Public Sector Workers Investigated Over Use of Personal Service Companies

More than 2000 public sector workers are being investigated over allegations that they have been paid through their own private companies in order to reduce their tax bill. The scandal is under investigation to determine whether the officials are self employed or whether they fall foul of the IR35 rules and are in fact employees. 

It is interesting to note that a number of these schemes were declared to the HMRC at the time they were set up and have received HMRC approval. 

The implications of this scandal are significant to the accountancy industry. We are advising clients to review their IR35 position with their accountant as the HMRC will be targeting small Limited Companies with only one director. The penalties for non compliance can be significant, particularly if backdated over several years.

UK Economy Shrinks Further

The UK economy has fallen deeper into recession with GDP falling by 0.7% in the Second Quarter of 2012. The continued double dip recession that many predicted last year was ignored by George Osborne who naively assumed that the UK economy would bounce back despite the savage public sector cuts and austerity measures. 

The Bank Of England’s policy of quantitative easing has merely prolonged the recession rather than resolving the problem as the increased money printing has effectively subsidised the banks and has not filtered down to the individual consumer. The Euro crisis has led to a significant decline in confidence within the global market. Further pain is expected in the UK given that the economy has been boosted by the Queens Jubilee and the Olympics this year. A post Olympics slump is extremely likely. 

The market for accountants has not suffered despite the difficult market conditions. Strong accountants are required under the current climate as businesses are placing greater emphasis on managing their costs. Contractors and freelancers have had mixed fortunes to date but would be advised to consider the likelihood on a post Olympic slump when deciding on their next contract role.

Continued Fears Over Bank Runs In Europe

The press has been relatively silent over Greece and Spain over recent weeks. At Belsize we see a major devaluation of the Euro as inevitable. The euro continued to fall against major counterparts on Friday as the formal approval of Spain's bank bailout by Eurozone finance ministers offered it little relief after the Spanish Valencia region said it will seek central government help to repay its debt. The Euro is currently down to £1.28 against the Pound and 0.82 against the US Dollar. 

Fears over the end of the Euro or even a major devaluation mean that Greek and Spanish savers continue to rush to withdraw money from their banks. More than €1 billion was withdrawn from Greek and Spanish banks last month. 

The recent government bailout of Bankia was the first sign of a major crisis in Spain. The third largest bank was part nationalised earlier in the year as the bank had made huge loans to property developers who are now at risk of default. Developers have been building huge projects in Spain for which there is insufficient demand in a country with record levels of unemployment. 

The Spanish government has since requested a €100m bailout to support its remaining banks who are stricken with debts. The ECB has made a surprising move to provide emergency funds direct to the banks rather than take on further sovereign debt. Whether this is a sensible solution remains to be seen. 

European ministers have been openly talking about a Greek exit but whether this will take place as an orderly default has been put in doubt due to failed confidence in the global market. The high number of withdrawals from the Greek banks could result in an implosion of the Euro. To date European politicians have been assuring themselves that the Greek economy is not large enough to create major damage. However, the added prospect of bank runs in Spain could be too large to contain. 

We watch with interest in the relative safety of the UK. Clients with exposure to the Euro would be advised to take precautionary measures.