Credit ratings are issued by credit rating agencies, which are private companies who sell their financial analysis to investors. They mark potential investments using a scorecard system and each agency uses different ones. Effectively, the ratings are an indicator of how likely the agency thinks a debt will be repaid.
The one Moody’s uses goes from Aaa to C and so this move means that the UK’s creditworthiness has been downgraded by one notch. However, it is interesting to note that the only two countries in the world’s major industrialised nations to still have a triple A rating are Germany and Canada.
In fact, when the US lost its triple A rating in 2011, the amount it had to pay to borrow actually went down, as investors still viewed the country as one of the safest bets in the world, regardless of the rating.
In addition, the credit rating agencies themselves lost credibility after the financial crisis, when they were found to have given top ratings to investments that turned out to be worthless.
It could therefore be concluded that the downgrade is not particularly important, except that during the election, Chancellor George Osborne vowed to defend the country’s triple-A rating, which can help keep down borrowing costs.
Unfortunately a very slow recovery from the financial crisis has pushed back by at least two years the Government's goal of largely eliminating the budget deficit by the time of next election in 2015.
However, from a political point of view, the downgrade could be important, as critics are now saying that the Chancellor’s fiscal measures are failing and that Labour has called it a “humiliating blow”, while Mr Osborne has continually used the threat of a downgrade as a justification for the scale and speed of deficit-cutting measures.
For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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( 3 / 693 )HM Revenue & Customs (HMRC) has published its first list of tax dodgers, which highlights "deliberate defaulters" found during the department’s investigations into their affairs from April 2010.
This list features nine names – including a hairdresser, a coach operator and a knitwear manufacturer – each of whom had not paid more than £25,000 of tax.
Individuals and businesses named on the list received fines from a few thousand pounds upwards. Cheshire-based wine retailer, The Trade Beverage Company Ltd, was fined £291,830, while a penalty of more than £17,000 was imposed on hairdresser Joseph Tyrrell for dodging tax between October and December 2010.
According to the government, the publication of the names sends a clear signal that cheating on tax is wrong, and reassures the vast majority of people who pay their taxes that there are consequences for those who refuse to tell HMRC about their full liability.
The department also hopes that publishing the list will encourage defaulters to make a full and prompt disclosure and cooperate with HMRC to avoid being named.
However, with the total tax owed by those on the list amounting to less than £1m, Treasury Minister David Gauke was asked why no large corporations were included on the list.
Mr Gauke replied that HMRC was taking action to close legal loopholes, as well as to expose those promoting aggressive tax avoidance schemes.
Chair of the Commons Public Accounts Committee, Margaret Hodge called the publication of the list an “amazing” step forward.
“Publicly naming and shaming does act as a deterrent, as we demonstrated over the Starbucks and Amazon hearing,” she added.
However, she also hoped that HMRC would not just focus on individuals and small businesses, as the general public does not want to see big global corporations “getting away with it”.
For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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( 3 / 630 )For only the fourth time since he became Governor of the Bank of England, Sir Mervyn King was overruled by other members of the Monetary Policy Committee (PMC), this time over quantitative easing (QE).
The minutes of the meeting revealed that three members, including Sir Mervyn, voted to increase QE by £25bn to £400bn, whereas last month, only David Miles wanted to restart the programme.
Last month the Bank raised its forecasts for inflation from those made in November, warning that inflation would hit 3 per cent later this year and not fall back to the Government’s 2 per cent target until the beginning of 2016. Under normal conditions, the Bank would be expected to consider raising interest rates to offset such a rise.
However, officials said they “stand ready” to increase quantitative easing to support the recovery, though they still questioned the effectiveness of current policy tools for easing credit strains in the economy.
In a wide-ranging discussion on the need for “targeted” measures, they said some may be beyond the scope of the central bank and fall under the province of other government departments.
The minutes reported that growth remained subdued and the economy continued to face a number of headwinds, so a case could be made that, if further stimulus was required, policy interventions more targeted at particular frictions or market failures in the economy were likely to be more effective in current conditions than further asset purchases.
Other policies discussed were a possible extension of the Funding for Lending (FLS) cheap credit scheme to “non-bank lenders”. In addition, using QE to buy assets other than gilts and a reduction in interest rates below 0.5 per cent were discussed and, once again, dismissed.
Following publication of the minutes, the pound fell sharply to a 15-month low against the Euro and fell to the lowest since June versus the dollar.
For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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( 3 / 484 )Earlier this week, the UK Treasury and the Isle of Man struck an automatic exchange agreement, which aims to clamp down on tax evaders and may net hundreds of millions of pounds by targeting people who try to hide their money offshore to try and escape a tax bill.
The agreement, which runs from 6 April this year to September 2016, will lead to an automatic exchange of information on people who have bank accounts on the island, and a chance for people to come forward to pay tax.
It forms an integral part of the Government’s offshore anti-evasion strategy, which will be published later this year. The package includes an automatic tax information exchange agreement and the setting up of a disclosure facility.
The disclosure facility will allow investors with accounts in the Isle of Man to come forward and settle their past affairs before information on their accounts is automatically shared, although they will not have immunity from possible criminal proceedings.
Under the automatic exchange agreement, a wide range of financial information on UK taxpayers with accounts in the Isle of Man will be reported to HM Revenue & Customs (HMRC) automatically each year.
It follows the UK-US agreement to Improve International Tax Compliance and to Implement the Foreign Account Tax Compliance ACT (FATCA) in order to minimise burdens on financial institutions.
When the agreement was announced, Chancellor George Osborne said that the Government is also in discussion with Jersey and Guernsey, as part of its common commitment to combat tax evasion, and that tax transparency will be a focus of the UK’s G8 presidency, where it will look to further promote automatic information exchange.
For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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( 2.9 / 478 )HM Revenue & Customs (HMRC) will finish processing 850,000 letters this week to taxpayers telling them that they are liable for a £100 fine for not filing their tax return by the 31 January deadline.
Despite receiving the record number of 9.61 million self-assessment returns on time for the 2011-12 financial year, the department said that there were still a number of people who had failed to respond in time and will get the letters out to them by tomorrow (February 20th), which they should receive within seven days of posting.
The number of people filing by 31 January was a three per cent increase on last year and a further 60,000 filed after the deadline. This means that while they will still be given the £100 penalty, they will avoid the daily £10 charge.
However, some 790,000 taxpayers will be liable for the charge and interest, while if their return and tax bill is still outstanding at the end of July, the penalty increases to five per cent of the tax due or a minimum fine of £300, whichever is higher
HMRC is then entitled to give those who fail to file within 12 months a tax demand of up to 100 per cent of the tax due instead.
Having said that, taxpayers who feel that they have a reasonable excuse for not filing on time, such as bereavement or illness in the family can appeal to the taxman, as can people who receive a late filing penalty.
This should be done as soon as possible and, where the reason for late or non-filing is accepted by the department, the taxpayer will be taken out of self-assessment.
For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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