Another business Titanic hits the pensions scheme iceberg!

The BHS Pension Iceberg

Back in the days when I believed that rolling pins were for making pastry, a “final salary pension” was just part of your package.  When you retired you got two thirds of your final salary for the rest of your life. But it seems that BHS is another victim of its final salary pension “iceberg” – or at least that was part of the cause.

The issue with final salary schemes is twofold. Firstly, people are living longer so they don't know how much money they are going to have to fork out in future. Secondly, people these schemes aren’t willing move across to a modern scheme which doesn’t guarantee their pension level …..can’t imagine why!   This theoretically unsinkable system is heading tentatively through the ice field of weak economic times and there is realisation that first class promises don’t guarantee you a comfortable spot in the lifeboats!

So, how long a gash has the final salary iceberg put in the side of the BHS ship? Like finding lifeboats on the Titanic, immediate retirees should be fine but those retiring in 5 - 10 years may find their pensions holed below the waterline unless a former employer (Phillip Green is in the cross-hairs at the moment for BHS) or the Government (i.e. you and me!) puts more money in.

Many of the large companies that have final salary schemes are facing potential insolvency because the regulations require the fund to be topped up long in advance of when the cash flow is actually needed to fund pensions.  Funding is based on projections of actuaries in terms of the life expectancy and the performance investments (mainly shares in other big companies – spot the vicious circle?).

But hold on – if the cash isn’t needed yet why do they need to top the fund up now? 

Yes, we need rules in place to make sure that employee’s pots are protected but the rules are too aggressive because, within a short period of time, a fund could become “over funded” when market confidence changes.  In the meantime some, otherwise solid, companies will have been bankrupted.

In reality BHS’s failure was only partly down to the pension issue.  It hadn’t kept up with the dynamics of the high street. Some big high street names continue to struggle financially in the face of online offerings and changing tastes. M&S saw similar issues a few years ago and seems to have pulled itself back from the brink to some degree. The difference is that BHS had a £1/2billion final bow wash from its pension scheme.

BHS is not the only company with this scale of albatross circling.  So the question is: should this be a yard arm walking offence? Why should a company be forced under by a theoretical deficit?  We need to look at the long game so companies able to operate solvently day to day can survive. The US has a system that would mean that the company are put into a protective “dry dock” for a while – surely a better option than losing more large businesses to the history books.

Published in Huddersfield Examiner on 24th June 2016 

A NO SUGAR ADDED BUDGET

By Amanda Vigar, Managing Partner, V&A Bell Brown LLP

Despite my curvy shape, you won’t see much sugary stuff in BattleAxe Towers – it would only blunt the effect of my acid tongue!

The Budget saw both the introduction of the Sugar Tax on soft drinks and my heart sinking.  I foresee long, complex tax cases on whether a particular drink is in or out – just as we saw the great VAT fight over whether a Jaffa Cake is a cake or a biscuit (it’s a cake and so VAT free in case you’re interested).

Don’t get me wrong, I am fully aware of the obesity challenge in this country – one look round at my Battle-Boxing class is enough to re-enforce that message.  But why have milk based drinks and highly processed fruit juices been exempted? Also, what about sweets (good 18^th century precedent for taxing that one), beer, cider and spirits (he didn’t put duty up here either) and hidden sugar in processed foods, especially things claiming to be low fat?

The Sugar Tax won’t stop people switching from a can of pop to having a hot chocolate drink and then loading in three heaped spoonfuls of sugar or consuming a breakfast bar which claims to be “100% natural” and therefore “healthy” but is laden with sugar.  Either refined sugar is bad for us or it’s not!  And by the way, the “natural” tag often baffles me – belladonna and even rhubarb leaves are eminently natural yet both are poisonous!

This all feels like pandering to a certain very noisy chef, some PR savvy doctors and assorted other campaigners who appear to regard soft drinks as the sole cause of the nation’s obesity problem – it’s nothing to do with educating the nation into eating and exercising sensibly, of course. 

And don’t forget, there is somewhat of a history of the Treasury raising money from things people “enjoy” while failing to achieve the equivalent saving elsewhere.  The original Sugar Tax in the 18^th century raised vast amounts (£3M in 1815 alone) and was still doing so in 1874 when it was abolished.  It is estimated that the new Sugar Tax will raise more than £900M a year extra in tax if the public’s behaviour doesn’t change – somehow I doubt it will save that much for the NHS in reduced costs.

Let us also remember that, in an emergency, some diabetics (including Type 1, who are actually born with the condition) use sugary drinks to deliver, very effectively, the life-saving hit of sugar they need.  Are they going to have to keep their drinks receipts and claim the tax back from the NHS? 

I for one would much rather see social engineering done by encouraging good behaviour – like eating vegetables; encouraging and supporting exercise for all ages; and explaining proper nutrition to our children in schools.  It amazes me that kids are still being taught how to bake cakes and biscuits rather than how to budget for, cook and serve up a range of balanced and tasty meals. 

Whilst we are at it, why not make sure that British farmers get a fair deal from the big supermarkets, instead of relying on ill directed subsidies, so that their truly healthy produce can be sold at a sensible price?

So, while we wait for the devils to appear from the detail of the rest of the Budget (the lack of headline grabbing items always makes my Research Elves suspect the worst bits just didn’t get a mention while the Chancellor was on his feet), I’m off for a Rolling Pin Workout (think Indian Clubs but with more flour…) – which I’m sure must burn off a whole raft of calories!

THE EU REFERENDUM – FOUR MONTHS TO GO

 

EU Referendum

By Amanda Vigar, Managing Partner, V&A Bell Brown LLP

At four months they begin to babble….” 

Why do I have the feeling that this may apply not just to babies, but to all of us come 23 June?  No wonder, this is the biggest decision the UK has faced since the early 70s when Ted Heath took us into the European free market allowing us, in theory, to do business more easily with our European neighbours than was previously the case.  Over 40 years later the EU has moved on and developed in ways few of us thought possible. 

Whether you’re currently an “In” or an “Out”, for the next four months the media is going to be full of conflicting views. Only one thing is for sure: the vote won’t be divided on party political grounds with right, left and, as far as I can currently tell, centre all backing different sides – including “dunno…”!!

As we saw in the Scottish Vote, there will no doubt be scaremongering from both sides.  

The personal attacks between people who used to rather more than rub shoulders on their respective benches in the Houses of Parliament have already started. We’ve already seen some very nasty and uncalled for rants emanating from some quarters - even without comments on sartorial elegance!

In the end we will all of us have just one, equally weighted, vote so we need to see through the morass of “facts” being bandied about by both sides.

One thing that is clear is that the European train will continue on whether the UK is In or Out.  

France and Germany have too much at stake to allow even the world’s 5^th largest economy to derail that leviathan.  So the real choice is whether we accept that we have our ticket to travel and go wherever it takes us or whether we get off at the next station, become independent travellers, think about where we want to go and maybe change our route to suit what we want to do.  In truth both are somewhat scary options.

There is a lot of noise about the cost to us - both our contributions to the EU and time on red tape.  As a small business owner, I’m fully aware of how much time this takes up!  However, leaving the EU isn’t a panacea for this because, as if by magic, it may well be replaced with home-growth tape even if we can choose the colour of the stuff.

To date, the views of big businesses have dominated the news and it looks like the jury is out with fewer FTSE leaders being willing to say that they want to stay in than even five years ago.  I can’t see the remaining 26 countries stopping us selling products they need to them. 

Those selling into Europe will have to abide by the current regulations.  However, that’s not really any different from now as we have to meet rules to sell into the US and Japanese markets. 

That said, the UK still has a lot of clout and there could be real benefit in being able to explore all the various markets for our goods around the world without our neighbours tagging along and telling us the terms on which we do it.

Staying in might make it easier to find staff for certain roles (whether or not you run a Premier League football club) but we shouldn’t forget that we also have the Commonwealth and the rest of world to pick from and staying in disadvantages them in the job market because they have to pass higher hurdles.

So, over the next 4 months, all I would say is, to make your decision based on reality not fear and inaccuracy and make sure you use you vote. Whichever way the country decides, there is no going back as we’re unlikely to get the chance to decide again for a very long time! 

‘GOOGLE TAX’ SAGA - BE CAREFUL WHAT YOU WISH FOR

By Amanda Vigar, Managing Partner, V&A Bell Brown LLP

After years of pontificating by politicians, it appears that the Google tax saga has reached another significant milestone.  

I suspect it won’t be the last we hear about it as the media continues to whip up an often inaccurate or at best misleading campaign against multinational companies that are perceived as the spectres at the feast.   The result is that, while the technicalities are pretty meaningless to most of us, the “lost tax” feels very real!

Politicians need to wake up and stop being surprised that companies like Google take advantage of the overly-complex international tax system those very politicians have allowed and indeed often actively encouraged to develop.  That may sound controversial, but tax is an area where for decades countries have competed to be more attractive to the multinationals they’re now turning against.

As a result, instead of an in-depth review, they constantly stick plasters on various bits of the tax system that pop into pubic view for one reason or another where they, or often the media, perceive there is suddenly some unacceptable level of tax leakage.  

It has got to the point where, if we really want to solve the perceived issues, we need to rip up the vast majority of the 21,000 or more pages of tax law.  At present all it really serves to do is line the pockets of aggressive tax advisers looking for loop holes as if they were involved in some playground game.

If we want a truly level playing field for all UK businesses where there is no point going in for tax planning schemes, then there has to be a system that makes that exercise pointless.   

But what will it look like? Do we want a flat tax system? Or a capital asset based tax? Or a turnover not profit tax?  Well, all of them have major pluses and matching major minuses despite what their various proponents will argue. 

By the way, despite what certain politicos have been implying, corporation tax is (currently) based on profits not on revenues and certainly not on revenues that are earned by entities based outside the UK. 

So, it is quite possible that Google’s £130m settlement is absolutely the right amount of tax at the full rate.  Indeed, it feels as if Google may have been trying to find a way to pay tax (as Starbucks did before them) for PR purposes and may be more tax than it really needs to pay under the law.

The biggest difficulty in all of this is our ‘Googleworld’ is becoming borderless.  If it wanted, Google could quite legally pay no corporation tax in the UK because they don’t actually require a presence here at all.  

Everything it does could be done out of Ireland, the US or any other country with robust internet facilities.  Before whinging too loudly, we should be looking at the total tax paid by those evil multinationals, not just the corporation tax!  The fact is that by being here Google is generating and paying UK VAT, UK National Insurance and indirectly via its UK employees, UK income tax.  Surely that has to be better than Google withdrawing its UK physical operations leaving HMRC getting little or nothing at all?

And remember why these household names are trying to save tax – pressure from shareholders to make a good return.  So, who are these greedy, antisocial and unsympathetic shareholders?  Well, look in the mirror and you may well see one or at least see a beneficiary of one.  

It may come as a surprise, but your work place pension scheme will be pushing those very companies that are being criticised to enhance the value of your pension!  You might well be very disappointed on retirement if they did otherwise.

Giving the multinationals a good kicking may make us feel righteous and generate a warm glow, but could just mean the UK giving up jobs and your pension scheme losing value as they get fed up with being the whipping boys of the UK media and so-called public opinion and take their business elsewhere! 

So, the moral of the story is that you need to be careful what you ask for.  You might get it and then find you have to pay for it through your tax return!

BATTLE-AXE CHALLENGES HMRC WITH A LIST OF NEW YEAR RESOLUTIONS

By Amanda Vigar, Managing Partner, V&A Bell Brown LLP

One New Year’s resolution that many people set themselves is to get fitter.

But it is not just people who need to lick themselves into shape, there are organisations that need a major fitness wake-up call.

One outfit that desperately needs to shape up is HMRC.  Alas, as it does not operate on a free market basis, its customers - aka the nation’s taxpayers who also pay to keep it running – can’t move to an alternative service provider no matter how bad its service is!

Service that, if replicated in the private sector, would see customers vote with their feet so HMRC would go out of business.

During the last few years, dealing with HMRC on behalf of my clients has become ever more painful. Not just atrocious levels of customer service but, even more worryingly, serious inaccuracies in its paperwork and online information. The Public Accounts Office has confirmed it is not just me feels this way!

HMRC has been labelled as no longer being fit for purpose.   Businesses set themselves tough performance targets so it is appropriate that some are set for HMRC in 2016.

·         Get your sums right

Almost daily I see clients getting blatantly and obviously wrong tax demands.

This includes one client whom we know had already paid everything due to HMRC. So, imagine their horror when they were told they were more than £1,700 in arrears. 

When challenged, and having admitted the mistake, even more horrifying an HMRC employee admitted “this happens all the time”.  I hope the call was being recorded!

·         Pay tax refunds quickly and efficiently

It often takes an inordinate amount of time for monies to be repaid by HMRC – our record is a client being given a rebate payment date that was more than three years from when it was brought to HMRC’s notice.  Strangely, when you owe them……

Often the amount involved means such a delay could push some small employers over the financial brink. 

·         Be consistent

We often find that correspondence from HMRC includes totally different figures to those that appear on its online systems – when they do appear that is.

Giving taxpayers and their agents access to reliable, and consistent, information would greatly lighten HMRC’s workload.  If they got it right they could save massive amounts of time (and taxpayers’ money) not having to deal with queries about their internal discrepancies. 

·         Improve the HMRC telephone service – or offer a callback service

Research published last month by Which?  revealed callers are, on average, held in phone queues for 38 minutes before speaking to an advisor. With HMRC using 0300 numbers a taxpayer could be paying up to 45 pence a minute, depending on their type of phone, so that wait could cost a massive £17

I do wonder how many people give up long before that sort of time has elapsed.

Don’t just go for easy (but meaningless) targets

About 25 percent of tax prosecutions last year involved less than £10,000 of revenues, according to the National Audit Office, not exactly the high-value, high profile ones that you’d expect – but it’s easier to hit a volume target. 

Indeed, the NAO raised concerns about HMRC focusing on easier prosecutions to hit the annual target of bringing 1,000 cases against tax cheats.  The cost of this is disproportionate to the amount being claimed, especially as the recovery rate is appallingly low. HMRC should focus on the total amount of tax being recovered rather than the number of cases.

So, SHAPE UP HMRC!

Unless HMRC adopts my New Year Resolutions and puts its house in order, I dread to think of the future - especially as in the next decade 170 regional tax offices are likely to close and be replaced with 13 larger hubs in a bid to shift more customers to online tax services.  My heart sinks even further!

This Chancellor is Definitely For Turning!

By Amanda Vigar, Managing Partner, V&A Bell Brown LLP

Although some pundits have claimed that there were no shock announcements in the Autumn Statement, to me there were some quite unexpected and, from the Battle-Axe’s perspective, far from pleasing announcements.

The biggest headline grabber was undoubtedly the U-turn on tax credits.  Whilst most people seem to agree that the system needs to be completely overhauled to make it more attractive for people to work and strive to improve the quality of life of their family, we felt that what had been proposed harmed those who were trying to do just that.  Time for the Chancellor to re-do his homework!

For a long time, the Battle-Axe has been calling for a reform of the rates system.  So, the announcement of the abolition of the Uniform Business Rates and passing powers to local authorities is a step in the right direction.  However, the current proposals don’t go far enough because there is still the serious and outstanding issue of the movement in relative property values to be addressed.  So whilst Mr Osborne has rotated slightly on this he’s not turned enough for me.

One very welcome volte-face was over the proposals on travel expenses for contractors/freelancers.  

It seems that for now only the few that are caught by the draconian rules of IR35 will be affected.    I say “for now“ advisedly – HMRC and the Treasury are still muttering away about root and branch changes to the rules on the treatment of contractors. 

 Let’s hope that the potty proposals that were run up the mast recently implying that anyone on a contract lasting more than a month must be an employee have also been brushed right under the middle of the plush carpets of No 11.

Despite promising not to raise any of the existing taxes, Mr Osborne has managed to introduce another payroll tax – the apprentice levy.  

So businesses will be paying to train their staff and pay the levy – nice one George! 

Whilst it won’t (at least initially) hit smaller businesses you have to wonder how long it will be before the “allowance” that removes the new tax will disappear.

On a side note, the allowance against the apprentice levy was pretty much the only acknowledgement that there are small and medium sized entities driving the UK economy. 

The Battle-Axe’s team looked in vain for any really assistance to this massive section of the employing community.  Again, a missed opportunity to underpin a major driver of the UK’s economic growth disappointingly eclipsed by more grand political gesturing about the Northern Powerhouse and selling off of old prisons.

Oh, and don’t even get me on to the potential effect that the spending cuts will have on the already appalling quality of service we see from HMRC……right at the time when we’re all going to get our own digital tax accounts! 

Given that HMRC can’t currently match up the figures on their portal to the amounts they agree taxpayers owe or are owed goodness only knows what chaos the combination of personal digital tax accounts and spending cuts will have.

All in all, the Autumn Statement seems like an attempt to please various groups of highly vocal lobbyists and lacks focus on what is important to the wellbeing of the UK. 

We believe that this was a missed opportunity to help get people working to grow the economy.  Chances to make taking jobs really benefit people and to help employers to afford to expand their workforce and spend less time on red tape could (and for me should) have been in there.

Let’s just hope the Spring Budget is a bit more coherent.

It’s official – HMRC is not fit for purpose!

For fear of telling our beloved government, ‘I told you so,’ there are now official reports setting out just how horrendously badly HMRC is doing.

Maybe the House of Commons’ Public Accounts Committee could have just read the wise words of the Battle-Axe rather than spending money on a long report that concluded, ‘We are concerned that it has made little or no progress on a number of important issues that this Committee has raised before. The standard of customer service also remains unacceptable.’

Needless to say, I would put it somewhat stronger (and more succinctly) than that!

Sure, HMRC claims to be collecting more tax. However, this should be no surprise given that government figures say that the economy is gradually coming round.

Even then, I’m unconvinced this is the result of good management by HMRC rather than simply a sign that people are paying amounts that they don’t actually owe. We see, on a daily basis, taxpayers getting demands from HMRC, which simply aren’t right.

That’s no surprise as often one part of the HMRC system shows a radically different number to another part then, a few months later, we hear that HMRC has been issuing erroneous demands.

Strangely enough, the admission comes just long enough after the issue that a lot of people will have paid the penalty and, needless to say, refunds only appear if demanded by the taxpayer!

Possibly more shocking is the decline in customer service: only 50% of calls are being answered at all and only 39% are answered within five minutes. That’s against a target of 80%, which was seen to be ‘woefully inadequate and unambitious’, and significantly worse than last year. It is some achievement to miss the barn door by quite so many miles!

Our experience is that you can wait nearly an hour on hold, so I suspect this view of HMRC’s customer service is over generous because it doesn’t take into account the number of people who have given up even trying to ring them as they’ve never had a call answered!

When challenged over this, HMRC couldn’t say how they will improve; only commenting that ‘they are still struggling’. That should be no surprise as its performance measures don’t cover delivering a consistent, let alone an improving, level of service. It claims that its service levels have dropped as calls are taking longer than anticipated. Maybe if it introduced the long awaited ‘one and done’ system and made sure taxpayers and their agents have access to reliable, and consistent, information, the calls would be far shorter and fewer in number.

I for one won’t be holding my breath over this and fear that it will get worse before it gets better. Does anyone know of a desert island, with suitable Triathlon facilities of course, that a Battle-Axe, with the marks of a phone handset almost permanently embossed on her ear, can move to?