HMRC stops sending self assessment repayment letters
HMRC will no longer send out letters in the post advising taxpayers of self assessment repayment notifications, claiming they simply caused confusion
The change was announced on 7 December and came into effect immediately affecting notifications about all Bacs self assessment repayments.
This will affect tax advisers and individual taxpayers. Instead of a letter, HMRC will send out a digital confirmation although this will not start immediately as the IT system has to be updated to handle the change.
In an update to accountants and tax advisers, HMRC said: ‘We’re changing how we let you and your clients know we’ve issued a SA Bacs electronic repayment. There is no change to the repayment process itself, so customers will still receive any monies owed to them through their bank as normal.
‘We’ll no longer send a letter informing you or your client of an SA repayment. We often find these letters arrive after the repayment has been made leading to confusion and increased contact from customers.
‘We are making improvements to our IT systems in relation to SA repayments, so we are also temporarily pausing digital notifications from 7 December 2023 while we do this. We’ll let you know when these notifications are reinstated.’
HMRC has clearly judged that the volume of calls about repayment issues is too high and sees this as an area where it can reduce costs. The end of letter communications should reduce pressure on limited resources in call centres, while also saving on the cost of producing letters and postage.
Accountants and individual taxpayers will still be able to view repayment transactions through HMRC online services. The information will be available in agents accounts, where agents can review transactions for their clients. Individuals will be able to access their HMRC online account to review any transactions and can also sign up to receive digital notifications, although this service is currently suspended.
The end of repayment letters was announced at the same time as HMRC seriously curtailed the use of self assessment helplines in the run-up to the tax return season. This will see HMRC call handlers only dealing with the most complex enquiries, while all callers will be met with a message stating that the majority of queries can be handled online on HMRC’s website. They will also be sent a text message, if they have called on a mobile, advising them where to find the information requested.
The reduction in helplines will also hit accountants, with the agents dedicated line handling only the most complex queries during the self assessment season, while HMRC call handlers will not deal with any PAYE-related questions until February.
Accountancy bodies criticised the move, pointing to a major resource issue at HMRC, which has seen a number of service cuts in recent months.
John Barnett, chair of CIOT’s technical policy and oversight committee said: ‘We are concerned that in practice many of their customers will be unable to navigate HMRC’s digital services and will simply give up.
‘Previous trials to limit calls to complex queries, or diverting people to online services, have proven either troublesome or inconclusive.’
- Published in HMRC, Self Assessment
Selling an unwanted Christmas jumper? Watch out for tax trap
Digital platforms like eBay, Vinted and Airbnb will have to report seller data to HMRC from January giving the tax authority access to unparalleled information, warns Miruna Constantin, tax manager at RSM
Are you one of the millions of UK individuals selling second hand clothes on digital platforms? Whether you’ve been caught by the Marie Kondo urge to declutter and detoxify your wardrobe, or have a side hustle on platforms such as Vinted, Vestiaire Collective, eBay or Etsy, HMRC will be keen to find out more about potential untaxed income.
Vinted has over 8m registered sellers in the UK with some users claiming they have turned selling second hand clothing into a full-time job and thanks to new information powers HMRC will start to know about that income.
From 1 January 2024, digital platforms will have to start collecting seller data and pass that over to HMRC to match against taxpayers’ records to make sure people report the right information on their tax returns.
The measures also impact those renting out properties on Airbnb (among other platforms) or people selling their services online, and these platforms have been warned to brace themselves against landing in hot waters with HMRC.
The first reporting deadline for online platforms will be 31 January 2025 and to meet these requirements they will need to implement new ways of collecting seller information so that HMRC can match and verify it against taxpayers’ records to make sure individuals are correctly reporting their income on their tax returns.
There will be hefty fines and penalties for failing to submit reports or submitting ‘inaccurate, incomplete, unverified sellers’ records’ so the platforms will be incentivised to ensure they meet their reporting obligations.
If you are an occasional seller receiving no more than £1,700 for fewer than 30 sales in a reporting period, your information is not required to be provided to HMRC. However, that doesn’t mean you do not have any tax reporting obligations.
Depending on whether you have a profit-seeking motive (for example, some online platform users buy premium items from outlets and then sell them at a profit online), the number of transactions you make, or the nature of the assets you sell, your little side hustle might be seen as trading.
In this case a self-assessment tax return will need to be filed with HMRC and income tax and National Insurance contributions paid accordingly. If you make sales of £1,000 or more in a year, you will need to consider whether a tax return is required.
The good news is the information collected by platforms must be shared with HMRC as well as with sellers, which should help taxpayers get their affairs right. It could however bring a whole new raft of unaware individuals within HMRC’s reach and could make some taxpayers think twice about their wardrobe spring clean.
Considering the fast approaching deadline, digital platforms need to be ready to start collecting information in the New Year, but HMRC should also take steps to ensure that sellers are aware of the potential tax implications they may face and educate them appropriately.
- Published in HMRC
HMRC slashes access to helplines for seven weeks
In the busiest period of the tax year, HMRC plans to significantly reduce access to the self assessment helpline, prioritising only complex queries from Monday
Without prior warning, HMRC has confirmed that from 11 December until 31 January, it will redirect the majority of callers to the self assessment helpline to online services, telling taxpayers to find their own answers to queries about tax returns.
HMRC said that call centre advisers will focus on answering ‘priority queries’, described as ‘those that cannot be easily dealt with online’, as well as supporting the small minority of callers who require extra support or cannot use online services.
However, HMRC has not explained how these priority calls will be ranked and dealt with during this period.
The sudden announcement, with only four days’ notice, follows the abrupt three-month closure of HMRC helplines over the summer and the decision that helplines would be cut by 30% by the end of 2024 to allow staff to be reallocated to jobs in other parts of HMRC.
In the same period last year, HMRC received 1.2 million calls, more than one fifth of the total calls received in the 12-month period.
The service reduction will also affect accountants and tax advisers who will be told to use online services rather than relying on the agent dedicated line to resolve problems.
HMRC said: ‘Agents who call the ADL and whose queries are not specifically related to SA filing, payments or repayments, including agents with multiple client queries, will be redirected to alternative channels or asked to call back in February.
‘During SA peak, ADL will not be dealing with any PAYE-related calls, however we know that many queries can be resolved quickly and easily online. We encourage agents to consider using tools such as the ‘Income Record Viewer’ or the Where’s my reply tool before contacting us.’
The decision has been heavily criticised by accountants and tax advisers.
John Barnett, chair of CIOT’s technical policy and oversight committee, said: ‘Reducing access to HMRC’s self-assessment helpline is misguided.
‘While we understand HMRC’s desire to prioritise where it puts its limited resources, we are concerned that in practice many of their customers will be unable to navigate HMRC’s digital services, and will simply give up.
‘Previous trials to limit calls to complex queries, or diverting people to online services, have proven either troublesome or inconclusive.’
Glenn Collins, head of strategic and technical engagement at ACCA, described HMRC’s service as ‘unacceptably poor’.
‘The dramatically reduced service will be a worry for taxpayers and financial professionals alike,’ said Collins. ‘At a time when queries around self assessment go up significantly, this move by HMRC once again demonstrates it lacks the proper resources that it desperately needs.
‘ACCA has repeatedly called on the UK government to make significant improvements to the HMRC services, including the availability of HMRC agents to resolve basic issues which is currently not being achieved using the current HMRC online services.
‘We stand by our previous statement whereby we referred to HMRC as having unacceptably poor service. The difficulties experienced by accountants in working with HMRC cannot be overstated, and the reduced service offered by the helplines will surely only further exacerbate poor service levels and cause more frustrations at one of the busiest times of the year.’
The influential Treasury Committee was also critical of the decision, particularly the lack of notice about the service reduction.
Chair of the Treasury Committee, Harriett Baldwin, said: ‘Giving the public less than two working days’ notice of a significant reduction in service, while the deadline for self assessment returns looms, is yet another alarming development for an increasingly pressured government service. I have written to the CEO of HMRC in order to get much-needed answers about what this means for taxpayers.’
HMRC rejects any criticism of the downgrade to helplines and CEO Jim Harra told MPs on the Treasury Committee that the tax authority is fully committed to a move to a digital only approach.
It is convinced that many of the calls to the helpline are for trivial requests and said that ‘around two-thirds of calls to the SA helpline can be resolved far quicker through HMRC’s online services. To make all SA callers aware of the department’s extensive online services, recorded messages supported by SMS texts will be used’.
However, recent figures show that nearly one in five taxpayers were not satisfied with HMRC’s online services and it is difficult to resolve complex queries online. HMRC said that most calls are about basic questions which can easily be resolved online, such as updating personal information, chasing on the progress of a registration and checking a Unique Taxpayer Reference number.
Angela MacDonald, HMRC’s deputy chief executive, said: ’This is a busy time for customers who want to get their taxes sorted. We want to help customers resolve any issues in the quickest and easiest way, which is often through our online services.
‘The vast majority of self assessment customers file their returns digitally, so we’re helping them make the next step to resolving simpler queries through our online services.
‘Our expert advisers will be there to help people with urgent and more complicated queries as well as helping the small number who are unable to access our online services.’
Services on the Agent Dedicated Line will replicate the self assessment offer, with agents also being directed to our digital services for suitable queries.
HMRC is transitioning to a digital-first approach and said it was ‘continuing to improve and expand its online services, increasing their capabilities and ease of use so they become the default option for customers’.
Taxpayers who need support to complete their return for the 2022 to 2023 tax year ahead of the deadline on 31 January 2024 have been told to go to HMRC’s online support. More than 97% of self assessment taxpayers file their tax returns online.
- Published in HMRC
Ofcom tightens guidance on tackling online fraud
Online fraud accounts for 40% of all crimes reported in England and Wales, with the majority of incidents happening online
Ofcom found that nine out of 10 adults in the UK think they have come across content connected with a scam and 25% admitted to losing money as a result. Many victims said it not only impacted their wallets but also their mental health.
As the online safety regulator, Ofcom has issued a revised Code of Practice to support the Online Safety Act that was passed last month.
The online safety rules ‘make it harder for fraudsters to operate online’ by making online service providers assess the risks of the user being harmed while using their platforms.
With the rate technology is advancing fraudsters are always adapting with the advancements, implementing social media and artificial intelligence (AI) to scam victims into sharing personal details, such as bank account details and addresses.
Under the new guidance, Ofcom has suggested measures for larger service providers that attract a greater level of risk, including the implementation of an automatic keyword search, employing an expert reporting system to contact regulators and law enforcement more easily, and installing a verification system for users.
They should also have to name an accountable person as a user, provide extensive training to content teams to recognise illegal activities, introduce a method of easy reporting for users and safety test recommended content.
The main attention is focused on protecting children against scams. Dame Melanie Dawes, Ofcom’s chief executive said: ‘Regulation is here, and we’re wasting no time in setting out how we expect tech firms to protect people from illegal harm online, while upholding freedom of expression. Children have told us about the dangers they face, and we’re determined to create a safer life online for young people in particular.’
Ofcom are planning on publishing a consultation on online fraud in January.
Michelle Donelan, science, innovation and technology secretary said: ‘Before the Bill became law, we worked with Ofcom to make sure they could act swiftly to tackle the most harmful illegal content first. By working with companies to set out how they can comply with these duties, the first of their kind anywhere in the world, the process of implementation starts today.’
- Published in Fraud
Paper VAT registrations end on 13 November
HMRC will be scrapping paper VAT registrations and mandating online only sign-ups next week
The new rules will come into effect from 13 November as part of HMRC’s Making Tax Digital (MTD) strategy.
Taxpayers will have to register for VAT through the online VAT Registration Service using their Government Gateway account. However, some types of business will not be able to use the service as the online service still needs to be expanded to cover businesses joining the agricultural flat rate scheme, overseas partnerships and entities without a unique tax reference (UTR) number.
It is important to note that if a taxpayer has a particular exemption, they will have to contact HMRC by phone to request a paper form which will then be posted to them for completion. Paper applications take up to 40 days to process.
Taxpayers will have to ask for a VAT1 form to get online exemption by calling the VAT Helpline on 0300 200 3700 and ‘they will have to justify why they are unable to register online’, HMRC said.
While 95% of firms are already registering for VAT online, next week’s change could be daunting for the 5% that have not completed it this way before.
Mariana Príncipe, head of VAT compliance at Ryan, said: ‘There are three key advantages to digital-only VAT registrations that will benefit both HMRC and businesses, including faster turnarounds for VAT numbers as there should be less of a wait to get VAT numbers, a reduction in the amount of paperwork and it will be a more secure process.
‘VAT registration in the UK requires highly sensitive information, including the passport details of the legal representative and the trade register. This information could be intercepted if sent by post, and emails can also be hacked easily. By completing the registration through HMRC’s secure online portal, the risk of private information falling into the wrong hands is reduced significantly.’
The move is part of HMRC’s plan to move all tax transactions online to cut costs and reduce use of call centre advisers by 30% by the end of 2024.
HMRC told stakeholders: ‘Supporting our customers is a priority for us and online applications for VAT registrations aligns with our ambition to increase the use of digital channels.
‘For customers that are unable to access and use our digital channels, we’ll always provide a service to meet their needs. We continue to offer support through non digital channels such as via telephone, including our extra support service.’
With the push to digital filing and reduction in phone support, HMRC will have to invest heavily in existing IT systems to ensure they can be used for specialist services.
Príncipe added: ‘HMRC is making fantastic strides on its MTD strategy, especially compared to other European countries. In Spain, for example, to perform a VAT registration, it still requires an individual to book a meeting at a tax office and physically bring in the paperwork.
‘Coming up next, all eyes should be on the Form VAT652. This is the form that you have to complete if you are making a correction to your VAT return. At the moment, you can complete this form online or via a paper form, but I am sure it won’t be long before the paper option will be removed.’
- Published in VAT
Hike in directors trying to avoid tax debt by dissolving business
Directors trying to dissolve their own companies to avoid paying debts and tax bills have seen a threefold increase in objections by creditors in the past two years
The number of objections to company strike offs at Companies House was 590,063 in 2022/23, more than double the figure just two years ago when there were 203,613 rejections in 2020/21. In the last year alone there has been a 30% increase to 452,209 in 2021/22, found analysis by Price Bailey.
This shows the spike in companies requesting dissolution when they have unpaid tax bills or bounce back loans issued during the pandemic, which means they are not eligible to stop trading.
The number of strike off applications has barely changed over the past year, and increased by just 18% over the last two years, from 280,086 in 2020/21 to 330,644 in 2022/23, indicating that a much higher proportion of strike off applications are from company directors with outstanding debts.
Directors should only apply to have their companies struck off the register if they have no outstanding liabilities, such as unpaid taxes owed to HMRC, Covid-related loans or money owed to staff or suppliers.
Directors who try to have their companies dissolved without settling their debts are risking severe penalties and criminal sanctions.
William Wilson, partner at Price Bailey, said: ‘These are essentially insolvencies by the back door. A company must be solvent with no outstanding debts for the voluntary strike off process to go smoothly.
‘The surge in creditors objecting to strike offs means that directors are trying to close their companies down and walk away from unpaid debts.
‘Directors are taking huge risks by going down this path. In many cases these companies will have received bounce back loans, which may have been misused to finance the day-to-day living of directors.
‘Directors could be personally liable for the bounce back loan if misconduct is proved. HMRC can also shift liability for tax debts onto directors if they don’t adhere to their legal responsibilities.’
The rising amount of fraud from bounce back loans means that company directors are likely to be scrutinised much more closely.
He added: ‘The government has been clamping down on misconduct by directors in receipt of bounce back loans, including against directors who dissolve companies without paying off the loans. If any evidence of fraud or misconduct emerges directors can be disqualified for up to 15 years or face a prison sentence.’
Price Bailey warned that directors who pay the objecting creditor and resume the strike off process would be guilty of making a preference payment if other creditors are unpaid, which would also be a serious breach of their legal responsibilities.
William added: ‘Directors who pay a creditor in preference to others may face sanctions for wrongful or fraudulent trading. Directors could then face personal liability for company debts, disqualification or even prosecution.’
A director whose attempt to dissolve their company has been blocked should undertake a formal insolvency process known as a creditors’ voluntary liquidation (CVL). During a CVL an insolvency practitioner will be appointed. Any assets in the company will be liquidated and distributed to outstanding creditors on a proportional basis and remaining debts written off.
Wilson added: ‘A CVL will likely be the best option for most of these companies. It ensures that creditors are dealt with equitably, legal obligations fully met and, crucially, directors cannot be held personally liable for any debts for which they have not provided personal guarantees.’
- Published in Uncategorized
Small companies will have to report P&L figures
The government is going ahead with plans to tighten up the accounts filing framework for small companies with mandatory profit and loss figures but has not set out implementation timetable
Under the new rules in the Economic Crime and Corporate Transparency Act 2023, small companies will be required to file a profit and loss account and directors’ report. This will ensure that key information such as turnover is available on the public register. Companies will no longer be able to file abridged accounts.
A spokesperson at the Department for Business & Trade told Accountancy Daily: ‘We have not set out a timetable for implementation of the new rules but any changes will not affect accounts due from 1 January 2024. We need to allow time for Companies House to update their systems. We will be confirming more details about the filing changes in due course.’
‘Requiring more information to be filed will reduce the risk of deliberate misuse of minimal disclosure options to hide money laundering and other fraudulent activity. Ensuring all companies report sufficient information to determine a company’s size and eligibility to file under size specific regimes will improve the value and reliability of the information,’ the government said.
Rather than detailing the filing obligations for small companies andicro-entities in the same section of Companies Act 2006, the Economic Crime and Corporate Transparency Act 2023 splits the requirements into two sections, which aims to make the filing requirements clearer for companies to understand. The new legilsation covers sections 53 to 58 [from page 47 onwards].
Under the new rules, amendments to the small companies filing requirements require the preparation of annual accounts in accordance with section 396 CA 2006.
In future, small companies will be required to file a profit and loss account, and directors’ report. This will ensure that key information such as turnover is available on the public register at Companies House. A company is defined as small if it meets two of the following criteria: turnover of less than £10.2m, £5.1m or less on balance sheet and 50 employees or fewer.
Micro-entities with turnover of less than £632,000, balance sheet of £316,000 and 10 employees or under, will be required to prepare annual accounts in accordance with the requirements of section 396 CA 2006, which requires the preparation of a profit and loss account. They will not have to produce a directors’ report.
There will no longer be an option for micro companies to prepare abridged accounts.
The government said ‘the amendments will make the filing requirements easier to understand, reduce fraud and error, and improve transparency’.
Directors who use the audit exemption rules, including dormant companies, will have to file an exemption statement, identifying the exemption being relied on and to confirm that the company qualifies for the exemption.
This additional statement is intended to act as a deterrent to criminal activity and to provide additional enforcement evidence.
The new rules are also meant to crack down on abuse of dormant company rules.
Evidence from law enforcement agencies shows that some companies file dormant company accounts and claim the dormant audit exemption, despite their bank accounts clearly showing that the company does not meet the definition of a dormant company. The additional statement is intended to act as a deterrent and help Companies House address such offences in the future.
The government plans to make further changes to reporting rules in a future amendment to the Act, including mandating digital filing, full tagging of financial information in iXBRL format, and a reduction of the number of times a company can shorten its Accounting Reference Period.
- Published in HMRC
Business insolvencies rise 17% on last year
There has been a sharp annual rise in the number of company insolvencies in September 2023 to 1,967, 17% higher than the same month last year
The worst hit sectors were construction, manufacturing and retail industries, reflecting the impact of higher interest rates and a sharp drop in residential house building.
In total, 395 construction related businesses went bust, followed by 380 catering and hospitality businesses and 352 companies involved in the motor trade, including repairs and forecourts.
However, the total number of business collapses was down 15.2% on August’s total of 2,319.
The company insolvencies consisted of 255 compulsory liquidations, 1,576 creditors’ voluntary liquidations (CVLs), 125 administrations and 11 company voluntary arrangements (CVAs).
Nicky Fisher, president of R3, the UK’s insolvency and restructuring trade body, said: ‘September 2023’s corporate insolvency figures are the highest we’ve seen for this month in four years as a combination of economic issues, director fatigue and the post-Covid insolvency lag see more firms turn to corporate insolvency processes to resolve their financial issues.
‘The fact that all forms of corporate insolvency process have risen year-on-year, with the exception of CVAs which have held steady, shows that businesses are struggling on all sides and from all ends of the supply chain.
‘It’s clear that the challenging trading climate is taking its toll on businesses. Firms are operating in a climate where people are cutting back their spending on non-essential items, while at the same time the costs of operating a business remain high – and will only increase as the weather gets colder and the cost of borrow and servicing existing debts get more expensive.
‘Our message to company directors is simple: if you’re worried about your business, seek advice. It’s a hard conversation to have, let alone start, but you’ll have more options open to you and more time to take a decision if you have it when your worries are new, rather than when they’ve spiralled.’
The latest GDP figures showed that the economy grew by 0.2% in August with warnings the UK could enter recession later this year. The insolvency figures highlighted weakness in construction and retail sectors.
Mark Supperstone, managing partner at ReSolve, said: ‘UK businesses are finding the current economic conditions challenging and it is expected that this is likely to continue in the near future with the construction, manufacturing and retail industries particularly struggling.
‘In regard to the construction industry, there is some alarm at the PMI figures released this week which signalled the largest drop-in housebuilding activity since April 2009 – aside from the pandemic shutdown.
‘However, there are green shoots emerging with the number of insolvencies being 15% lower in September compared to August as well as interest rates potentially looking like they might be set to stabilise. As we have seen over the years, construction is highly susceptible to market changes and is often ‘first in, first out’ of a downturn.’
Any buinsesses facing financial challenges should seek advice as soon as possible, warns Chris Tate, restructuring partner at Azets.
‘The current economic environment is likely to have an ongoing impact on profitability, so businesses owners must continue to look at their pricing structures, reduce overheads wherever possible, forecast well in advance and be alert to changing conditions in their market,’ Tate advised.
‘The best way to ensure a rescue solution rather than insolvency is to seek advice at the first sign of distress. With robust financial planning, a timely restructuring plan can help businesses safeguard against liquidation, protect jobs, and ensure long-term survival.’
- Published in Uncategorized
HMRC clarifies tax on home charging of company cars
HMRC has amended guidance on the tax treatment of electric charging of company cars and vans at residential properties
The costs of charging are now treated as a tax-free benefit, whereas in the past HMRC said that where an employer reimburses their employee for the cost of charging a company-owned, wholly electric car that is available for private use, the reimbursement was taxable as earnings.
HMRC has now changed this position and has updated the EIM23900 manual to reflect their revised interpretation regarding home charging of electric company cars.
Section 239 ITEPA 2003 provides an exemption on payments and benefits provided in connection with company cars and vans. This legislative provision therefore exempts aspects such as vehicle repairs, insurance, and road tax.
HMRC previously maintained that the reimbursement of costs in relation to charging a company car or van at a residential property was not caught by this exemption.
‘Following a review of our position, HMRC now accepts reimbursing part of a domestic energy bill, which is used to charge a company car or van, will fall within the exemption provided by section 239 ITEPA 2003,’ HMRC confirmed.
This means that no separate charge to tax under the benefits code will arise where an employer reimburses the employee for the cost of electricity to charge their company car or van at home.
The exemption will however only apply providing it can be demonstrated that the electricity was used to charge the company car or van.
Employers will need to make sure that any reimbursement made towards the cost of electricity relates solely to the charging of their company car or van.
- Published in HMRC
Bank of England leaves interest rate at 5.25%
For the first time in over a year, the Bank of England has maintained the current interest rate at 5.25%
The decision to hold the base rate comes after the minimal drop in inflation to 6.7%. The monetary policy committee voted by a majority of 5–4 to maintain bank rate at 5.25%. Four members wanted to increase the interest rate by 0.25%, to 5.5%.
This means that HMRC interest rates will remain at 7.75% until at least November when the Bank meets again.
The Bank also indicated that it expects inflation to return to the 2% target in the medium term, but unlike last month’s report, did not put a timeframe on its earlier estimate of Q2 2025.
‘Monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term,’ the Bank noted. ‘Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures.’
CPI inflation is expected to fall significantly further in the near term, reflecting lower annual energy inflation, despite the renewed upward pressure from oil prices, and further declines in food and core goods price inflation, the Bank said. Services price inflation, however, is projected to remain elevated in the near term, with some potential month-to-month volatility.
Nigel Green, chief executive of deVere Group, the financial advisory and asset management firm, said: ‘The central bank policymakers should go further and commit to stopping the hiking agenda, rather than just pausing it.
‘The battle against inflation is gradually being won. Further stifling economic growth by resuming rate rises next time around will lead to yet more decline in investment, entrepreneurial activity, development, innovation – and therefore jobs and a decline in overall economic well-being.
‘As such, this is now the time for the BoE to stop – not pause – interest rate hikes.
‘The time lag for monetary policies is notoriously long. It typically takes about two years for the full effect of rate hikes to filter fully into the economy – and this is where we are.’
The impact of soaring interest rates has had a punitive impact on businesses exposed to high borrowing.
Nils Kuhlwein, partner at Kearney, said: ‘While the effect of rising interest rates on UK plc is well-known, closely watched, and priced into future risks, successive base rate jumps over recent years have turned the screw on these companies.
‘Recent Kearney research into companies which are unable to meet interest obligations through operating profit – known as ‘zombie companies’ – shows that if struggling UK companies were forced to refinance at twice the interest rate they enjoy currently, the share of this ‘walking debt’ amongst UK business would increase by almost 10%.
‘Given that many of these companies currently see rates as low as 2-3% on some debt, this is hardly unreachable.’
- Published in Interest Rates