FRC tackles auditor conflicts of interest
The Financial Reporting Council (FRC) has issued a major revision to its Ethical Standard and revised Auditing Standards. The changes will help to strengthen auditor independence, prevent conflicts of interest and ensure the UK is seen as a destination to do business due to stronger investor protection resulting from high quality audit. The revision incorporates changes to international ethical requirements, which now prohibit auditors from providing recruitment and remuneration services or playing any part in management decision making. Public interest entity auditors will now only be able to provide non-audit services which are closely linked to the audit itself or required by law or regulation. This will dramatically reduce the risk of a damaging conflict of interest, where the commercial interests of an auditor are perceived to be the most important factor in an audit relationship, rather than a focus on high quality audit.
OBR report hits tax plans?
The Office for Budget Responsibility (OBR) says government borrowing will increase by around £20bn a year due to accounting changes. Its updated forecasts show that the budget deficit will be £33.3bn by 2023/24, up from a previous estimate of £13.5bn. Much of the difference between the new total and one issued in March stems from changes to the way student loans are assessed, with them treated as spending now where they had been treated as such when they failed to be repaid. The OBR has also rectified a £4bn a year error that underestimated corporation tax receipts. Experts have warned that the public finance forecasts have reduced the scope for significant tax cuts in the new government’s budget. Jack Leslie, of the Resolution Foundation, said: “Even a small deterioration to the economic outlook or plans to cut taxes would see the Chancellor at serious risk of breaking his brand new fiscal rules”. “Looking ahead, tax rises rather than tax cuts will be needed if those fiscal rules are to be combined with rolling back the impact of austerity over the course of the new parliament,” he added. Thomas Pugh, an economist at Capital Economics, said: “The recent deterioration in the economic and fiscal backdrop will all but eliminate any remaining headroom, preventing Boris Johnson from announcing any unfunded tax cuts in the budget.”
460k chased tax refunds
Analysis by insurer Royal London shows that around 460,000 people had to contact HMRC for refunds of overpaid income tax last year. The firm’s Becky O’Connor comments: “This goes to show it’s a good idea not to assume the taxman is always right about what you owe.”
Source: The Sunday Times (15/12/2019)
UK IHT double EU average
Inheritance tax rates in the UK are more than double the average EU rate, according to new research. The analysis shows that people in the UK pay an average of 23.9% in inheritance tax when passing on an estate worth £2.4m compared to 10.3% in the EU.
Source: The I (16/12/2019)
SME leaders unsure on tax relief
Research commissioned by digital bookkeeper app Receipt Bank shows that while 92% of SME owners claim to understand the UK’s tax relief system, many are not claiming as much as they could. The study, which polled around 500 small business leaders, found that around six in ten did not know they could claim for relief on medical insurance or pension payments for employees, while just under half (47%) were unaware they could claim for staff training and 68% did not know claims could be made for staff events. The study also found that over than half of limited company bosses were unaware they could claim back money if their office was based in their home, with a similar proportion unaware charity donations, mileage and legal fees are also tax deductible. The poll saw 15% of respondents say they have not claimed for tax relief in the past due to a lack of understanding of financial jargon.
Source: Daily Mirror (18/12/2019)
PM urged to offer clarity to businesses
Dr Adam Marshall, director general at the British Chambers of Commerce, says the Government must seek to “reduce uncertainty, reinvigorate our stagnant economy, build new infrastructure, boost skills and lower the cost of doing business.” In a letter to the Prime Minister carried in the Telegraph, he says the Conservative manifesto was not clear on how these aims would be met, insisting that businesses want clarity on the “concrete action” ministers will take to do so. Calling for “action to move beyond the Brexit impasse,” Dr Marshall says there must be a “clear commitment to boosting business here at home.” Noting that almost three quarters of SMEs report they are experiencing recruitment difficulties, he calls for “proper funding” for educational routes to employment, incentivising of job-related training, and an immigration system that prioritises the economy.
Source: The Daily Telegraph (17/12/2019)
Unemployment hits 44-year low
UK unemployment dropped to its lowest level in 44 years in the three months to October. The number of people claiming unemployment benefits decreased by 13,000 to 1.28m for the quarter, ONS figures show. The overall rate of unemployment held flat at 3.8%, while the unemployment rate for women fell to a record low of 3.5%. The number of people in work increased by 24,000 to 32.8m, while the proportion of people in employment was flat at 76.2%, with 27.7m people in paid employment. The ONS data also revealed that average total pay increased by 3.2% in the quarter, while job vacancies fell by 20,000 to 794,000.
Manufacturing output dips
Overall UK manufacturing output dropped to 48.5 in December, according to IHS Markit’s composite purchasing managers’ index (PMI), down from 49.3 the previous month to a 41-month low. Any reading below 50 on the index indicates a contraction. The fall in manufacturing output was the fastest since July 2012. Services data also fell short of forecasts, coming in at 49 compared to an expected 49.5. The decline follows a fall in November, with the sector seeing consecutive monthly declines for the first time since 2009. “December’s PMI survey data sadly lacked festive cheer, indicating that the economy contracted for the third time in the past four months,” said IHS Markit chief business economist Chris Williamson.
Source: Daily Mail (17/12/2019) City AM (17/12/2019) Financial Times (17/12/2019)
BoE: Banks could withstand economic crisis
UK banks are well-equipped to withstand recessions and a decline in GDP, with all major lenders passing the Bank of England’s (BoE) stress testing. The BoE report says banks could keep lending even if UK GDP dropped by 4.7%, global GDP declined by 2.6%, bank rates hit 4% and unemployment rose to 9.2%. While the analysis found that losses on corporate exposures are higher than in previous tests – “reflecting some deterioration in asset quality and a more severe global scenario” – the BoE said the banks and building societies assessed “remain above their hurdle rates.” The central bank is increasing capital requirements for banks by doubling the size of the countercyclical capital buffer from 1% of risky assets to 2%.