Business news 13 October 2023
James Salmon, Operations Director.
EU proposes tightening of Late payment regime. UK economy grew by 0.2% in August. Labour considers scrapping tax loophole for small firms . Mortgage and credit card default rates set to increase. And more business news that we thought would interest our members.
EU proposes tightening of Late payment regime
The EU is proposing tightening up it’s late payment regime.
Although the new regulations won’t apply in the UK, it is interesting for comparisons sake compared with the UK governments inaction.
Key points
1) They propose replacing the current directive (which each state must legislate to apply locally – as the UK did with the The Late Payment of Commercial Debts Regulations 2013 in response to the Late Payment Directive (2011/7/EU) ) with EU regulation which applies equally across the EU.
2) Reducing the maximum terms to 30 days on commercial transactions and removing the right to extend those terms.
3) Late payment interest automatically payable by debtors and a prohibition on waiving the late payment interest.
4) If an invoice is late paid then interest back dates to the date of the invoice. The current drafting of the Proposed Regulation appears to state that late payment interest, if triggered as a result of a late payment, accrues from the later of the date of receipt of the invoice and the date of receipt of the goods or services. So, assuming the parties have agreed a 30-day payment term and the debtor is one day late in making payment, they would owe 31 days’ late payment interest and the parties are not permitted to waive this.
UK economy grew by 0.2% in August
Office for National Statistics (ONS) data shows that the economy grew by 0.2% in August, bouncing back from a sharp fall in July. The ONS revised July’s reading, saying GDP declined by 0.6%, rather than the previously stated 0.5%. Analysis shows that the economy is now 2.1% larger than it was immediately before the pandemic.
Reflecting on the figures, Darren Morgan, director of economic statistics at the ONS, told the BBC’s Today programme: “Compared with previous months where there’s been a lot of significant factors impacting on the economy both in terms of adding to and reducing growth … August was relatively quiet in that sense.” He added: “At the very most, it appears the UK is in a period of stagflation, with the economy stagnating while inflation stays elevated.”
Chancellor Jeremy Hunt said the latest data showed the economy “is more resilient than expected,” while Dr Swati Dhingra, a member of the Bank of England’s rate-setting committee, said: “When you’re growing as slowly as we’re growing now, the chances of recession or not recession are going to be pretty equally balanced.”
Yael Selfin, chief economist at KPMG UK, said the UK’s economic outlook remained “lacklustre as high interest rates continue to bite”, while Thomas Pugh, an economist at RSM UK, said: “Overall, we still expect the economy to continue to stagnate for the next year but there is still a significant risk of a recession.” George Lagarias, chief economist at Mazars, said UK growth “remains stubbornly above the recession line.”
Labour considers scrapping tax loophole for small firms
Shadow Chancellor Rachel Reeves is reportedly considering scrapping Business Property Relief, a tax loophole that incentivises investors to support small British companies. The relief allows investors to avoid inheritance tax by buying shares in qualifying companies and holding them for over two years.
Closing this relief could raise £3.2bn annually for the Government, but there are concerns that it may discourage investment in British companies. Many firms that qualify for the tax relief are listed on the Alternative Investment Market and scrapping it could lead to significant disruption and affect valuations. Labour’s Start Up, Scale-Up review recommended maintaining and building on existing incentives for small businesses.
Mortgage and credit card default rates set to increase
A Bank of England survey of lenders shows that default rates for mortgages and credit cards by households are expected to increase. The Bank’s Credit Conditions Survey shows that default rates in Q4 are predicted to increase for small firms, increase slightly for medium-sized ones, and remain unchanged for big businesses. Lenders reported that default rates on mortgages increased in Q3 and losses given default also increased slightly. Lenders said that the overall availability of credit to the corporate sector was unchanged in the previous three months and is expected to remain unchanged in the coming months.
Energy bills could rise to keep firms from collapsing
The energy regulator is considering increasing energy bills to help prevent suppliers going bust. Ofgem is concerned over rising debt across the industry, which climbed to £2.6bn this summer – its highest ever level. This has been driven by a rise in wholesale energy prices and cost of living pressures. The regulator could add a one-off levy of £17 to the price cap next April in a bid to reduce the risk firms face from unrecoverable debt. Ofgem has warned that without a one-off charge, there is a risk that consumers could see higher costs and lower standards of service if suppliers go out of business. Dame Clare Moriarty, chief executive of Citizens Advice, warned that high energy prices “mean millions of people remain at risk of falling behind in the coming months,” adding that an increase in the price cap “will make people’s bills even more unaffordable.” Adam Scorer, chief executive of charity National Energy Action, said the “enormous” amount of energy debt is “crushing vulnerable households”.
Jobs market hit by economic uncertainty
With three FTSE 250-listed recruiters reporting reduced fees and earnings, experts say this highlights the impact economy uncertainty is having on the jobs market. Hays saw an 11% decline in net fees in the UK in the quarter that ended on September 30; Robert Walters said net fees in the UK were own 13% in Q3; while PageGroup has reported an 18.9% fall in UK gross profit. The firms also reported an increase in temporary rather than permanent recruitment. Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “With a recession still potentially looming ahead, firms are cautious about what the future may hold, and are filling gaps in their workforces with more temporary staff.” The CBI/Pertemps Employment Trends Survey shows that 71% of UK businesses are suffering labour shortages.
KPMG handed record fine over Carillion failures
The Financial Reporting Council (FRC) has handed KPMG a record fine over “exceptional” failures in its accounting work for construction company Carillion, which collapsed in 2018. The audit firm has been fined a total of £30m, with this reduced to £20.9m to reflect the firm’s co-operation with the regulator’s investigation. Two senior KPMG employees were also sanctioned by the FRC, with Peter Meehan, a former partner, fined £500,000, reduced to £350,000, and Darren Turner, another partner, fined £100,000, reduced to £70,000. The FRC said KPMG failed to adopt a “rigorous and robust approach,” having found “an unusually large number of breaches of relevant requirements” in its audit work for Carillion.
Elizabeth Barrett, the FRC’s executive counsel, said many of KPMG’s breaches “involve failing to adhere to the most basic and fundamental audit concepts,” while FRC chief executive Richard Moriarty said the watchdog’s investigation “concludes this was a textbook case study in failure.” Jon Holt, KPMG’s UK chief executive, described the FRC’s findings as “damning,” saying it is clear that the firm’s audit work on Carillion “was very bad, over an extended period.” KPMG was last year ordered to pay £14m for misleading the FRC about its work for Carillion.
Union leaders urge Labour to rethink wealth tax stance
Union leaders and MPs on the left of the Labour Party are pushing for higher taxes on the UK’s wealthiest individuals, with Shadow Chancellor Rachel Reeves urged to reconsider Labour’s opposition to wealth taxes due to concerns over extreme inequality and the state of the country’s public finances. While Ms Reeves has ruled out certain measures, such as a mansion tax and higher rates on capital gains, there are calls for a fairer tax system that targets assets, land, and wealth. Speaking at the Labour conference, Andy Burnham, the mayor of Greater Manchester, said: “I think we overtax work and undertax capital and assets,” suggesting a levy on land values or reforms to council taxes could be considered. On the possibility of a new levy, Sharon Graham, general secretary of the Unite trade union, suggested: “As a starter, a 1.5% annual tax on wealth over £10m would bring in about £17bn a year.” She added: “There’s a choice I think most people could get behind.” TUC general secretary Paul Nowak said that while he wants Ms Reeves to become Chancellor, he disagrees with her stance on this element of taxation, saying: “I think we do need to raise the question around wealth taxes.” He added that the union is “going to carry on banging the drum” about the policy.
US inflation
US CPI increased 0.4% on the month and 3.7% from a year ago, the Labor Department reported. That compared with respective estimates of 0.3% and 3.6%. Headline inflation increased 0.6% in August. Excluding volatile food and energy prices, the so-called core CPI increased 0.3% on the month and 4.1% on a 12-month basis, both exactly in line with expectations. Policymakers place more weight on the core numbers as they tend to be better predictors of long-term trends. Core inflation also increased 0.3% in August, when it was up 4.3% from the previous 12 months.
Ecclestone handed suspended jail sentence over tax fraud
Former Formula One boss Bernie Ecclestone has received a 17-month suspended jail sentence after admitting fraud in a tax investigation. Mr Ecclestone was charged with concealing a Singapore-based trust with a bank account containing £400m and prosecutors said he had made untrue or misleading representations to HMRC. Mr Ecclestone had already agreed to pay a £652.6m civil settlement over unpaid tax, interest, and penalties.
Microsoft & Activision
Microsoft’s $69 billion acquisition of Activision Blizzard was approved by the Competition and Markets Authority removing the final major global regulatory hurdle that stood in the way of the biggest ever gaming deal completing. The UK competition watchdog said Friday that Microsoft’s restructured offer to sell some gaming rights to French publisher Ubisoft Entertainment SA satisfied any competition concerns it had.
Microsoft pays HMRC £136m in back taxes
Microsoft has paid HMRC £136m in back taxes under a bilateral agreement. The payment was made in the last 15 months and was disclosed in Microsoft’s most recent UK accounts. This comes as the US Internal Revenue Service (IRS) says the tech giant owes the US Treasury $28.9bn in back taxes. The figure, which Microsoft disputes, stems from a long-running IRS investigation into how Microsoft allocated its profits among countries and jurisdictions. Microsoft said it would dispute the IRS claim and that it is fully compliant with all local laws and regulations. Both the HMRC payment and the IRS dispute revolve around transfer pricing, a process used by many multinationals.
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Why should you become a CPA member!
The Credit Protection Association (CPA) has been assisting thousands of UK businesses to get paid, since 1914. We have seen many financial crises, this one will be particularly deadly for suppliers for some time to come.
CPA eases cash from tardy debtors – Efficiently, Effectively, Economically and Ethically. And we provide credit information so you can monitor and assess your key customers.
Unlike other credit management companies, we offer our members a fixed annual subscription regardless of how high the debt value maybe!
Just call Peter Uwins, CPA’s National Sales Manager, on 020 8846 0000 (business hours) or email nsm@cpa.co.uk today.
When you see your money come in, you will be so glad you used CPA.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
Do you have a commercial late payer that is causing you grief? Use CPA’s no-win, no-fee, commercial debt recovery service!
If you have a particular business customer who is late paying and causing you sleepless nights, why not offer it to CPA for purchase on recourse?
CPA’s collection department will then pursue the debt. We will be liable for any costs incurred and then when we have recovered the debt, we will pay you the net principle debt recovered less our percentage.
Once you have enjoyed that success then you can consider the more cost effective membership which includes our Overdue Account Recovery service and Status/Credit reports as well as a range of other complimentary services.
Just call 020 8846 0000 and ask for Godfrey Nelson or Cris Shirley (business hours) or email debtpurchase@cpa.co.uk today.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.
Get compensated for previous late payments
Have you been paid late by business customers in the last six years?
Maybe you no longer work with them. Under legislation, you are entitled to compensation you for those late payments you have suffered.
You put up with the PAIN – now claim the GAIN!
Claim late payment compensation (LPC) from former business customers who paid you late in the last six years!
CPA (LPC) Recoveries is using our bespoke software and decades of experience to do just that for our clients
Check our compensation calculator to see how much your business could be owed!
Discover NOW the potential value of late payment compensation hidden in your sales ledger!
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.