Posts Tagged ‘Brexit’

Damage limitation

Wednesday, May 17th, 2017

The phrase “in-limbo” comes to mind when describing the present outlook for businesses in the UK. What will be the outcome of the June election? What will be the outcome of the withdrawal from the EU?

We will all likely be affected. If not directly involved in trade with Europe, we are possibly part of the downward supply chain.

What to do?

First of all, damage limitation planning may be appropriate. If part of your export sales are with Europe, or with firms who supply goods or services to Europe, there is an increased risk that your future prospects may be negatively affected post Brexit. Accordingly, you could:

  • See what opportunities there are to seek out new markets outside the EU.
  • Collaborate with customers who are dependent on EU sales to make joint approaches to non-EU markets.
  • What government assistance is available?
  • Take a fresh look at investment decisions to see if it would be more prudent to retain liquidity, or reduce borrowings to meet any future financial challenges.

It would also be illuminating to prepare realistic financial forecasts based on various what-if criteria.

There are compelling reasons for being prepared and the present hiatus may be that quiet period before the storm that gives us the space to do just that. Businesses that have concerns should face their anxieties head-on, and we can help.

The budget crystal ball

Wednesday, March 8th, 2017

Today Philip Hammond will present his first budget to parliament; forecasting any changes he may be considering to the UK tax system is perhaps unwise.

If he remains committed to austerity, anticipating any potential fall-out from the Brexit process and maintaining (or more likely slowing down) the repayment of national debt, it is difficult to see where savings can come from to fund tax give-aways.

Most of the annual tax allowances for 2017-18 have already been published so what we may see are commitments to ease taxation in future years. There have been rumours that the UK may be promoted as a low-tax area to draw non-EU business to the UK after Brexit. Perhaps we will see a promise to reduce corporation tax below 17%, the rate it is predicted to be from April 2020, or bring forward the reduction to 17%.

Other predictions include:

  • Increasing stamp duty thresholds for first-time buyers.
  • Setting a fixed rate for pensions tax relief – 33 per cent has been mooted.
  • Taking the sting out of the recently announced business rate increases.
  • Efforts to simplify tax compliance for businesses.

Additionally, we may see a start towards the alignment of rules for NIC and income tax, removing or closing the disparity between the overall tax and NIC payable by the self-employed and employed persons.

In some respects, tax payers, their advisors and HMRC have their hands full implementing tax changes already announced. Most impactful is Making Tax Digital and the necessity for the self-employed to make quarterly data uploads from April 2018.

Many of us are hoping that Mr Hammond will opt for a gently-gently approach. By this time next week, we will know if he agrees.

HMRCs consultations

Tuesday, September 27th, 2016

It is not difficult to gauge the focus of our tax collectors. Since the Brexit vote, 23 June 2016, and the change in government leadership, HMRC have published a number of consultation documents, all issued during August 2016. Prior to the Brexit vote, there were a smattering of consultations, but none issued after 23 May 2016.

The focus of the August postings are telling:

·         5 deal with tightening sanctions against tax avoidance and evasion.

·         7 deal with “Making tax digital”

The balance deal with a number of miscellaneous items.

It would seem that the new cabinet, and Philip Hammond in particular, may be considering new powers to tackle the so-called “black economy” and businesses that take advantage of offshore tax shelters to avoid UK taxes.

However HMRC promotes the “Making tax digital” agenda, primarily by arguing that simplifying tax management for taxpayers will ease compliance etc., if small and medium sized businesses are required to file information on a more regular basis, this will provide HMRC with a raft of new data that they will no doubt use to identify tax avoiders.

The recent publicity regarding the use of tax havens by large corporations to shift profits into low tax jurisdictions highlights efforts by the international community to tackle this problem. In particular, the efforts of the OECD to establish country-by-country reporting standards.

Encouraging the estimated 10% of economic activity in the UK that is presently under-declared, and therefore under-taxed, into the light of compliance is another matter. And one that will no doubt be of concern to the Treasury under Philip Hammond’s leadership.

All of those interested in the impact of tax on UK business will be waiting to see how these consultations by HMRC convert into new legislation. Perhaps the autumn statement, due to be released 23 November, will clarify the thrust of tax assessment and collection post Brexit…

Interest rates to fall

Tuesday, July 19th, 2016

In the immediate fall-out after the Brexit vote it was rumoured that interest rates would fall when the Bank of England Monetary Policy Committee (MPC) met on the 13th July. Following the meeting, Mark Carney announced that interest rates would be held at 0.5%.

However, the minutes of the July 13th MPC meeting make it clear that at their next meeting on the 6th August, interest rate reductions or other easing of monetary policy may be on the cards. The minutes say:

“The MPC is committed to taking whatever action is needed to support growth and to return inflation to the target over an appropriate horizon. To that end, most members of the Committee expect monetary policy to be loosened in August. The Committee discussed various easing options and combinations thereof. The exact extent of any additional stimulus measures will be based on the committee’s updated forecast, and their composition will take account of any interactions with the financial system.”

In other words, the expected fall in rates to say 0.25%, may well happen next month.

If rates do fall this is great news for borrowers, who can expect fixed rate mortgages to be offered at more favourable rates.

It will be bad news for savers. In fact, as the indications of a rate fall are fairly strong, it may pay to take advice and consider your options. National Savings and the High Street banks are already adjusting rates in a downward direction in anticipation of rate falls next month. Perhaps time to take a look at fixed-rate savings bonds?

15% corporation tax

Wednesday, July 13th, 2016

George Osborne has floated the idea that the UK could reduce corporation tax to 15% or lower in an attempt to make the UK the place to do business. By making this surprise announcement at the beginning of the month, he will no doubt have in mind the many larger institutions that are reconsidering a move from London to other EU financial centres following Brexit.

There are concerns that this could, if implemented, produce a race to the bottom, as other countries try to out-compete the UK rates.

The present 20% corporation tax rate is already scheduled to reduce in the coming years. The present timetable of reductions is:

  • From 1 April 2017 reducing to 19%
  • From 1 April 2020 reducing to 17%

Of greater concern, certainly for smaller businesses, is maintaining profitability in the coming years as the UK adjusts to a new alignment with the EU and the rest of the world. Uncertainty is likely to be a constant companion at our board meetings until the post Brexit changes are completed.

Businesses would be best advised to observe basic good housekeeping:

  • Tighten credit control,
  • Maintain liquidity,
  • Reconsider investment decisions that are unlikely to have an immediate, positive impact on profitability,
  • Rewrite budgets and make sure monthly financials are reviewed.

Anchoring larger, mostly financial institutions to UK residency in the hope of minimising any down-side losses to the UK economy, whilst laudable, does not necessarily help small business owners – if they are unable to make profits a reduction in tax rates at some future date is largely irrelevant.

It will be interesting to see if George Osborne, or his successor, come up with Band-Aid policies for smaller business development in the coming months.

Business as usual

Tuesday, July 12th, 2016

The hiatus continues. Both major political parties are locked into leadership issues and until these are resolved it is difficult to see in which direction the UK will take. Apparently, the present government, with its new leadership team, will continue until the next scheduled general election, 7 May 2020.

George Osborne’s last budget, March 2016, is still working its way through parliament and we can expect this process to complete once the report stage is finished and the bill receives Royal Assent. No doubt the new incumbents will consider a further finance bill later this year to smooth the way for Brexit?

Meanwhile, we are faced with two dilemmas:

  • When will we formally separate from Europe and what continuing trade agreements will we secure with the EU?
  • What trade agreements will we secure with the rest of the world?

It is encouraging to see that the present government are not entirely inactive in this regard. The Business Secretary, Sajid Javid, has kicked off preliminary trade talks with India this month, and there are further, tentative talks organised with the USA, China, Japan and South Korea.

The Business Secretary Sajid Javid said:

“Following the referendum result, my absolute priority is making sure the UK has the tools it needs to continue to compete on the global stage.

That is why I am in India today to launch these initial trade discussions. There is a strong bilateral trade relationship between our 2 countries and I am determined that we build on this.

Over the coming months, I will be conducting similar meetings with other key trade partners, outlining the government’s vision for what the UK’s future trade relationship might look like.”

As part of the discussions, the Business Secretary is expected to make clear that he would like the UK and India to have a trade agreement in place as soon as possible after the UK leaves the EU.

So we are not without leadership. Meanwhile, now would be a good time to consider, and reconsider, investment options for small businesses across the UK while we wait for the wider trade negotiations to complete.

Changes to business market place post Brexit

Wednesday, July 6th, 2016

While we wait for the politicians to sort themselves out it may be prudent to reflect on the likely changes to the business market place post Brexit. For example:

  • If the sterling exchange rate settles at a lower level the cost of imported goods will rise and our exporters may benefit as their goods and services will be priced lower in overseas buyer’s markets.
  • If the rising cost of imports triggers inflation the Bank of England may have to step in and increase interest rates. This will increase the cost of borrowing; business profits will suffer as will cash flow.
  • An alternative scenario is also possible. The Bank of England may reduce interest rates to encourage investment and lower the cost of borrowing for UK businesses and home owners.
  • Firms that trade in the property sector will need to keep a weather eye on demand as buyers may be discouraged by the overall uncertainty about the longer term outlook for interest rates. As a consequence, we may see the property market flat-line or prices fall.
  • Uncertainty may encourage banks and other lenders to be more cautious when considering loans. Cash flow management should possibly shift towards the top of to-do lists, just in case there is downward pressure if credit does tighten up.
  • Businesses and non-profit making enterprises that rely on EU funding should contact their funding agencies as soon as possible. Be prepared. Start looking for alternative funding now. Support for farmers and other key groups will hopefully be replaced by UK government grants.
  • Businesses that trade with the rest of the EU will need to re-examine their sales and marketing strategy for the future. If and when the final EU curtain falls they may find their exports subject to tariffs. Time to start looking for alternative export markets or ways to increase penetration in the home market.
  • Firms that are part of the supply chain for multinational concerns will need to be vigilant. Car manufactures, pharmaceutical companies, international banks and others, that have based their operations in the UK as a spring board to the EU markets, could possibly reconsider their options.
  • If consumer demand in the UK hardens, the ability to pass on increased costs may become a problem for smaller businesses already coping with smaller margins and shrinking demand for their products and services.
  • Finally, we may have face tax increases as the UK struggles to balance its books and repay debt.

Businesses will need to be on their guard. Businesses and individuals should be watchful and stay positive. There are small business owners who would say that they were held back by EU regulation and will now be free to explore alternative markets. There are others that will be concerned by any loss of access to European markets. In any event, it pays to trim your sails if a storm is forecast, even if it blows over.

What is next for Brexit

Thursday, June 30th, 2016

Clients who are concerned by the uncertainty created by the Brexit vote should contact us. There are steps we can all take now that will ease our progress through the transition.

Essentially, we need to be financially fit. The areas of our businesses that we should fine tune are:

  1. Record keeping. There has never been a time when fast access to financial data has been more important. If you don’t use accounting software now may be a good time to research what is available.
  2. Cash flow. Maintaining liquidity, cash in the bank, or spare capacity in your overdraft facility will make it easier for your business to weather the storm. Credit is likely to harden as time progresses. Dust off your credit control procedures and offer a selection of payment options including payment by credit card.
  3. Reconsider investment decisions and focus on those that will enable you to increase sales or reduce costs.
  4. Take a hard look at costs and trim any “gym membership” type expenditure that no longer makes a positive contribution to your business.
  5. Cast around for alternate suppliers that offer a better price deal.

And last but not least, take advice. If you have any concerns about the effects of the vote on your business, please call.

Brexit vote wins the day

Tuesday, June 28th, 2016

In a decision that has staggered the rest of Europe, the UK has voted to leave the EU.

George Osborne emerged today to reassure us all that everything was under control. This, in the face of continuing political hiatus: our prime minister has resigned, almost, and the main opposition party is locked in internal, leadership wranglings.

George Osborne said:

“Today (27 June 2016) I want to reassure the British people, and the global community, that Britain is ready to confront what the future holds for us from a position of strength. That is because in the last six years the government and the British people have worked hard to rebuild the British economy.

We have worked systematically through a plan that today means Britain has the strongest major advanced economy in the world. Growth has been robust. The employment rate is at a record high. The capital requirements for banks are ten times what they were.

And the budget deficit has been brought down from 11% of national income, and was forecast to be below 3% this year. I said we had to fix the roof so that we were prepared for whatever the future held. Thank goodness we did.

As a result, our economy is about as strong as it could be to confront the challenge our country now faces. That challenge is clear. On Thursday, the people of the United Kingdom voted to leave the European Union. That is not the outcome that I wanted or that I threw everything into campaigning for.

But Parliament agreed that there are issues of such constitutional significance that they cannot solely be left to politicians, and must be determined by the people in a referendum. Now the people have spoken and we, in this democracy, must all accept that result and deliver on their instructions.

I don’t resile from any of the concerns I expressed during the campaign, but I fully accept the result of the referendum and will do everything I can to make it work for Britain. It is inevitable, after Thursday’s vote, that Britain’s economy is going to have to adjust to the new situation we find ourselves in.

In the analysis that the Treasury and other independent organisations produced, three particular challenges were identified – and I want to say how we meet all three.

First, there is the volatility we have seen and are likely to continue to see in financial markets. Those markets may not have been expecting the referendum result – but the Treasury, the Bank of England, and the Financial Conduct Authority have spent the last few months putting in place robust contingency plans for the immediate financial aftermath in the event of this result. We and the PRA have worked systematically with each major financial institution in recent weeks to make sure they were ready to deal with the consequences of a vote to leave.

Swap lines were arranged in advance so the Bank of England is now able to lend in foreign currency if needed. As part of those plans, the Bank and we agreed that there would be an immediate statement on Friday morning from the Governor, Mark Carney. As Mark made clear, the Bank of England stands ready to provide £250 billion of funds, through its normal facilities, to continue to support banks and the smooth functioning of markets.

And we discussed our co-ordinated response with other major economies in calls on Friday with the Finance Ministers and Central Bank Governors of the G7. The Governor and I have been in regular touch with each other over the weekend – and I can say this this morning: we have further well-thought-through contingency plans if they are needed.

In the last 72 hours I have been in contact with fellow European finance ministers, central bank governors, the managing director of the IMF, the US Treasury Secretary and the Speaker of Congress, and the CEOs of some of our major financial institutions so that collectively we keep a close eye on developments.

It will not be plain sailing in the days ahead. But let me be clear. You should not underestimate our resolve. We were prepared for the unexpected. We are equipped for whatever happens. And we are determined that unlike eight years ago, Britain’s financial system will help our country deal with any shocks and dampen them – not contribute to those shocks or make them worse.

The second challenge our analysis identified in advance was the uncertainty that a vote to leave would bring in the coming months and beyond as Britain worked with its European allies to create a new relationship. The Prime Minister has given us time as a country to decide what that relationship should be by delaying the decision to trigger the Article 50 procedure until there is a new Prime Minister in place for the autumn.

Only the UK can trigger Article 50, and in my judgement we should only do that when there is a clear view about what new arrangement we are seeking with our European neighbours.

In the meantime, and during the negotiations that will follow, there will be no change to people’s rights to travel and work, and to the way our goods and services are traded, or to the way our economy and financial system is regulated.

However, it is already evident that as a result of Thursday’s decision, some firms are continuing to pause their decisions to invest, or to hire people. As I said before the referendum, this will have an impact on the economy and the public finances – and there will need to be action to address that.

Given the delay in triggering Article 50 and the Prime Minister’s decision to hand over to a successor, it is sensible that decisions on what that action should consist of should wait for the OBR to assess the economy in the autumn, and for the new Prime Minister to be in place.

But no one should doubt our resolve to maintain the fiscal stability we have delivered for this country. To all companies large and small I would say this: the British economy is fundamentally strong, we are highly competitive and we are open for business.

The third and final challenge I spoke of was that of ensuring that Britain was able to agree a long-term economic relationship with the rest of Europe that provided for the best possible terms of trade in goods and services. Together, my colleagues in the government, the Conservative Party and in Parliament will have to determine what those terms should be – and we’ll have to negotiate with our European friends to agree them. I intend to play an active part in that debate – for I want this great trading nation of ours to put in place the strongest possible economic links with our European neighbours, with our close friends in North America and the Commonwealth, and our important partners like China and India.

I do not want Britain to turn its back on Europe or the rest of the world. We must bring unity of spirit and purpose and condemn hatred and division wherever we see it. Britain is an open and tolerant country and I will fight with everything I have to keep it so.

Today I am completely focussed on the task in hand as Chancellor of the Exchequer to bring stability and reassurance. In conclusion, the British people have given us their instructions. There is much to do to make it work. We start from a position of hard-won strength. And whatever the undoubted challenges, my colleagues and I are determined to do the best for Britain.”

In or out

Tuesday, June 21st, 2016

This article was posted three days before the UK decides if it wants to stay or leave the EU.

It feels as if everything is on hold pending this result. Government departments are being unusually quiet: no press releases, no announcements, no changes in legislation.

It is a well-quoted cliché, but it really does feel like the calm before the storm.

Whichever way the result goes, will businesses, politics or our daily lives ever feel the same again?

How will we unstitch VAT and other taxation regulations from the grip of EU legislation, if Brexit wins the day? Will life carry on as usual if we vote to stay?

The huge raft of smaller businesses that depend on overseas investment will have fingers crossed that whatever the outcome, the businesses that fill their order books will not up-stick and move to Europe – and the perceived larger market inside the open market – leaving UK subcontractors with gaping holes in their order books.

Will the optimism of the Brexit campaigners bear fruit and will the rest of the world open its doors to UK goods and services; more than making up for any loss in trade to the EU?

Change can be stimulating, but on this scale will we avoid the inevitable fall-out, the slowdown in activity, as political and legal systems and alliances adjust? If our national output does fall, will this mean higher taxation or increased borrowing?

Before we post our next articles, the result will be known and we will start to assess the consequences, whichever way the vote goes.

Switch to our mobile site