Tuesday, 28 February 2012

Barclays little £500m ruse

What has Barclays been up to to save itself £500m of tax?

Just bear in mind through all of this that the Treasury hasn't named Barclays as the perpetrator. Barclays has been outed and sort of put its hand up, while casting doubt on the amount it has underpaid.

Also note that this is "aggressive", "abusive", tax avoidance, not illegal tax evasion.

The Treasury has clamped down on two practices. 

One when a bank issues bonds or IOUs to raise money, then manages to buy them back at a knock-down price - but avoids paying tax on the gain.

The retrospective legislation the government is putting in place to fix the problem applies to this  dodge.

The second appears to involve claiming tax rebates on investment income where tax wasn't paid in the first place.

This is being dealt with on a "from now on" basis by tightening up the rules on the tax treatment of the Authorised Investment Funds which were used.

Here's how HMRC describes the schemes...

"Debt buyback scheme
It is a normal commercial action for a company to buy back its issued debt that is trading at a discount in the market in order to reduce its liabilities.      
However, the normal commercial profit that arises in such a case should be subject to tax and the corporation tax rules on deemed releases are intended to ensure that this profit is only exempt from tax in very particular circumstances where a business is in distress.
This scheme involves highly contrived arrangements to circumvent the intention of the legislation."

And the tax rebate scheme:

"Authorised Investment Funds
AIFs are pooled investment funds which invest in shares, securities and other asset classes and can have a range of investors from retail customers to institutional investors or financial traders.
The scheme aims to convert non-taxable income into an amount carrying a tax credit, thus generating a set-off or ‘repayment’ of tax to the scheme users that has never been paid. This is aggressive avoidance, since no tax is paid but a corporate investor could claim a substantial repayment."

Barclays on tax abuse

What Barclays says about the £500m tax which the Treasury says an unnamed bank has avoided:

“Barclays takes its responsibilities as a corporate citizen very seriously. Barclays ensures that all transactions that it undertakes are fully in accordance with relevant tax law wherever it does business.  In the UK we comply with the letter and spirit of all our obligations under the HMRC Code of Practice and have open and transparent dealings with HMRC.

This situation arose when Barclays voluntarily disclosed to HMRC in a spirit of full transparency that it had repurchased some of its debt in a tax efficient manner. This was based on guidance from professional advisors that the treatment was both legal and compliant with the tax code, and given others had used a similar treatment. Barclays also disclosed its participation in an authorised investment fund which is also legal and compliant with the tax code.

On the basis of that approach, HMRC has decided that it intends to work with the Government to change the tax laws retrospectively to prevent any company from using such treatment again.

Barclays respects the decision of HMRC and the Government to adjust the tax laws and will, of course, comply with the modified law once it is in place. The retrospective change in legislation enacted would not have a material impact on Barclays profits and would not cause Barclays to alter its Preliminary Results which were published on 10 February.”

Monday, 27 February 2012

Top HSBC pay packet

So what does the chief executive of HSBC, Stuart Gulliver, get paid?

For 2011 it breaks down like this:

£1.25m basic pay

£2.16m annual bonus - in shares

£3.75m long term incentive plan - in shares

Total: £7.16m

He has taken a hit for PPI mis-selling and the mis-selling of investments to elderly people by a subsidiary, NHFA. The total is £1.3m lower than it would have been otherwise.

He can't sell the long term incentive shares until he retires - and they can be clawed back over the next 5 years  if performance turns out to have been worse.

Friday, 24 February 2012

Payday lending review

The Office of Fair Trading is to investigate the payday lending industry. The wide-ranging review will involve site visits to lenders and could result in enforcement action.

They are worried that firms have been giving out loans to borrowers who are unlikely to be able to replay - such as students, those on benefits and the unemployed.

There are also concerns about firms rolling over loans which customers can't pay off, resulting in higher charges.

Friday, 17 February 2012

Bailiffs warning

Typical bailiff blags gathered by Money Advice Trust:

  • ‘Do you want your children to watch you get taken away in handcuffs? ‘
  • ‘Please can I come in, I really need the toilet?’
  • ‘I’m charging you for every minute I’m out here, so it will be cheaper for you to let me in’
  • ‘I’m here from the local council to carry out maintenance work’
  • ‘I just want to come in to work out a repayment plan’

Internet sales booming

We're told that the volume of retail sales is up 2% on last year. A welcome recovery for shops etc?

Well, up to a point.

The Office for National Stats (ONS) also tells us that internet and mail order sales were 12% of the total, compared with 9% a year ago.

That surely means that sales from physical shops have still been squeezed...

Wednesday, 15 February 2012

King on suffering savers

The Governor of the Bank of England, Sir Mervyn King, has denied that he's sending out a message that it's not worth saving, despite the fact that the Bank has kept interest rates at just 0.5%.

He said he had to make "a difficult judgement about the right course of action for the economy as a whole." And added that all groups of society were suffering from the consequences of the financial crisis.

Sir Mervyn argued that a decision to raise interest rates sharply to help pensioners and others depending on their savings would backfire.

"We could put up interest rates to 4 or 5 percent and then maybe the return on savings will appear to go up," he said.

"But I'm absolutely confident that if we were do that we would see the value of assets...go down, that there would be a sharp rise in the exchange rate, that investment and consumer spending would fall. We would go back into a recession."

Sir Mervyn was presenting the Bank's latest inflation report.

RBS adverts banned

The banking group, RBS, has been banned from re-showing two TV advertisements in which it claimed that it would "continue to provide banking services wherever we're the last bank in town".

The Advertising Standards Authority concluded that one of the ads, for NatWest, was misleading because in the town of Farsley in West Yorkshire they had closed a Natwest branch when there were no other banks remaining.

The other ad was for RBS and the ASA found that in Bettyhill, Thurso, RBS had closed a branch which was the last in town and replaced it with a stop on its mobile bank route.

The complaints were brought by the Campaign for Community Banking Services.

Monday, 6 February 2012

P45 lives on

The P45 has been given a temporary reprieve by tax chiefs after employers said they didn't want to see it go.

A plan to axe the form in favour of a "leaver statement" has been dropped by HMRC, the tax office - for the moment..

The P45 dates back to the year of D-Day, 1944, and the launch of taxation by PAYE or Pay-As-You-Earn. Showing pay and tax deducted in the year so far, it allowed the tax man to keep track and, with luck, avoid overcharging later on.

It wasn't long before being handed a P45 entered the language as another term for getting the sack. By law it has to be issued to workers when they move to a new employer or lose a job. 

Now, HMRC is moving to a system of Real Time Information ("RTI"), under which staff movements will be recorded in a much more timely fashion, making the P45 unnecessary - or so HMRC thought.

RTI trials start in April. The P45's days were numbered. Until today...

"Employers told us to keep the P45," said Stephen Banyard, head of personal tax, "which is exactly what we have done."

The point companies made as that P45s are widely recognised and widely used, not just by new employers, but by banks, tax advisers and public bodies, as evidence of identity. 

The "leaver statement" would be confusing and it might actually increase administration.

So Once an employer joins RTI, starter and leaver information will be recorded automatically and P45s will continue to be used to exchange information between employees and employers.

But what happens once the new system is bedded in? A new attempt to get rid of the P45?

HMRC replies that it will consult on what will be needed once all employers are reporting via RTI.

Even so, tax experts expect another couple of years will go by before the idea of scrapping the P45 comes up again. 

Diamond share price rise or paste?

What has the Queen done with our shares in 60 years?

The FT30 share index, the oldest one in the world, stood at 115.8 in 1952 and it closed at 2009.4 on Friday.

That's a big rise. It has multiplied by 17 times, or risen by 1,600%.

However, as far as I can see, prices as measured by the Retail Prices Index or RPI are 23 times higher than in February, 1952.

That's a 2,300% increase. Not so good.

One thought, though, the FT30 index rise doesn't include the dividends you would have earned in that time.

Add in dividend income over 60 years and you'd be well in the money.

Friday, 3 February 2012

1 million tax penalties

One million taxpayers face a penalty of £100 for failing to submit their self-assessment tax returns on time.

But the figure is the lowest since they were allowed to file online, comparing to 1.4m last year and 1.6m the year before.

The tax office, HMRC, allowed an extra two days' grace beyond the 31st January deadline because of a strike, but the 1 million had still failed to file by midnight last night.

They will have to pay the £100 fine whether or not they have additional tax to pay unless they have a reasonable excuse, such as a serious illness, a bereavement or a loss of documents because of theft, fire or flood.

After three months additional fines of £10 a day will start to accrue.

Self-assessment tax forms have to be filled in by people with more complicated tax affairs - for instance the self-employed or those with a high income from savings. The latest forms were for the tax year which ended in April, 2011.

A record  9.45m forms arrived by last night and 7.65m were submitted online - another record.

Sale and rent back business closed down

The sale and rent back business, where desperate homeowners agree to sell up but are allowed to carry on living in their properties, has effectively been shut down by the financial regulator, the FSA.

But thousands of families will be on their own if they run into problems because of the deals.

The FSA said most of the firms "were more focused on their own commercial success rather than the welfare of the customers, with one firm even resorting to fraud".

Commissions averaged £4,000, and total fees paid by customers ranged up to £40,000.

Most companies offering the service have now pulled out and one is the subject of an FSA enforcement procedure.

Investigators found that sale and rent back providers didn't assess whether customers could afford their terms, didn't give them enough time to decide and drew up agreements using incorrect information.

They were running promotions which broke FSA rules and their training and record-keeping were inadequate.

Only 61 regulated sale and rent back deals have been arranged since the FSA began to regulate the sector in 2009. 5 firms will now conduct a review of these sales to see if customers have lost out.

But the Office of Fair Trading suggested that 50,000 transactions had taken place previously, arranged by 1,000 firms together with an unknown number of professional landlords.

These customers don't have the benefit of financial protection from the FSA and the Financial Services Compensation Scheme if things go wrong.

Even if the 50,000 figure turns out to be an overestimate, as some believe, many thousands could still be at risk.

Why are bankruptcies falling?

Official figures today confirmed the continuing fall in the number of bankruptcies as families cut back on their borrowing and those who do hit the buffers opt for cheaper ways of getting protection from creditors.

Total personal insolvencies fell by 11 per cent in 2011 to just under 120,000 in England and Wales, according to the Insolvency Service.

Within than total, the number of bankruptcies dropped sharply, by 29 per cent, to 41,845.

It's not unexpected for financial failures to drop back after a recession, following an initial surge, as households avoid new borrowing and banks and credit card companies restrict their lending.

There's also a tendency to put off applying for help until after Christmas and New Year celebrations, so some debt experts predict a rise in insolvencies in the first few months of 2012.

However, most dramatic has been the recent jump in Debt Relief Orders, a cheaper alternative to bankruptcy which doesn't involve going to court.

While bankruptcies declined last year, Debt Relief Orders rose 15% to 29,949.

DROs are designed for debtors with hardly any assets and debts of less than £15,000.

At the same time, many people in difficulty, along with small traders, have been opting been opting for Individual Voluntary Arrangements, under which payments to creditors can be reduced - rather than choosing bankruptcy.

Despite the overall fall last year, total insolvencies continue to run at more than twice the levels seen before the credit crunch and the lending boom which preceded it.

Thursday, 2 February 2012

Alarming rise in theft from customers

There's been 41% rise in employees stealing money from customers or the businesses they work for.

Fraud experts say the jump is partly the result of continuing austerity, with some staff desperate to make ends meet or fearing redundancy -- although in other cases the perpetrators enjoyed the thrill of committing a fraud or wanted to take revenge on bosses.

The figures come from CIFAS, which analyses fraud for an alliance of leading firms, including banks, credit card companies, retailers and insurers.

It has been monitoring a sample of 80 members and reports that last year cases of "dishonest actions by staff to gain a benefit from theft or deception" rose to 220 from 156 the year before.

The numbers in the sample appear small, but they only cover those cases where there is evidence of an identifiable criminal act. CIFAS says the rise is "alarming".

Richard Hurley, a CIFAS manager, warns that "many of these fraudsters steal from elderly and more vulnerable account holders"

He says that nearly a third of the cases involved the theft of cash from customers.

Here are some typical cases:

* an employee stealing cash from a customer. An example would be where a customer deposits £150 cash into an account but the member of staff steals £20 and
deposits the rest.

* a customer service worker at a credit card company diverts funds from your account while speaking to you over the phone and looking at all your account details

* a phone company account handler handles your payments and diverts cash for his own benefit.

* a staff member steals from a company by removing cash from the float in the till.

Risk-averse jerks - the banks

One of the Bank of England's independent policy experts has suggested banks could be "risk-averse jerks"  for holding back on lending to smaller businesses.

And he added that there were even more significant "fundamental" problems in their attitude to lending to businesses with productive ideas.

Adam Posen is a US economist who sits on the Bank's Monetary Policy Committee, which votes every month on whether to change the level of interest rates.

He said on BBC Radio 5Live that UK banks were not doing enough to support the real economy.

"How much of that is because they are reluctant, risk averse jerks and how much because there is something more fundamental at work - I think it's as much fundamental if not more so," he explained.

He said that cutbacks in lending to small, medium and new businesses had been "tremendous".

And Mr Posen commented that banks were "choosing to lend to roll over debts to large borrowers...but they're not issuing new loans to new borrowers."

Wednesday, 1 February 2012

Child Benefit cuts slammed

The respected Institute for Fiscal Studies has branded the government's planned cut in Child Benefit as "neither efficient nor fair".

Child Benefit is due to be removed from families with a higher rate taxpayer from January next year.

The IFS is warning that the cliff-edge effect of withdrawing the benefit if one parent goes above £42,475 in earnings will hit hundreds of thousands of families.

200,000 could find themselves with a lower overall income after a pay rise.

Another 170,00 could actually increase their income by taking a pay cut.

The IFS recommends a gradual withdrawal of the benefit for higher rate taxpayers.

It says one route would be to integrate it with means-tested Child Tax Credit.

Ministers have already indicated that they are looking at making the planned Child Benefit changes fairer.