Good news on the UK economy

Last week came news the UK economy picked up in January, raising hopes it could be on its way out of recession.

The economy grew by 0.2%, official figures show, boosted by sales in shops and online and more construction activity.

On Wednesday more good news as inflation fell to 3.4% in February, the lowest its been since September 2021. This renews hope for a reduction in the Bank of England base rate later in the year.

Moving East though the good news for Japan is rising interest rates! The Bank of the Japan (BOJ) increased its key interest rate from -0.1% to a range of 0%-0.1%. It comes as wages have jumped after consumer prices rose. In 2016, the bank cut the rate below zero in an attempt to stimulate the country’s stagnating economy. The hike means that there are no longer any countries left with negative interest rates.

Troubled Metro Bank is to end seven day trading in all its branches and cut about 1,000 jobs after reporting losses. From 29 March, all 76 branches will close on Sundays and Bank Holidays, with more than half of them closing on Saturdays as well. The lender also said it would cut 22% of its workforce by mid-April as part of a huge cost-cutting exercise.

The struggling High Street bank began a review of operations last autumn in an effort to save about £50m a year. But on Wednesday Metro Bank said it was looking to cut another £30m by the end of 2024, which would lead to further job losses.

BUSINESS LOANS AND PERSONAL GUARANTEES

Following a super complaint from the Federation of Small Businesses (FSB), the Financial Conduct Authority (FCA) has agreed to look the use of personal guarantees although this is outside its regulatory remit, which means its ability to investigate and act is somewhat restricted.

The FSB super complaint centred on the practices of lenders, specifically the requirement for personal guarantees from company directors before banks would agree to lend to SMEs. The FSB raised concerns that a growing demand for personal guarantees by lenders was having a detrimental impact on small businesses and dissuaded them from borrowing funds to grow. It has particular concerns about small limited companies.

Sheldon Mills, executive director of consumers and competition at the FCA, said: ‘’Small businesses are vital to the UK economy, and it is important that they can access lending to help them grow, so we welcome the FSB raising these issues. We will play our part to better understand whether lenders’ practices are causing unnecessary barriers to growth and, if necessary, act to remove any within our remit.‘

That remit, set by Parliament, is limited when it comes to small businesses, but the FCA has said it will make these public so that Parliament and policy makers can consider whether greater protection should be available to small businesses. The Treasury Committee is currently conducting an enquiry of its own into small business lending and finances.

There will be no quick fix to this issue, the first phase is to collect data, but at least it is on both the FCA and Government agendas, although the forthcoming General Election may kick the can down the road. Will it make a difference? It is difficult to say, but it may spark some sort of Government guarantee up to a limit, much like we saw with the COVID related Bounce Back and Business Recovery loans,

HMRC AND POOR TELEPHONE ANSWERING STANDARDS

On Tuesday, HMRC decided to close its phone lines over the summer every year after a trial run last year. Over the period from April 8 until September 29, taxpayers would be unable to call the tax office for help with their tax return. The tax office said these measures will be repeated every year to allow “helpline advisers to focus support where it is most needed.”

Commenting on the scheme last year, chair of the Treasury Select Committee Harriett Baldwin said the change “should not be forced upon taxpayers until there is evidence that people know how to do their taxes on HMRC’s incredibly complex website.” Elsewhere, the Chartered Institute for Taxation’s Gary Ashford called the decision “misguided” pointing out that HMRC had failed to conclude from its own evaluation that there had been a long-term shift from phone contact to online self-service.

The Institute of Chartered Accountants in England and Wales described the move as “disappointing” while Victoria Todd, of the Low Incomes Tax Reform Group, said it would lead to more errors and non-compliance “storing up problems for taxpayers and HMRC further down the line.”

Well, would you believe it? Within 24 hours HMRC totally backtracked on this decision claiming it was based on feedback. They will now engage with its stakeholders about how to ensure taxpayer needs are met. It would have made more sense to engage first and then take appropriate action. but this is HMRC we are talking about, an organisation with no accountability.

MTD ITSA – THE JOURNEY STARTS OVER

HMRC will launch a new pilot for agents and accountants to trial out the Making Tax Digital for Income Tax Self Assessment (MTD ITSA) reporting environment next month ahead of the fourth planned attempt at a full roll out in 2026. Craig Ogilvie, HMRC director of Making Tax Digital, claims ‘We want to ensure that this service meets the needs of you and your clients.” That sounds great but HMRC rarely asks what will meet the needs, it tends to be more of an imposition!

The pilot will go live from 22 April 2024 and HMRC has written to tax agents and accountants asking them to get involved with the first phase of the trial, which will be targeted at firms with clients who are self-employed or landlords with an annual income over £50,000.

These people will be legally required to start keeping digital records and send quarterly updates of income and expenditure to HMRC using compatible software from April 2026. The system will be extended to those with an annual income over £30,000 from April 2027.

MTD ITSA is being introduced by HMRC in an attempt to modernise the way self-employed individuals and landlords manage their tax affairs, helping avoid errors and get tax right. MTD VAT has now been in operation for around 5 years, and although it seems to work from the point of view of us and our clients, I’m still not convinced that HMRC are doing anything with the vast array of data being collected.

The biggest advantage of needing to comply with MTD is the need to use accounting software for your business records. The negatives of having to comply in order to meet HMRC demands, can be far outweighed by the instant financial data at both yours and our fingertips. This means we can help you faster when you need support by way of loans or mortgages. If you are not already on the MTD journey please call to discuss. We may not want to put you on the trial but we can run meaningful trials of our own to show you how the software can help you and your business.

AND FINALLY …..

Last Friday saw Lenny Henry host Red Nose Day for the final time after 39 years. So what better than a sketch involving Donovan and Mrs Johnson?