QE have not filtered down to the market in the form of increased borrowing as refinancing dominates banking activity. Interest rates are at an all time low to the effect that savers and investors are finding it difficult to attain a reasonable return on their investments. Most savings accounts pay well below inflation.  Businesses are therefore stockpiling cash and paying off their loans. In some cases excess cash is being paid out in the form of additional dividends due to the absence of a suitable alternative.

The banking crisis creates market opportunities for well managed businesses in the UK. Large well rated companies will find that they are still able to secure finance, often at low rates of interest. Large businesses with sufficient liquidity will be able to access different capital markets. This creates opportunities for raising finance for the acquisition of competitors who may be in difficulty. Alternately, cash rich companies can look to explore opportunities in corporate bonds.

The downside however, is that smaller growing companies continue to have less access to finance and will be subject to higher rates of interest to reflect their risk profile. The lack of alternative banks remains an issue for SME’s in the UK.

 

Going forwards we expect to see a smaller number of core banks as the Eurozone crisis unravels. Eventually we should see a split between the retail and investment arms of the major banks. Some continental banks may well relocate from the UK. The large banks will survive and the smaller ones are likely to merge. Banks will remain cautious and will stick with their best clients. It is important that your business is well known to your bank. You should also ensure that your bank is well informed of your plans.

Sunday
Nov112012

Development Of An Effective Reporting Platform For Growing Businesses

Many businesses suffer from the absence of a centralised information reporting system. In fact most businesses often have lots of information captured across a range of different systems without appropriate integration.

In order to refine the reporting platform for businesses it is best to design a system whereby the information is stored in 3 layers:

The first layer represents the various databases used to capture the data.

The middle layer should then be set up in the form of a data warehouse. This essentially extracts the required data from the underlying databases and ensures that all of the information is stored in one place. The data warehouse is often set up as a web based portal which has the benefit that it can be accessed by any employee or other end user over the internet. This is useful for corporate groups whereby the management at head office are able to extract the required data remotely from the respective sites.

A top layer is then required for analytics, or to provide business insight. The top layer is effectively the reporting tool that can be set up to run system reports and analytical information required to manage your business.

An effective IT platform is essential to providing information to management. If structured well management can easily extract the required reports and information they require and can save a significant amount of expensive management time. A strong reporting platform can also help businesses to automate their month end processes and reduce the time taken to report their financial results.

We hope that you have found our overview useful. If you require any advice and assistance regarding the information requirements of your business, please contact Belsize Accountancy for more details.

Monday
Nov052012

Growing Businesses Suffer From Poor Tax Planning

Recent studies suggest that a high number of growing businesses suffer from poor tax planning. The UK tax system is complex and businesses are advised to seek appropriate tax advice before embarking on significant commercial transactions.

The potential for shocks arising from a lack of tax planning is often high. Examples of poor tax planning include a group of companies facing an unplanned tax bill despite the overall business being loss making. This highlights the importance of understanding the group structure and engaging in appropriate tax planning.

The late submission of tax filings can increase the likelihood of a tax investigation by the HMRC. The new iXBRL tax filing requirements make this more likely this year and companies would be advised to seek an iXBRL solution if they have not done so already.  The importance of seeking good tax advice cannot be underestimated.

Companies can also face exposure to fines if VAT implications are not considered before engaging in a new contract. PAYE compliance is also essential. The move to the new RTI system will be an important factor to be addressed by most payroll departments in the UK.

Larger companies must also comply with the relevant transfer pricing regulations and must ensure they have an adequate management fee structure in place. Failure to do so can result in significant fines for the business. Unless appropriate advice is received early on, businesses can find themselves having to hire expensive advisors and interim contractors to resolve last minute issues and prepare the necessary filings.

Other examples of poor tax planning include a business or individual not utilising all of the reliefs available to them. In one extreme case we came across the story of an individual who received poor tax advice and had not utilised all of his personal allowance when operating his payroll via a limited company. The individual received a poor service from inexperienced staff employed by his accountant.

We recommend that new businesses seek appropriate tax advice where necessary to avoid any expensive mistakes. At Belsize Accountancy, all tax computations are reviewed by an experienced Qualified Accountant before they are finalised in order to ensure we provide a high standard of service to our clients.