Author: Alison Jones

HMRC: Collection of tax debts post Covid-19

Posted on by Alison Jones

Further to the policy papers published last year on how to both treat and support those customers with tax debts (https://hnhgroup.co.uk/hmrc-support-customers-fairly/), HMRC have recently published a further policy paper regarding the collection of tax debts post Covid-19.

The full policy paper can be found here.

“At all times, we will take an understanding and supporting approach to dealing with those who have tax debts or are concerned about their ability to pay tax”

HMRC

Continuing the sentiment from their previous communications, it is encouraging that HMRC continue to reference that they “understand that many customers are worried as the financial support schemes start to wind down” and that they “want to offer practice support wherever they can”.

However, whilst HMRC’s tax collection activities were paused and staff redeployed in order to deliver support schemes such as the Coronavirus Job Retention Scheme, HMRC have confirmed that such debt collection work is now being restarted in an effort to support the economic recovery.

HMRC’s message remains: “if you can pay your taxes then you should do so – but if you’re struggling, we want to work with you to agree a plan based on your financial position”.

Early Engagement

Where a business has an outstanding tax debt owed to HMRC, they will firstly try to engage with the business by phone, post or text in order to discuss the situation and agree a way forward. They continue to urge early engagement and response to these communications as soon as possible in order to avoid any further action being taken.

From an advisor / business perspective we can concur that early engagement with HMRC is vital. Not only to ensure cooperation from HMRC, but also to help reduce the accumulation of further interest, penalties and surcharges which can exacerbate the debt level further.

“We want to work with customers to find a way for them to pay off their tax debt as quickly as possible, and in an affordable way for them”

HMRC

Various options are available for businesses, whether that be a Time to Pay repayment plan; a short term deferral; extended repayment terms; or other forms of support such as the Recovery Loan Scheme.

Early engagement affords a business owner with the maximum opportunity to avail of one or more of these options, as well as help mitigating the severity of the situation by limiting the accumulation of additional penalties and surcharges.

Insolvency Moratorium

“We will only consider collecting tax through insolvency proceedings where customers have been found to be fraudulent; deliberately non-compliant; or where they are continuing to accrue debt with no prospect of being able to settle their existing debts”

HMRC

Where customers do not respond to any of their communications, or refuse to pay when they can afford to, HMRC have advised that they may visit the customer at their home or business address.

HMRC have also confirmed that “where customers are unwilling to discuss a payment plan, or where a customer ignores our attempts to contact them, we may start the process of collecting the debt using our enforcement powers”. Such powers include “taking control of goods, summary warrant and court action including insolvency proceedings”.

Whilst at present there remains a restriction on the presentation of statutory demands and winding up petitions, these are due to be relaxed on 30 September 2021. Furthermore, following the previous relaxation of the wrongful trading suspension in June 2021, business owners should continue to be mindful of their duties and engage with all creditors, including HMRC.

Conclusion

As we emerge from lockdown, whilst there is almost certainly a refreshing message from HMRC with regards to doing “all we can to help customers facing temporary financial setbacks” and that enforcement will only be used as a “last resort”, business owners must be cognisant that debt recovery is now firmly back on the government agenda in an effort to rebalance the public purse.

With the relaxation of the insolvency moratorium at the end of next month, creditors will again be able to commence action in recovery of their debts. Whilst HMRC have publically announced they will be sympathetic and understanding in light of the pandemic, such sentiments will not remain indefinitely. Business owners must therefore be aware of the pending challenges and plan accordingly to ensure a full recovery and prosperous future for both them and their businesses.

Budget 2020 – is change in the air for Entrepreneurs’ Relief?

Posted on by Alison Jones

The Chancellor of the Exchequer, Sajid Javid, has announced that his first Budget will be delivered on Wednesday 11 March. This will also be the first Budget of Boris Johnson’s premiership and so will obviously attract significant attention.

There are expected to be a number of tax-related announcements, but one area that should certainly be of interest to business owners is that of Enterpreneurs’ Relief. The availability of an effective 10% tax rate on capital gains arising on the disposal of certain business assets/shares has been the subject of much discussion in recent months. In particular, there seems to be a growing consensus that the relief (which applies to qualifying gains up to a lifetime limit of £10m) has not achieved the purpose for which it was introduced. In the section dealing with ‘Backing Entrepreneurs and innovation’, the 2019 Conservative Party general election manifesto noted that, “We also have to recognise that some measures haven’t fully delivered on their objectives. So we will review and reform Entrepreneur’s Relief”.

There are various possible outcomes of such a review, including (i) a reduction to the £10m lifetime limit, (ii) an increase to the 10% effective tax rate, (iii) reform into a different type of business tax relief, and (iv) abolition of Enterpreneurs’ Relief altogether.

Whatever the outcome, in order to ensure that any disposal qualifies for Entrepreneurs’ Relief under the existing regime, an unconditional contract in respect thereof would need to be entered into before 11 March 2020 (assuming any legislation introduced in the Budget is not retrospective).

For further information on this, and our other expectations regarding the forthcoming Budget, please contact Eamonn Donaghy, Mark Hood or June Barton.

The value of the Expert Witness’s opinion

Posted on by Alison Jones

Claims of fake news are now commonplace within the press. The accusations of untruths continue to span the internet, questioning the source of facts and figures. In this ‘post-truth’ era, questions are being raised as to whether this has impacted the value of the expert witness’s opinion.

Expert witnesses are an exception to the rule that witnesses cannot express an opinion. Where Courts are required to deliver judgements which involve a complex or highly technical matter, the opinion of an expert witness can form a key part of a case. Expert witnesses often rely on second hand facts and figures in order to form an opinion to assist the Court.

When is an expert an expert?

The recent Times and Bond Solon Expert Witness Survey 2018 published in November 2018 outlined that nearly 60% of the several hundred expert witnesses surveyed thought that the Courts are unable to distinguish the “truth” between conflicting expert witnesses giving evidence at trials.

In 2015, in order to address similar criticisms of experts by the Judiciary, practice directions from the Court introduced a requirement for all experts giving evidence in Northern Ireland to undertake appropriate training and seek accreditation. The Academy of Experts (a UK professional body of experts) has recently reported that the Northern Irish courts are becoming more and more insistent on seeing the evidence of this, going so far as to exclude evidence presented by Expert Witnesses who do not comply.

Such action has also been applied to high profile cases in English Courts, notably the recent removal of the expert architect reporting to the Grenfell Tower Inquiry. The expert witness had declared himself an architect however he was not registered with the Architects Registration Board.

An expert witness’s duty

It is therefore key that an expert witness understands their duty to the Court and does not act outside of their areas of expertise. Whilst an expert witness will be engaged by the plaintiff or defendant, the overriding duty of an expert witness is to provide independent, impartial, and unbiased evidence to the court or tribunal.

Specifically, the role of a forensic accountant expert witness will vary from case to case. Forensic accounting experts can provide assistance to the Court via financial investigation, the assessment of claims, the calculation of loss of profits and the valuation of assets, amongst a range of other instructions. Prior to accepting their instruction, the forensic accountant must determine whether they have the required level of accounting expertise and experience in order to form an opinion on the matter at hand.

A useful reminder

Often the biggest challenge for forensic accountants is obtaining detailed and complete information. Experts may need to mention facts about which they have no direct proof and use them to support their evidence. The more information made available to establish second hand facts (such as full accounts, complete bank statements, tax returns) can result in the application of fewer assumptions. As such, a forensic accountant can provide vital assistance to the legal team with guidance on what information to request during the discovery phase of litigation.

Reassuringly, 86% of experts surveyed by the Times and Bond Solon replied no when asked ‘whether they thought some experts are inventing or embellishing their reports to produce fake opinions in this time of fake news’. However, the question itself serves as a useful reminder to experts that, in addition to stating all facts, sources and assumptions, they must make clear to the Court the limitations of their evidence. A speculative opinion could be just as damaging as a fake opinion.

Cathy McLean
Forensic Services Senior Manager
Email: cathy@hnhgroup.co.uk
Telephone: 02890 316937

Autumn Budget 2018: Goodbye Austerity … Hello HMRC

Posted on by Alison Jones

Last week the Chancellor made a number of announcements in the Autumn budget, including signalling the end to austerity.

For the restructuring profession one of the most notable announcements was that HMRC will become a secondary preferential creditor for taxes held by companies on behalf of employees and customers (i.e. VAT, PAYE Income Tax, Employee NICs, and Construction Industry Scheme deductions) from April 2020.

The change will not apply for taxes owed by businesses, such as Corporation Tax and Employer NICs.

Currently the only creditors who enjoy preferential status to ordinary unsecured creditors, are the liabilities of former employees in respect of arrears of wages, accrued holiday pay and outstanding pension contributions, up to statutory limits.

As such HMRC presently rank pari-passu (or equally) with all other unsecured creditors in any dividend distribution. Whilst this change doesn’t fully return HMRC to the preferential status it once enjoyed pre 2002 (UK) / 2006 (NI) it does push HMRC higher up the repayment ranking in an insolvency event.

The Chancellor has attempted to defend this change, claiming that it is being made to “ensure that tax which has been collected on behalf of HMRC is actually paid to HMRC”, rather than being distributed to other creditors.

The result of HMRC’s improved ranking will undoubtedly see a reduced dividend paid to unsecured creditors, including lending institutions – where floating charge security will now rank behind HMRC’s new ‘preferential’ status. As such, businesses may experience increased costs of borrowing as lending institutions take into account the enhanced risk and effective devaluation of their floating charge security.

The impact in instances whereby distressed businesses may have in the past received financial assistance from their incumbent lender (as the lender would have taken comfort that such funds would be protected by their floating charge security) remains to be seen.

Whilst it is not clear when these changes will take effect in Northern Ireland, this certainly signals an impending change to the status quo.

 

james
James Neill
Director

Email: james@hnhgroup.co.uk
Telephone: 02890 316934

rory moynagh
Rory Moynagh
Associate Director

Email: rory@hnhgroup.co.uk
Telephone: 02890 316935

Autumn Statement 2016

Posted on by Alison Jones

Phillip Hammond’s inaugural Autumn Statement, to be delivered this Wednesday, will be the Chancellor’s first opportunity to set out his vision for the economy post-Brexit. Amid rumours of a snap general election early in 2017, the challenge facing the Chancellor is how to balance ongoing management of the public finances with a few targeted pre-election incentives.  With anti-establishment sentiment the global political theme of 2016, he will no doubt aim to position the Conservatives as a party that understands the pressures facing the average working man and woman.  To this end, four months into his post, Mr Hammond has already sought to distance himself from the austerity-centric approach adopted by his predecessor. It is therefore expected that he will relax rules on Government borrowing, allowing for Keynesian-style investment in infrastructure as an economic stimulus.

However, despite the Chancellor’s attempts to differentiate himself from George Osborne, recent figures published by the IFS suggest that the Government will overshoot its borrowing target for the current fiscal year by more than £5 bn (£60.5 bn vs. a forecast of £55.5 bn) and therefore he will likely have to continue to implement austerity measures into the next parliament.  Recognising the potential short-term economic impact of Brexit, the IFS has called for temporary cuts to VAT and a relaxation of stamp duty, but notes that targeted tax rises and spending cuts will likely be required if the Government is to balance the books.  Under the “five year tax lock” announced by then PM David Cameron in 2015, the Government is precluded from increasing income tax, national insurance and VAT until 2020; similarly, it is expected that Mrs May will today confirm the Government’s commitment to a low corporation tax regime.  With the Chancellor’s hands pretty tightly bound, it is unlikely that there will be any major tax-related surprises in his speech.

From a Northern Irish perspective, what do we hope to see?

  • An increase in the annual investment allowance would be welcome boost to many small business. From 2008, the AIA has varied between £25,000 per annum and £500,000 and currently stands at £200,000. Restoration of the previous £500,000 limit would help create an incentive for capital investment and ultimately job creation;
  • While there are currently an encouraging number of cranes over the Belfast skyline, our construction sector is still recovering from the recession and we need to have clarity around the availability of funding for major infrastructure projects such as the York Street Interchange;
  • A clear commitment to retaining entrepreneurs’ relief at its current level of 10% on the first £10m of lifetime gains. Each year rumours abound that ER is in the firing line and business owners wait nervously to see whether their exit plans are likely to become significantly less appealing. Most businesses in NI are of a size that this relief provides a significant enhancement to shareholder returns and acts as an incentive for people to invest in and grow their businesses.

Whatever the outcome of the Autumn Statement, we remain focused on helping local and non-local businesses implement their growth plans. Whether you are considering raising finance for a major project, are thinking about an acquisition, or want to start planning towards selling your business, we would be delighted to hear from you.

Tax Losses – Recent Changes and their Impact on Recovery

Posted on by Alison Jones

The Government has announced significant reforms relating to loss relief as part of the recent Budget, although the changes will not be implemented until April 2017. It is contended that these changes are necessary to bring the UK into line with international best practice.

Under the current system, losses carried forward can only be used by the company that incurred the loss, and not used in other companies in a group. In addition, some losses carried forward can only be set against profits from certain types of income, for example carried forward trading losses may only be used against trading profits. However, for losses incurred on or after 1 April 2017, companies will now be able to use carried forward losses against profits from other income streams or from other companies within a group.

Additionally, from 1 April 2017, the Government will restrict to 50% the amount of profit that companies can offset through losses carried forward. The restriction will only apply to profits in excess of £5m calculated on a group basis. The current rules enable companies to offset all their eligible taxable profits through losses carried forward and the Government is concerned that this can lead to a situation where a large company pays no tax in a year when it makes substantial profits. To address this, the government will restrict the amount of taxable profit that can be offset through losses carried forward.

The greater flexibility of use of losses is to be welcomed and indeed had it been implemented sooner may have helped reduce the severity of the recession in Northern Ireland. However the restriction on losses carried forward may impinge on rescue scenarios and also on the ability for distressed business to recover. The key point for consideration being that it is now vitally important that groups are efficiently structured.

What should we look for in Thursday’s MPC Announcements and Forecasts?

Posted on by Alison Jones

On Monday, Britain’s manufacturing PMI jumped to 55.5 for October, ahead of analysts’ expectations of 51.3, which is one of the largest rises since the survey began over 20 years ago.

In the wake of a Chinese currency devaluation, continued rise of the dollar and emerging market worries, Mark Carney, Governor of the Bank of England, and Janet Yellen, Chair of the Board of Governors of the Federal Reserve System, have remained focused on the first rate increases, in their respective jurisdictions, since the financial crisis.

Investec Bank and HSBC Holdings Plc are expecting Kristin Forbes to join Ian McCafferty, currently the most hawkish member of the committee, in voting for an immediate rate rise. Martin Weale, who has previously voted for an immediate rate rise, is the other member of the MPC who may join the hawks. However, market makers are currently pricing in the first full rate rise in April 2016, according to Sterling Overnight Index Average (SONIA), which had previously marked the first full rate rise for December 2016 in the aftermath of the recent market correction.

Ross Walker (of Royal Bank of Scotland) noted that the MPC’s communication would be very tricky as they wouldn’t wish to be seen supporting the markets dovish, lower rates, expectations. The most recent focus has been on core inflation figures which have remained close to zero as unemployment has continued to decline and wage inflation, driven by a shortage of skilled workers, are providing policy makers with robust data to support their more positive economic outlook.

Sterling has decreased against the dollar during the oil price collapse and ought to have dampened some of the disinflationary pressure, however, as recently as September, the UK’s Consumer Price Index dropped into negative territory. In the short term a decrease in prices has a positive impact on disposable income. Coupled with increasing wages, this has provided some relief to consumers at the end of the month.

Following the Bank of England’s decision to flood the market with liquidity, via quantitative easing, the MPC now expect to reach their inflation target of 2pc within three years, and this week are due to release the November Inflation Report.

It is worthy of note that Kristin Forbes, has recently said in a speech at the Brighton Summit 2015 that much of the “doom and gloom” surrounding emerging markets had been “overstated” and that recent “news on the international economy” had not changed her expectation that rates would “rise sooner rather than later”. This week also sees the External MPC Unit, (of which Kristin Forbes is a member), submit a discussion paper aimed at improving inflation estimates as sterling reacts to market shocks.

Over the past couple of months the market has been warned by our policy makers that interest rates are going to rise. The Federal Reserve are likely to lead the way in the coming months and the MPC may take confidence from a positive market reaction. Traditionally, The Federal Reserve and The MPC increase or decrease interest rates by 0.25% but there has been long standing communication from both US and UK policy setters that interest rates, when they do begin to rise, they will rise slowly and gradually.

Since becoming Governor of the Bank of England, Mark Carney has attempted to provide clearer communication where it has been possible and as we move into a rate hiking cycle (where interest rate increases of 0.25% bring increased market volatility), we could see smaller incremental increases over a prolonged period of time to allow businesses and individuals greater time to react.

Restructuring & Insolvency – Technical Update: Pension changes following the April 2015 budget (August 2015)

Posted on by Alison Jones

The position of pensions in Bankruptcy proceedings has been clear throughout the recession, pensions remain outside of the Bankruptcy estate and available for a Trustee in Bankruptcy in only one of two ways:

1. Identifying excessive pension contributions in the period preceeding Bankruptcy; or
2. The Bankrupt becomes entitled to their lump sum during their 12 month period of Bankruptcy.

As a result, unless a borrower is of pensionable age (65), and hasn’t already drawn their lump sum then pensions are often excluded from discussions with creditors.

Changes

However, recent changes to pensions legislation in April 2015 have fundamentally changed two aspects of the old regime:

1. Borrowers now have ‘flexible access’ to pensions from age 55; and
2. Pension draw down restrictions are abolished i.e. borrowers can now draw down up to 100% of their pension by way of a lump sum.

Prior to April 2015, an individual was entitled to drawdown 25% of their personal pension as a tax free lump sum upon reaching the pensionable age, with the remaining 75% to be used to provide an income – normally by way of an annuity or setting up a pension drawdown.

Following Government changes which came into effect on 06 April 2015, an individual is entitled to drawdown their pension with no restriction i.e. they can withdraw their whole pension as a lump sum, if desired, once they have reached the normal minimum pension age – currently 55 (or earlier if in ill health or if the individual has a protected retirement age).

The first 25% will still be tax free, with the remaining 75% subject to tax at the individual’s marginal income tax rate.

Impact in Insolvency

In an insolvency scenario, these changes present borrowers with access to funds which may assist in discussions with creditors outside of Bankruptcy.

If a borrower is over 55 with personal indebtedness, then the ability to drawdown all of their pension as one lump sum, or stage over a period in order to minimise their tax liability, may present the borrower with an opportunity to reach a compromise with his / her creditors. It should be noted that pensions are intended to provide an income for retirement and so it is important for borrowers to take professional advice before making any such decision.

The flexibility afforded to the borrower from such Government changes may also allow for increased application in an Individual Voluntary Arrangement (“IVA”), both as an alternative to, or as an exit mechanism out of, Bankruptcy. Drawing down an initial lump sum and staggering further drawdowns over a period, could present a borrower with an ability to provide his / her creditors with an enhanced IVA proposal. Furthermore, drawing down their entire pension pot (albeit with additional tax implications) may allow the borrower to agree a shortened IVA term with his / her creditors. It is also worth noting that any borrower not of pensionable age but in the process of proposing an IVA (and is likely to reach pensionable age during the term of the proposed IVA) may be able to offer additional funds into the Arrangement once they have reached pensionable age, in order to achieve acceptance from the body of creditors.

The recent changes also have implications in Bankruptcy and the ability of the Trustee to seek an Income Payments Order (“IPO”) against the Bankrupt’s pension entitlements for the benefit of his / her creditors. The application in a formal Bankruptcy scenario is considered in recent case law, namely Raithatha v Williamson [2012] and Horton v Henry [2014].

Contrary to the decision of Raithatha v Williamson [2012], in Horton v Henry [2014] the Judge held that a Bankrupt only becomes entitled to a payment under his pension after there are definite amounts which have become contractually payabe. An IPO attaches to a payment to which the Bankrupt is entitled. However, until the Bankrupt has exercised the option to choose between the various different ways in which pension benefits could be taken, the Bankrupt was not entitled to any payment at all against which an IPO could be made.

Therefore, unless a Bankrupt has already agreed his / her pension drawdown method, a Trustee cannot force a Bankrupt to do so, thereby preventing a possible IPO from such pension entitlements for the benefit of the Bankrupt’s creditors. If, however, a Bankrupt’s pension is already in payment, a Trustee in Bankruptcy could seek an IPO in appropriate cases.

This judgment of Horton v Henry [2014] is subject to appeal, with a hearing in the Court of Appeal now delayed until January 2016.

Whilst this position in Bankruptcy remains unclear, it is again worth stressing the considerations outside of Bankruptcy for both borrowers and creditors alike.

For those borrowers aged 55 with a pension fund, there is now a route to access substantial funds that could be provided to creditors in order to avoid potential Bankruptcy.

Northern Ireland Dealmakers Awards

Posted on by Alison Jones

An excellent year for HNH was recognised at the recent Insider Northern Ireland Dealmakers’ Awards ceremony, with the firm picking up two awards.

For the second year  in a row, the firm was presented with the coveted Corporate Finance Advisory Team of the Year award and also scooped the Deal of the Year award for its role as lead advisor on the investment in Seven Technologies by YFM Equity Partners.

Craig Holmes, partner at HNH, commented “to win the Team of the Year award two years running is a tremendous honour and provides a testament both to the quality of our clients, without whom such accolades could not be achieved and to the hard work and dedication of the whole team at HNH. Winning the Deal of the Year award is the icing on the cake and the success of the deal in question clearly demonstrates that there is funding available for ambitious local businesses”.

HNH Named Top CF Advisor for 2012

Posted on by Alison Jones

The Volume and Value League Tables, recently published by Experian Corpfin, reveal that, for the second year running, HNH (formerly HHCF) was the most active corporate finance advisor in Northern Ireland, with five successful completions. Deal highlights included the raising of growth capital for ambitious and innovative local businesses such as Bubblebum, Path XL and Seven Technologies.