A couple of interesting stories today:
HMRC Car and Car Fuel Benefit Calculator
Last week, HMRC announced that its car and fuel benefit calculator has been updated to include calculations for 2014 to 2015.
When a company car is made available for the private use of an employee a ‘benefit in kind’ value is calculated in relation to the car, and the fuel if that is also provided for private use.
- allows you to calculate the ‘benefit in kind’ value of a company car and, if appropriate the car fuel benefit
- provides an indication of the Income Tax you would be liable to pay for the provision of company car and car fuel benefit
The calculator allows calculations for the years 2009/10 up to 2014/15.
Information about forthcoming changes is available by following here.
To make a calculation, you need to go to: http://cccfcalculator.hmrc.gov.uk/ although it wasn’t working when I last tried it.
James Hay calls for flat rate of pension tax relief
A flat rate of pension tax relief would give most people a better incentive to save into pensions, according to Sipp provider James Hay, reported here.
The head of technical support at James Hay, Neil MacGillivray, said pensions were not as popular as ISAs with working age savers and cost the government, which only earns back £1 in every £3 in pensions’ tax relief.
Speaking at a masterclass at the New Model Adviser® conference, MacGillivray said it was time to look again at a recommendation made by Centre for Policy Studies author Michael Johnson in 2012, namely that pensions’ tax relief should not be given at individual’s marginal rate but on a flat rate basis.
‘If you are going to restrict tax relief you still need to incentivise people to save, if you won’t get tax relief at the higher rate then, as Michael Johnson suggest, there needs to be a flat rate at around 30% so it is cost neutral for the government.
‘For basic rate taxpayers it would be a real incentive to save. For a higher rate tax payer it would not be as good as incentive as it was, but still be better than an ISA.’
The New Model Advisers article says that the lifetime allowance for tax-relieved pension contributions was lowered from £1.8 million to £1.5 million in 2010 and will be cut to £1.25 million from April 2013. The annual allowance will also drop from £50,000 to £40,000. MacGillivray said further cuts to the annual allowance would make a lifetime allowance unnecessary.
He also called for a period of stability within pensions’ policy and to stop political meddling. ‘We should take the short-term politics out of pensions because politicians are elected for five-year periods and need to get elected,’ he said.
Disappointingly, new economic data published last week has cast serious doubts over the strength of the UK’s economic recovery. It has prompted warnings against an early rise in interest rates.
The Office for National Statistics (ONS) said that manufacturing activity and broader industrial output were both flat in November, from October. Not only that, but the ONS also revised down the growth figures for manufacturing and wider production for October. Separate figures showed construction activity fell 4%, the sharpest monthly decline since June 2012.
On an annual basis, all three sectors showed growth, with manufacturing up 2.8% in November from a year earlier, the strongest performance since May 2011. Construction output, a stronger performer for much of 2013, was up 2.2% on the year.
Recent industry and consumer surveys have pointed to growing confidence about economic prospects, prompting debate about when, not if, the Bank of England will raise rates. But the cynic in me said, when good news was being bandied about: “don’t believe anything until it can be verified”, but then at one time I was a registered auditor after all.
BBC News reported that BNP Paribas economist David Tinsley called the data “unambiguously poor” but despite the data, he said that the UK’s economic fundamentals were “broadly encouraging” and the new figures should keep “the lid on over-exuberant (interest) rate hike expectations”. But David Kern, chief economist at the British Chambers of Commerce, warned against a rise any time soon.
“Although longer-term comparisons show solid annual growth, these monthly figures are disappointing. It’s a timely reminder that the recovery is not yet secure, and should also dampen the clamour for an early rise in interest rates. The government must continue to implement measures to boost growth, to ensure that the UK economy is on firmer ground before any such step is introduced.”
Samuel Tombs, UK economist at Capital Economics, cast some doubt on the Q4 figures: He said: “November’s weak industrial production figures signal that GDP growth in the fourth quarter is unlikely to be quite as strong as the business surveys have indicated.”
Also on Friday, the National Institute of Economic and Social Research (NIESR) released estimates suggesting that GDP grew by 0.7% in the final three months of 2013. The economic research group said that this suggested the economy had expanded by 1.9% last year, up from growth of just 0.3% in 2012. This would put the level of GDP at just 1.2% below its pre-recession peak in January 2008, NIESR said. But then good news: NIESR added that: “The economy is expected to expand at a reasonable pace in 2014.”
The economy is still 1.2 per cent smaller than it was before the recession struck, NIESR said.
The Mail Online reported that the UK economy has its best growth for six years despite slowdown in Q4 2013. The money markets didn’t like it at all. Sterling tumbled against the euro and the dollar as weaker-than-expected manufacturing and construction figures added to the disappointment over the slowdown in the final quarter of 2013. ‘A triple whammy of weak economic data out of the UK has resulted in a pounding for sterling,’ said Kathleen Brooks, research director at Forex.com.
Azad Zangana, European economist at Schroders, said: ‘Despite the wave of optimism on the UK economy, the evidence suggests that the economy slowed in the fourth quarter of 2013. We forecast fourth quarter GDP growth to slow to 0.5 per cent.’
Over the weekend, the BBC reported that Britons are more optimistic on the economy, according to a survey by think tank British Future. The number of British people who are optimistic about the economy has trebled since 2012, the survey suggests. It found that 29% of people were optimistic about the economy in the year ahead, compared with only 9% in the same survey in 2012. And on the other side, the proportion of those feeling pessimistic dropped from 74% to 40%. The BBC story is here.
But my cynicism must be misplaced. According to Tim Wallace writing in City A.M. (here), bank lending is expected to rise in every area of the economy, analysts at EY forecast today, as the recovery finally gives banks the confidence to supply more credit. But it’s restricted to the UK as apparently no other European country’s bankers have so much confidence, and it’s all down to the strength of the recovery in Britain.
Looking on the positive side, firms of all sizes and sectors in the UK are expected to benefit, with healthcare, media and telecoms firms particularly likely to borrow more from willing lenders, 74% of whom expect the UK economy to improve, compared with 56% across the EU as a whole.
All this glowing (and growing) confidence means that British banks expect to cut their loan loss provisions compared with Eurozone banks who are still hiking their likely losses on bad loans.
You needn’t worry about other parts of the market which are propped up by government support, including the Treasury’s Help to Buy mortgage guarantee programme. However EY’s Global Banking Outlook, also out this week, warns these supports could make the current spurt of mortgage growth unsustainable. Sensibly it says: “Many are wary of encouraging too much growth in this sector at a time when interest rates are at an all-time low.”
Such concerns have led Bank of England governor Mark Carney to withdraw the Funding for Lending scheme from the mortgage market, a programme which offers banks cheap funds if they increase lending.
The study also warned that the varied new regulations from country to country may reverse some of the globalisation of recent decades, a so-called “Balkanisation” of the financial system.
I keep hearing warning bells in my head about our economy. Keeping an open mind but not going around empty headed is what I shall be doing. You might like to do the same.
Accounting scandals and corporate failures?
I don’t quite know how I got onto this topic. Maybe it came to mind when I wrote a blog on creative accounting.
A review online reminded me of a number of accounting scandals that have happened over recent years. Some I remember well, others not quite as much. See what your memory is like.
One of the most recent scandals is the Bernard L. Madoff Investment Scandal: this perpetrated the Ponzi scheme and robbed millions of people of their hard-earned money. It is acclaimed as the largest investment fraud ever committed by an individual. The scandal here is not in Madoff, himself (although he would have engaged in improper accounting practices to hide the fraudulent scheme), but on how such scheme escaped the watchful eyes of the auditors and the regulators. The amount of fraud is estimated to be around $10 to $17 billion.
But the most famous of all, is perhaps Enron. This scandal involved hiding debts, inflating revenues and corruption. The fallout resulted to the displacement of more than 20,000 people, the death of “America’s Most Innovative Company” for six years in a row and the dissolution of one of the Big 5 global accounting firms (Arthur Andersen). It also gave rise to the passage of Sarbanes-Oxley and more rigorous auditing standards.
I remember Arthur Andersen well. The former Deputy Chief Executive of Andersen Worldwide and Council member of the CBI, Don Hanson commented to Accountancy Age in 1986 when I launched The CharterGroup Partnership: “It’s no good being a mile wide and an inch high”. I think it was intended as a disparaging remark intended to say that a large firm had much more to offer than medium-sized firms.
Perhaps the next best well-known collapse was Lehman Brothers. Barry Ritholtz wrote an excellent article last year entitled: “10 Things You May Not Have Known About Lehman Brothers”. I can do no better than refer you to that article.
Moving onto the other well-known scandals and corporate failures:
- Bank of Credit and Commerce International (BCCI): BCCI was founded in Karachi, Pakistan in 1972. It was a major international bank with 30,000 employees and had operations in 78 countries. It was the seventh largest private bank up to 1991 until it was closed following one of the largest scandals in the financial history. Allegations included: more than $13 billion funds unaccounted for.
- Enron Corporation: Enron was founded in Houston, Texas and was one of the world’s leading electricity, natural gas, pulp and paper and communications company employing 22,000 people. If failed in 2001: Allegations included: an accounting fraud which involved hiding liabilities and inflating profits.
- WorldCom: WorldCom was a large US long distance phone company founded in 1983. In 2002, the company’s accounting scandal came into exposure. Its Chapter 11 bankruptcy filing is second only to that of Lehman Brothers in 2008. Allegations included: underreporting interconnection expenses by capitalising them on its balance sheet and several billions of cash was overstated as capital expenses rather than operating expenses. WorldCom is now known as MCI, Inc. and is part of the Verizon Communications group having emerged from bankruptcy in 2003.
- Tyco International: Tyco international was a global manufacturing company founded in 1960. Its operational headquarters is in Princeton, New Jersey. With 118,000 employees. Allegations included: the CEO and former CFO being were accused of the theft of $600 million from the company in 2002.
- Kanebo Limited: Kanebo Limited was a textiles/cosmetics group giant in Japan, established in 1887. It had 13,580 employees. In 2003 a major accounting fraud was revealed which was considered as the largest fraud in Japan. Allegations included: Inflating profits by $2 billion over a five-year period.
- Waste Management, Inc: Waste Management, Inc was founded 1894 and was in Houston, Texas. This waste management and environmental services company had 50,000 employees and a network of 413 collection operations. Allegations included: inflating earnings by $1.7 billion understating the depreciation expense of the company.
- Parmalat: Parmalat was founded in 1961 in Italy. This multinational Italian dairy and food corporation had more than 15,000 employees. This leading company collapsed in 2003 with an accounting scandal of $ 20 billion – considered as the biggest bankruptcy ever. Allegations included: investment disasters, non-existent cash in bank, fake transactions; hidden debts and the use of derivatives and accounting fraud to hide these facts.
- Health South Corporation: Health South Corporation was founded in 1984 in Birmingham, Alabama, USA to offer healthcare services. The company had 22,000 employees and operated 100 Inpatient Rehabilitation Hospitals. Although the company’s accounts were falsified from 1996, the scandal came into exposure in 2003. Allegations included: overstating income by as much as 4,700 percent and $1.4 billion was inflated to meet the expectations of investors.
- American International Group (AIG): AIG was founded in 1919 in Shanghai, China and went public in 1969. It is a major insurer based in New York City with 116,000 employees. Allegations included: lucrative payoff agreements, soliciting rigged bids for insurance contracts and inflated financial results by $2.7 billion in 2005.
- Satyam Computer Services: Satyam Computer Services was founded in 1987 in Hyderabad, India to offer information technology services. With a network in 67 countries and 53,000 employees, an accounting scandal exploded in January. Allegations included: Inflating cash and bank balances of more than $1.5 billion overstating receivables by $100 million and understating liabilities by $250 million.
Wikipedia lists no less than 46 accounting scandals since 1980, here. Among them are:
Associated Electrical Industries (AEI): a British holding company formed in 1928 through the merger of the British Thomson-Houston Company and Metropolitan-Vickers electrical engineering companies. In 1967 AEI was acquired by GEC, to create the UK’s largest electrical group. The scandal followed the acquisition.
Pergamon Press: was an Oxford-based publishing house, founded by Paul Rosbaud and Robert Maxwell. It published scientific and medical books and journals.
Barlow Clowes International Ltd: Some 18,000 customers invested their money on the recommendation of intermediaries. The company was established as a ‘bond-washing’ operation, in which gilt-edged Government bonds were purchased and sold in order to create tax advantages. Whilst investors believed that their money had been invested risk-free, much of the money was diverted to fund the extravagant lifestyle of the company’s co-founder.
Polly Peck International (PPI): PPI was a small British textile company that expanded rapidly in the 1980s and became a constituent of the FTSE 100 Index before collapsing in 1990 with debts of £1.3bn. PPI was was one of several corporate scandals that led to the reform of UK company law, resulting in the early versions of the UK Corporate Governance Code.
I could go on. You get the picture, I am sure. For a murder, you need means, motive, and opportunity. Add to that greed plus a will to deceive and weak auditors as well as under-par regulators and you have the perfect combination for an accounting scandal to happen.
Late last year, the Legal Services Board (LSB) agreed that ICAEW should be a regulator of probate services and a licensing authority for Alternative Business Structures (ABS), subject to approval from the Lord Chancellor.
The ICAEW website (here) said that this is an important step by the LSB to open up the provision of legal services. In making this recommendation, the LSB has recognised that consumers can receive legal services from appropriately regulated ICAEW Chartered Accountants that are of equal quality to traditional providers: in other words, lawyers.
ICAEW is now working to provide support and advice to accountancy firms interested in providing probate services and becoming ABSs. You can expect that the first batch of applications will be approved in Spring 2014.
Opportunities for ICAEW Chartered Accountants include:
- allowing new business structures between lawyers, accountants and other professionals (such as IFAs); and
- allowing accountants to provide reserved legal services which were previously restricted to lawyers.
With Alternative Business Structures (ABSs) emerging every five minutes or so in the legal profession, you can understand Eduardo Reyes asking Can accountants change the legal sector? See Law Society Gazette article here. He recalls the impact accountants had the last time they took aim at the legal sector when it was widely assumed that being both bigger than lawyers, and closer to clients through ongoing audit and consulting activities, the accountants were a huge threat. But it wasn’t. Nor did the advent of US law firms in London make much difference.
So, will it happen this time?
Nearly 6 years ago, with a lawyer colleague, I first looked at the idea of accountants working on probate work. We concluded that accountants doing probate work need the following and much more:
- Standard letters and forms.
- A web-based calculator to determine the fee to be charged for the work to be done.
- An automated system to show who is eligible to be the executor or administrator.
- An automated calculator to illustrate the disposition of an estate on intestacy.
- Guidance on best-practice Estate accounting format and software to use.
Please contact me at firstname.lastname@example.org to let me know whether you are interested in your firm becoming an ABS following the LSB/ICAEW announcement.