HSBC is to bring in a single overdraft rate of 39.9% for UK customers from March 2020, as much as quadrupling the rate it charges some customers.
However, the bank is removing a £5 daily fee for going into an unarranged overdraft and introducing an interest-free £25 buffer on some accounts.
It follows a similar move from Nationwide Building Society in July.
The new annual rate comes in response to tough new rules from regulators designed to protect consumers.
But one analyst warned that steep overdraft rates could now become the "new normal".
HSBC UK currently charges rates of 9.9% to 19.9% on arranged overdrafts, but the higher rate will be applied across its whole range of accounts except for its student bank account.
The £25 buffer will apply to Bank Accounts and Advance Bank Accounts, providing leeway for those going slightly overdrawn.
HSBC said that as a result of this and the removal of the £5 daily fee for unarranged overdrafts, seven in 10 who use an overdraft would be better off or the same as a result of the changes.
But that suggests around a third could end up worse off. The bank has eight to nine million current account holders in the UK.
Madhu Kejriwal, HSBC UK's head of lending and payments, said: "By simplifying our overdraft charging structure we are making them easier to understand, more transparent and giving customers tools to help them make better financial decisions."
The move comes in response to Financial Conduct Authority's plans to shake up the "dysfunctional" overdraft market - including stopping banks and building societies from charging higher prices for unarranged overdrafts than for arranged overdrafts.
The new rules, which come into force next April, will require providers to charge a simple annual interest rate on all overdrafts and get rid of fixed fees.
But there have been concerns that banks will hike authorised overdraft charges to claw back some revenue lost from unauthorised overdraft fees.
In July, Nationwide also unveiled a new single rate of 39.9% across its adult current account range. Its changes came into force in November.
Helen Saxon, banking editor at MoneySavingExpert.com, said: "With both of the first banks to announce changes moving overdraft interest rates to around 40%, we have to wonder if this is the new normal."
The FCA has acknowledged banks may look to increase their arranged overdraft prices as a result of the new rules.
But it argues the net effect will still be better for consumers - and increased competition between providers as a result of the changes will constrain any price increases.
Rachel Springall, a finance expert at Moneyfacts.co.uk, said: "It's disappointing to see such a hike in overdraft charges but there may be more brands coming out in the coming weeks to announce changes too.
"This shake-up is designed to make things fairer and more transparent to consumers.
"Borrowers would be wise to scrutinise any changes to their current account and look to switch elsewhere if they find that the account has lost its shine."
Marketing of high-risk investments - known as mini-bonds - to regular savers is to be banned by the City regulator.
Armchair investors have been tempted by the returns promised on these speculative bonds, which were often much greater than mainstream products.
But they have been at the heart of scandals, such as the collapse of London Capital & Finance (LCF) when 12,000 people lost money.
The Financial Conduct Authority (FCA) marketing ban starts in January.
The ban will last initially for 12 months, while the FCA considers permanent rules.
What is a mini-bond?
A mini-bond is described by the FCA as being a kind of IOU issued by a company to an investor. In return, the investor receives a fixed rate of interest over a set period of time. At the end of this period, the investors' money is due to be repaid.
The return on investors' money entirely depends on the success and proper running of the issuer's business. If the business fails, investors may get nothing back.
The ban applies to arrangements where funds raised from a mini-bond are used to lend to a third party, invest in other companies or buy properties.
The FCA only has power to intervene in marketing - not in the sale of the products themselves.
The regulator said they could still be marketed to "sophisticated investors", who could declare themselves able to understand the risks, or high net-worth individuals with an annual income of more than £100,000 or net assets of £250,000 or more.
Why have they been in the spotlight?
Earlier this year, people lost money on two investments involving mini-bonds.
Almost 12,000 people who put a total of £236m into a high-risk bond scheme marketed as a fixed-rate ISA with London Capital & Finance (LCF), lost their money.
LCF advertised itself as a low-risk ISA, but in reality the fund did not qualify as an ISA.
Then last month, investors who put money into two businesses started by Grand Designs presenter Kevin McCloud were warned they could lose their investment.
HAB Land Finance and its owner HAB Land called in liquidators after a period of "difficult trading".
Potential investors were pitched mini-bonds with 8% returns to crowdfund two projects.
Andrew Bailey, FCA chief executive, told the BBC's Today programme: "This is the sixth piece of intervention we're doing this year. We are also in close discussions with the internet service companies, because we want to limit the marketing of these things through that channel.
"We think it is inappropriate to market the complex versions of these instruments to retail customers, not to the high net-worth individuals, but to retail customers.
"We want to see more action. I'm keen that the legislation that the government proposed on online harms - which I know addresses really important issues which are outside our world - can also include financial harms.
"I also want more action from Google - I think they can play a big role because it is the major channel now and we find these things just popping up all the time."
Moira O'Neill, head of personal finance at Interactive Investor, said she could understand the attraction of mini-bonds.
"Savers are now in the unfortunate position where even if they can lock their money away for four years, they will only get 2%. So the prospect of lending money to a company via a mini-bond for a similar period and getting four times that amount, or more, is tempting," she said.
"But mini-bonds are paying higher rates than bank accounts precisely because they do contain an element of risk - essentially the risk that the company could go out of business.
"And it's often too difficult for customers to assess if are they paying enough to take that risk."
TSB has announced the 82 branches it plans to close in 2020, with much of the country affected.
Earlier this week, the bank announced there would be closures as part of a plan by new chief executive Debbie Crosbie to make £100m of cost cuts by 2022.
The bank said that 370 positions would be hit by the closures.
It said it would offer help to customers and staff affected by the move.
The bank is repositioning itself following its IT crisis last year, which affected 1.9 million customers.
Robin Bulloch, customer banking director at TSB, said: "We will fully support customers through this transition.
"We realise this is difficult news for our branch partners and will do everything to support those affected to offer voluntary redundancies and redeploy as many people as we can to other roles."
At the end of 2020, TSB will have a network of 454 branches.
List of affected branches
The branches affected, and the month of closure in 2020, are:
- Wigton (June)
- Newcastle Upon Tyne - Chillingham Road (September)
North West England:
- Urmston (June)
- Chester (June)
- Chorlton, Manchester (October)
- Congleton (October)
- Warrington - Penketh (October)
- Leyland (November)
- St Annes-on-Sea (November)
- Ormskirk (November)
Yorkshire and the Humber:
- Headingley, Leeds (February),
- Thorne (April), Skipton (May),
- Hull - Willerby (May),
- Normanton (May),
- Todmorden (June),
- Brough (July),
- Market Weighton (July),
- Shipley (November),
- Harrogate (November)
- Leicester - Cavendish Road (May)
- St Albans (September),
- Ipswich - Felixstowe Road (September)
- Birmingham - Great Hampton (April),
- Coventry - Walsgrave Road (April),
- Pershore (May),
- Cannock (September),
- Rugby (September),
- Warwick (September),
- Birmingham - Stirchley (September),
- Lichfield (October),
- Stourbridge (October),
- Coventry - Jubilee Crescent (November),
- Leamington Spa (November),
- Sutton Coldfield (November),
- Bearwood Road, Smethwick (November)
South West England:
- Moreton-in-Marsh (May),
- Okehampton (May),
- Stroud (June),
- Poole (October),
- Salisbury (October)
South East England:
- Abingdon (April),
- Burgess Hill (April),
- Sidcup (June),
- Amersham (June),
- Guildford (July),
- Ashford (September),
- Woking (September),
- Redhill (October),
- Basingstoke (October),
- Worthing (October),
- Fareham (October),
- Cowley (November)
- Elephant and Castle (February),
- Holborn (May),
- Finchley (June),
- Barkingside (September),
- Wandsworth (September),
- Bayswater (September),
- St James's Park (September),
- Chingford (November),
- Gidea Park (November),
- Old Street (November),
- Twickenham (November),
- Potters Bar (November)
- Barrhead (April),
- Glasgow - Govan (May),
- Bishopbriggs (May),
- Milngavie (May),
- Dunbar (May),
- Portobello (May),
- Jedburgh (May),
- Kinross (May),
- Tain (June),
- Uddingston (June),
- Edinburgh - Clerk Street (July),
- Carluke (July),
- Brechin (July).
- Dumbarton (July).
- Clarkston (July),
- Edinburgh - Morningside (September),
- Wishaw (September)
December is probably the second most popular trading year end for businesses; the most popular being the 31 March.
Your end of year planning should include a review of your results – prior to your year end – so that there is an opportunity to make any advantageous changes. From our perspective, there is nothing quite so depressing as being made aware of these “opportunities” after the year end date has passed and when there is no way to incorporate possible tax saving strategies.
For traders with a December year end, a good time to do this is from October 2019, when the results for the nine months to 30 September are available.
Apart from your management accounts we could also discuss the following matters and if any investment be considered before or after your year end:
- Are you contemplating the purchase of new equipment or vehicles?
- Are you considering significant repairs or improvements to plant or buildings?
- Could you write off or consider a sale of redundant stock?
- We could estimate your business taxes based on trading for the current year and plan for savings to fund the future payment.
- If you have made trading losses are there opportunities to set off these losses against past profits and recover tax to aid cash flow?
With all the uncertainties that the exit form the EU has caused in the past two years there has never been a more opportune time to invest in planning. Business fitness could be the key issue for 2020 and beyond.
Accordingly, if we have not already organised a review, and your trading year end is imminent, please call so that we can discuss your options.
If your company engages in direct marketing, you may want to consider the following case published by the Insolvency Service:
A property renovation boss who caused his company to make more than 110,000 unsolicited marketing calls has been banned for five years. From its incorporation in August 2015, the company relied heavily on direct marketing techniques – cold-calling members of the public to advertise their services – to generate business.
The company should have used the Telephone Preference Service (TPS) list before making these calls to screen out individuals who had elected not to receive them.
The renovations company did not access the list and within 3 months in 2015 made over 110,000 calls to people registered with the TPS, who should not have received them.
The Information Commissioners Office (ICO) received 133 complaints about the unsolicited calls and, following an investigation, the regulators concluded that the company was in breach of the Privacy and Electronic Communications regulations.
The maintenance company failed to provide the ICO with evidence that they had acted correctly and, in January 2017, the ICO informed them that it was going to fine the company £80,000.
Before the penalty could be levied, however, Jonathon De Sousa (the director) placed the company into Creditors Voluntary Liquidation in March 2017.
An Insolvency Service investigation into Jonathon De Sousa’s conduct following the liquidation revealed that his company had also not paid £250,000 worth of taxes.
On 30 July 2019, the Secretary of State accepted a 5-year disqualification undertaking from Jonathon De Sousa after he did not dispute that he had caused his company to fail to comply with Privacy and Electronic Communications regulations and failed to pay the appropriate levels of tax.
Effective from 20 August 2019, he is prohibited from being involved in the formation, management, or promotion of a company without permission from the court.
Anthea Simpson, Chief Investigator for the Insolvency Service, said:
It is not acceptable for companies to harass members of the public with unwanted marketing calls, and we will continue to work with the ICO to curtail the activities of unscrupulous directors.
Directors who try to evade the consequences of their actions by putting their company into liquidation should expect to be investigated, which could lead to them being disqualified from being a company director again for a number of years.
Powers to protect the public from similar companies have recently been made stronger. Directors and managers of affected companies can be personally liable for fines of up to £500,000. This is intended to stop rogue companies closing down and setting up another business immediately afterwards.
Just one month to go until the so-called “Domestic Reverse Charge” will apply to VAT registered traders who are also registered to use the Construction Industry Scheme.
There has been an awful lot of commentary in the press claiming that from 1 October, building contractors will be lumbered with paying their sub-contractors’ VAT.
Perhaps a brief summary of the reason for this change would be useful.
HMRC has noted that a growing number of sub-contractors are registering for VAT, adding 20% VAT to their invoices, collecting this VAT charge from their customers and then disappearing without passing on the VAT collected to HMRC. Needles to say, HMRC are not too pleased with this trend.
And so, from 1 October 2019, VAT registered subcontractors invoicing their work to other CIS registered firms will not charge VAT on the supply. Instead they will advise the main contractors that their supply is subject to the reverse charge process.
Prior to 1 October, contractors would simply pay the VAT inclusive amount to their VAT registered sub-contractors and then claim back the input VAT paid on their VAT return.
After 1 October, contractors will pay the net of VAT amount to their sub-contractors and then make two adjustments to their VAT return: firstly, adding the sub-contractors VAT to their output tax, and at the same time, claiming back the same amount as input VAT.
Accordingly, contractors will pay their sub-contractors VAT, but in the same breath they will claim it back – subject to the usual rules.
The mechanics of accommodating the accounting entries to cope with the new process can be programmed into your bookkeeping software. However, there could be complications if you use one of the VAT special schemes, such as the cash accounting or flat rate scheme.
We recommend that you take professional advice before 1 October, to make the changes required to your invoices and accounts software and to make sure that you do not need to change your present VAT scheme.
Please call if you would like our help to do this.
If you are starting to look forward to the forthcoming end-of-year and Christmas celebrations, and we could all do with a bit of festive cheer, you may find the following article useful: it sets out the rules and regulations that qualify such events for a tax-free status: no benefits in kind, tax or NIC consequences.
The cost of an annual staff party or similar function is allowed as a deduction for tax purposes. However, the cost is only deductible if it relates to employees and their guests, which would include directors in the case of a company, but not sole traders and business partners in the case of an unincorporated organisations. Also, it does not include ex-employees.
If the criteria below are followed there will be no taxable benefit charged to employees:
- The event must be open to all employees at a specific location.
- An annual Christmas party or other annual event offered to staff generally is not taxable on those attending provided that the average cost per head of the functions does not exceed £150 p.a. (including VAT). The guests of staff attending are included in the head count when computing the cost per head attending.
- All costs must be considered, including the costs of transport to and from the event, accommodation provided, and VAT. The total cost of the event is divided by the number attending to find the average cost. If the limit is exceeded then individual members of staff will be taxable on their average cost, plus the cost for any guests they were permitted to bring.
- VAT input tax can be recovered on staff entertaining expenditure. If the guests of staff are also invited to the event the input tax should be apportioned, as the VAT applicable to non-staff is not recoverable. However, if non-staff attendees pay a reasonable contribution to the event, all the VAT can be reclaimed and of course output tax should be accounted for on the amount of the contribution.
Are you making the most of Trivial Benefits
Earlier this year we highlighted the tax concession afforded by the so-called Trivial Benefit rules.
It is possible to make small tax-free payments to employees, including directors…
Employers and employees don’t have to pay tax on such a benefit if all of the following apply:
- it cost you £50 or less to provide,
- it isn’t cash or a cash voucher,
- it isn’t a reward for their work or performance,
- it isn’t in the terms of their contract.
HMRC describes these payments as a ‘trivial benefit’.
You can’t receive trivial benefits worth more than £300 in a tax year if you are the director of a ‘close’ company. A close company is a limited company that’s run by 5 or fewer shareholders.
Readers who manage a business may want to integrate a formal process into their benefits strategy to take advantage of this opportunity.
Every little helps.
If there was a measure of stability in UK politics, we would be expecting the usual dispatch-box presentation by the Chancellor before Christmas. The annual budget is usually presented November each year.
This may still happen this year, but present uncertainties regarding the Brexit outcome, and the present government’s slim majority may scupper that timetable – we may have two budgets this Autumn or none at all.
Never-the-less, we will advise if and when a date is agreed. If we do leave the EU with no-deal, gripping the sides of your chair may be in order as the fiscal changes required (changes to taxation) to meet the resulting economic consequences, may be significant.
We will keep you posted.
The end of next month, 31 October 2019, is the latest deadline for our exit from the EU and the recent hiatus seems to be pushing the UK ever closer to a no-deal outcome.
Accordingly, if you are involved in buying or selling goods to EU countries, you should apply now for an Economic Operator Registration and Identification (EORI) number.
Without an agreed withdrawal with the EU, you will need an EORI number that starts with GB to move goods in or out of the UK. Additionally, if you want to trade with an EU country you will also need an EU EORI number. It will start with the country code of the EU country you got it from. You should apply for one from the customs authorities in the EU country you will trade with.
Apparently, you do not need an EORI number if you are only moving goods between Northern Ireland and Ireland.
If you do not apply, you may be faced with increased costs and delays. For example, if HMRC cannot clear your goods you may have to pay storage fees. Clearly, these delays could have serious repercussions if your exported goods are mired in red-tape at border crossings – your EU customers may look elsewhere for supplies – or your production and delivery in the UK may be affected if you cannot affect delivery of supplies from the EU.
There is a simple online application process to apply and there is no obligation to use the number if by some miracle we agree withdrawal terms with the EU before 31 October.
We have alerted building contractors and sub-contractors in previous newsletters of changes to the VAT rules from 1 October 2019.
In a nut-shell, if you are subject to the Construction Industry Scheme and if you are registered for VAT, from the 1 October 2019 you may need to change the way you account for VAT on supplies between sub-contractors and their contractor customers.
At present, sub-contractors registered for VAT are required to charge VAT on their supplies of building services to contractors. From 1 October this approach is changing.
From this date sub-contractors will not add VAT to their supplies to most building customers, instead, contractors will be obliged to pay the deemed output VAT on behalf of their registered sub-contractor suppliers.
This does not mean that contractors, in most cases, are paying their sub-contractors’ VAT as an additional cost.
When contractors pay their sub-contractors’ VAT to HMRC they can claim back an equivalent amount as VAT input tax; subject to the usual VAT rules. Accordingly, the two amounts off-set each other.
The change is described as the Domestic Reverse Charge (DRC) for the construction industry. It has been introduced as an increasing number of sub-contractors have been registering for VAT, collecting the VAT from their customers, and then disappearing without paying the VAT collected to HMRC.
Beware cash flow concerns
However, the change to DRC may create cash flow issues especially if you use the VAT Cash Accounting Scheme or the Flat Rate Scheme.
We recommend that all affected CIS readers contact us so we can help you make the necessary changes to your invoicing and accounting software and reconsider the use of VAT special schemes if your continued use would adversely affect your cash flow.
In much the same way that we make judgements about our personal fitness: are we overweight, do we get enough exercise, do we eat the right food; similar judgements can be made about your business.
There is also a raft of external pressures that we have to consider as individuals. For example, if you are about to run a marathon your diet and daily exercise will need to prepare you for the physical demands of the coming event. Simply continuing a couch potato regime will inevitably lead to disaster.
In much the same way, we not only need to meet current demands when we sit down to manage our business activity on a day by day basis, we also need to keep a weather eye on changes to the economy and the antics of the politicians that pull the strings.
If a slow-down in activity is likely, for whatever reason, the demands on your business will likely result in lower sales, pressure on your profit margins, a reduction in cash balances and downward pressure on your earnings from the business.
Compare this with a rapid up-turn in economic activity. You will need sufficient cash reserves to meet increased sales, investment in stock and possible increased staffing costs.
In both cases, significant changes will make similar demands on your business cash flow, and whilst the details will differ, to survive these changes we need to be prepared, we need to manage our business fitness.
Without a doubt, losing the ability to move goods and personnel across Europe is probably the most dramatic change in the UK’s ability to trade in the EU since we first joined in the 1970s. Even if our business does not actively trade with companies in the EU, it is highly likely that a number of our suppliers and customers may do so.
How will this affect your business? What plans do you have in place to counter any down-side risks?
We suggest that undertake a formal risk assessment to identify and counter financial pressures that you may face after 31 October 2019. Please call so we can help you ready your business for the coming changes. The clock is ticking.