It’s been another disappointing week in Europe, on Tuesday 20th November we found out….
A second major credit ratings agency has stripped France of its ‘triple-A’ status in a move that risks stoking its borrowing costs and dragging it further into the eurozone debt crisis.
Moody’s Investors Service announced it was cutting France’s sovereign rating by one notch to Aa1 from Aaa, citing the country’s uncertain fiscal outlook as a result of “deteriorating economic prospects”.
Moody’s also said it was maintaining a negative outlook on France due to structural challenges and a “sustained loss of competitiveness” in the country. The downgrade follows that of Standard & Poor’s in January.
Matt Brittin, commented during the public accounts committee grilling of Google, Amazon and Starbucks on Monday 13 November – “I wish we had invented Google in Cambridge, but we didn’t”. The point being that the royalties would then be flowing to UK instead of the US.
Ironically, HMRC have actually done rather well out of International Transfer Pricing Rules, they collected over £1bn in tax revenues from transfer pricing audits in the year to March 2012. The OECD have clear rules on how international transactions should be valued.
The government have been working hard to make Britain competitive on taxes.
In the 2010 Emergency Budget the Chancellor George Osborne outline a package of reforms with the intention of turning the UK into “the most competitive tax system in the G20”
The UK’s tax competitiveness has improved the most for business among major economies over the past two years, according to a study.
The country ranks six out of 14 worldwide, ahead of the US and all European countries analysed, with its score having been enhanced by almost 15 percentage points since 2010, analysis by KPMG shows.
The research took a selection of business levies, including capital taxes, sales taxes and property taxes, to calculate a total tax cost, which was compared between locations using the total tax index (TTI) for each location.
TTI is KPMG’s measure of the total taxes paid by corporations in one nation or city, expressed as a percentage of total taxes paid by corporations in the US – which is given a TTI of 100 that represents the benchmark against which all other locations are scored.
The lower the score earned, the more attractive a country is from a business tax perspective. With a TTI of 73.3, compared to 88 in 2010, the UK ranks immediately above the Netherlands (77.2), and has a fewer points than Germany (122), Japan (152.3) and France (179.7) among others. India, a new entrant, tops the chart with a TTI of 49.7.
So we are actively trying to get businesses to make their profits in the UK so that they pay less tax.
David Cameron highlighted the benefits of investing and inventing in the UK, at the Health Summit in August 2012 he said
The Patent Box means that if a company creates intellectual property in the UK, it will pay a corporation tax rate of just 10% on any profits generated by those patents.
Let me say that again: 10% corporation tax on patent profits – among the lowest in the developed world.
We want companies to come to the UK and pay less tax, so why are we complaining? we stand to gain the most, surely the last thing we want now are international rules that stop businesses from taking advantage of our new competitive tax regime?
The headline in the Sunday Express Financial Section today was ‘Bank branches in closure threat’
The article explains how new bank regulation called Basel III will be introduced next year requiring banks to hold higher levels of capital, in fact its billions of extra pounds of capital that will be needed. The main banks plan to sell branches to generate the money they need to comply with the new regulations.
2000 bank branches have closed in the last decade and this year 200 branches are expected to close.
The main banks plan move more services online according to the Sunday Express.
The story was highlight by the Daily Mirror earlier this year
Latest research shows that British SMEs are having to wait an average of 41 days longer than their original agreed payment terms before invoices are paid. (source: BACS)
Business and Enterprise Minister Michael Fallon said in an announcement released yesterday:
“Late payment causes real cash flow problems for entrepreneurs. It stops them from growing their business – we need to change the culture.
“Too many of our biggest companies are ignoring the Prompt Payment Code. My message to them is clear – make prompt payment a priority or face the consequences of being named. I’m confident that driving up support for the common sense principles in the Code will have a very positive effect.”
Currently 1,182 companies are signed up to the Prompt Payment Code. However, only 27 FTSE 100 companies and five FTSE 250 companies are signatories.
The Minister has written to all FTSE 100 and FTSE 250 companies. The letter urges companies to sign up to the Code, which will be four years old in December, and warns that the names of any companies that fail to do so will be publicised in the new year.
Code signatories undertake to:
Pay suppliers on time
within the terms agreed at the outset of the contract
without attempting to change payment terms retrospectively
without changing practice on length of payment for smaller companies on unreasonable grounds
Give clear guidance to suppliers
providing suppliers with clear and easily accessible guidance on payment procedures
ensuring there is a system for dealing with complaints and disputes which is communicated to suppliers
advising them promptly if there is any reason why an invoice will not be paid to the agreed terms
Encourage good practice
by requesting that lead suppliers encourage adoption of the code throughout their own supply chains
Last month the EU also launched a late payment campaign:
Every year across Europe thousands of Small and Medium Enterprises (SMEs) go bankrupt waiting for their invoices to be paid. Yet late payment of bills is often seen by many as a perfectly acceptable practice. To end this damaging culture of late payment in Europe, European Commission Vice President Antonio Tajani launched today (5th October 2012) in Rome an information campaign across all 27 EU Member States and Croatia, to encourage speedy incorporation of the Late Payment Directive into national law, even before the absolute deadline on 16th March 2013.
The new rules are simple:
Public authorities must pay for the goods and services that they procure within 30 days or, in very exceptional circumstances, within 60 days.
Contractual freedom in businesses commercial transactions: Enterprises should pay their invoices within 60 days, unless they expressly agree otherwise and if it is not grossly unfair to the creditor.
Enterprises are automatically entitled to claim interest for late payments and can able obtain a minimum fixed amount of €40 as a compensation for payment recovery costs. They can also claim compensation for all remaining reasonable recovery costs.
The statutory interest rate for late payment is increased to at least 8 percentage points above the European Central Bank’s reference rate. Public authorities are not allowed to fix an interest rate for late payment below this threshold.
Enterprises can challenge grossly unfair terms and practices more easily before national courts.
More transparency and awareness raising: Member States must publish the interest rates for late payment so that all parties involved are informed.
Member States are encouraged to establish prompt payment codes of practice.
Member States may continue to maintain or to bring into force laws and regulations which are more favourable to the creditor than the provisions of the Directive.
The new measures are optional for enterprises, insofar as they acquire the right to take action but are not obliged to do so. In some circumstances, a business may wish to extend the payment period for some days or weeks to keep a good commercial relationship with a specific client. But the new measures are obligatory for public authorities. They should lead by example and show their reliability and efficiency by honouring their contracts.
Businesses are at risk of failing due to liquidity problems. A recent survey reveals that the written off debt suffered by Europe’s businesses has grown to 2.8% of total receivables, to reach the unprecedented level of €340billion, a figure equalling the total debt of Greece, representing one third of total annual healthcare spending across the EU’s 27 countries and amounting to more than double the EU’s total 2102 budget of €147 billion. And there is also a divide between the north and the south which is severely hampering the integration of the EU’s single market: it takes an average of 91 days for B2B transactions to be paid in the southern region, as compared to an average of 31 days in the north.
The Late Payment Directive 2011/7/EU is crucial for the completion of the single market and for restoring normal lending to the economy. The Directive must be transposed into national law in all Member States by March 16 2013.
Tax avoidance is bending the rules of the tax system to gain a tax advantage that Parliament never intended.
In the 2012 Budget, the Government announced a range of additional measures to close tax loopholes, which will bring in around £1 billion in extra revenue and protect a further £10 billion over the next five years. The Government is also planning to introduce a General Anti-Abuse Rule (GAAR) aimed at deterring and tackling artificial and abusive tax avoidance schemes.
The Disclosure of Tax Avoidance Schemes (DOTAS) rules are a key part of our anti-avoidance strategy and oblige promoters and users of tax avoidance schemes to provide early information to HMRC.
More than 2,000 schemes were identified under DOTAS up to March 2012. This has resulted in more than 60 changes to the law, closing around £12.5 billion in avoidance opportunities.
Tax avoidance is not the same as tax planning. Tax planning involves using tax reliefs for the purpose for which they were intended. For example, claiming tax relief on capital investment, saving in a tax-exempt ISA or saving for retirement by making contributions to apension scheme are all legitimate forms of tax planning.
‘Spotlights’ warns you about certain tax avoidance schemes which HM Revenue & Customs (HMRC) thinks you should be aware of. These are just some of the schemes which HMRC believes are being widely offered to help those using them to avoid tax. HMRC is currently improving Spotlights to add more schemes.
A pilot programme of Business Records Checks (BRC) began in April 2011. This involved checks by HMRC on the adequacy of Small and Medium-sized Enterprises’ (SMEs) statutory business records. SMEs are businesses with an annual turnover below £30 million who employ less than 250 people.
Up until 17 February 2012, 3,431 BRC had been carried out. These found that 36 per cent of businesses had some issue with their record-keeping of which 10 per cent had issues serious enough to warrant a follow up visit.
HMRC will be sending out letters this month to businesses that it believes may be at risk of keeping inadequate records, advising them that it will be in touch by phone. The call will take businesses through a set of questions designed to assess their record keeping affairs.
The BRC programme will be rolled-out, region-by-region, over the following 14-week period;
London & East Anglia – 26 November 2012
South East England – 14 January 2013
Scotland – 14 January 2013
Northern Ireland – 14 January 2013
Central England – 21 January 2013
East of England – 28 January 2013
North Wales & the North West of England – 28 January 2013
South Wales & the South West of England – 4 February 2013
Andy Haldane (Executive Director for Financial Stability at the Bank of England and nominee for Governor) has been working with Long Finance/ACCA/CISI on a new method of accounting – Confidence Accounting.
In a world of Confidence Accounting, the end results of audits would be presentations of distributions for major entries in the profit and loss, balance sheet and cash flow statements. Accountants would present uncertainties as ranges to investors and managers, rather than as discrete numbers: ‘the balance sheet of Company X is worth £Y, plus or minus £Z, and we are 95% confident that it falls within this range’. Auditors would verify these ranges. This would move auditing towards ‘measurement science’, in line with the way most laboratories report measurements. Audited accounts would be presented in a probabilistic manner, showing ranges. Over time, investors could evaluate an audit firm on the basis of how closely historic accounts fell within the stated ranges. Such evaluations might conclude that firms were too lax or too strict. Clients would be able to make their own decisions about audit quality on the basis of historic evidence rather than having to rely on assertions of quality.
This sounds like a good approach to me, especially for larger businesses where lots of assumptions are taken in preparing the accounts.
Economic prosperity requires businesses to be financially robust and that requires sound financial reporting, this could definitely play a key role in achieving that.