Month: July 2011

The great holiday money ripoff

With British holidaymakers set to spend more than £4billion on their plastic this summer, this exchange rate trick could see cash-strapped families having to pay hundreds of pounds more while they are away.

Bob Atkinson, travel expert from holiday comparison site Travelsupermarket, says: ‘Sneaky shops and restaurants are increasingly charging tourists in sterling, knowing that people feel more comfortable with transactions in their own currency. But this is a huge rip-off.

‘The golden rule when abroad is always pay in the local currency, never pay in pounds and pence.’

Card giant Visa Europe estimates 2per cent of all overseas transactions made by Britons were converted by retailers into pounds.

Industry insiders believe the vast majority of these would have been in large tourist resorts.When you pay for a meal or shopping overseas using a credit or debit card, you’re supposed to be given the bill in the local currency.

On occasions, you may be given the choice of paying in sterling. This is where overseas retailers and restaurants make their mark-up.

They will add 5per cent or even more to the bill — usually without telling the customer. The retailer pockets the entire 5per cent.

Frequently, this mark-up will not even appear on the bill. Instead, it may appear on the card receipt in small print, by which stage it is too late to complain.

Some cash machines run by overseas banks also use the same trick, known as ‘dynamic currency conversion.’

Instead of offering the cheaper Visa or MasterCard rate, the transaction is converted into sterling there and then, using a poor exchange rate set by the bank.

There is no limit to how much banks or retailers can charge, and no consumer protection for people who later realise they have been ripped off.

Mark Bowerman, spokesman for trade body the UK Cards Association, says: ‘Paying in sterling may be appealing because you know exactly how much will appear on your bank statement.

Action to take

Insist on all payments being in local currency.

There are credit cards which do not charge a fee for withdrawing cash, but you will be charged interest from the moment you make the transaction.

The best fee-free cards are Halifax Clarity, which typically charges 12.9 per cent interest, and Santander Zero, which charges 27.9 per cent.

Nationwide, Post Office, Saga, Santander Zero and Halifax Clarity, don’t have fees for purchases.

Alternatively, you can use a pre-paid credit card. You load up a plastic card with a currency of your choice at a set exchange rate. You can then use the card to pay or withdraw cash wherever you see the MasterCard or Visa logo.

The Caxton FX and FairFX card are among the cheapest. These, unlike many others, do not charge a fee for purchases.

Prepaid cards sold by travel agents may be expensive. You can compare the best deals on a comparison site, such as

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Interst rate increase not likely in the near future

Expectations of an increase in the official interest rate, or Bank Rate, from its 0.50 per cent level were pushed back last week.

The minutes from the Bank of England’s Monetary Policy Committee meeting in July, published on 20 July, showed the risks that economic activity would remain subdued through the rest of 2011 had increased.

The minutes said: “Expectations implied by market prices of the point at which Bank Rate would begin to rise had been pushed back further during the month, partly because economic data, both at home and overseas, had been softer than anticipated.”

The current balance of risks to the economy and of rising inflation led the majority of committee members to conclude that ‘recent developments had reduced the likelihood that a tightening in policy would be warranted in the near term.’

Weak economy

A variety of factors have adjusted the position of the MPC slightly, pointing to the fragility of the recovery in the UK. This includes ongoing restrictions on the supply of credit to businesses and weaker consumer spending.

In an interview with the Financial Times on 25 July 2011, Vince Cable said there wasn’t a ‘strong recovery’ in the UK at the moment, suggesting the Bank of England could consider further quantitative easing.

Quantitative easing was a programme of asset purchases the Bank began in 2009. The measure designed to boost the financial system has remained at the £200billion level since the end of 2009. One member of the MPC is calling for this to be increased to £250billion.


The MPC minutes said price increases such as rising electricity and gas bills were likely to push the Consumer Prices Index (CPI) measure of inflation to five per cent ‘in the coming months’.

“In the light of recent developments in utility and food prices, the peak in inflation was likely to be a little higher and come sooner than the Committee had previously expected,” the minutes said.

Despite this the Committee broadly expects this spike in inflation to be temporary and over the longer term, into 2012, inflation will fall back due to the fact the economy is not running at full capacity.

One concern about inflation above the two per cent target is that it will become embedded in wages and prices. However, the MPC has seen no evidence yet of wages spiralling upwards.

“There appeared to be a significant degree of slack in the labour market and that was likely to bear down on earnings growth for some time.”

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Changes to french property tax

UK residents owning property in France are likely to see an increase in the French taxes they pay from 1 January 2012, according to KPMG in the UK as a result of two key changes.

The first of these changes is the introduction of a new annual tax levied on non-French residents owning property in France that is not rented out.

The second change to potentially affect French property owning residents comes as a result of a number of amendments to the French wealth tax rules.  Within these changes are proposals that would bring properties worth more than €1.3 million owned via a company into the scope of the French wealth tax regime.

A KPMG spokesperson, said:  “These are significant changes and Britons with property in France need to look at them carefully to see how they are affected.  Although the new rules are set to come in from January 1st next year, we do not yet have full details of how they will work.  It does seem though that some people will see their annual tax bills double and they could also face paying wealth tax as well.

“The changes to the wealth tax regime are a double edged sword in the extent to which they affect Britons with properties in France.  Those who own valuable (€1.3m+) properties via a company are likely to find themselves drawn into the wealth tax net and thus paying an extra tax.  But those who are already subject to French wealth tax rules because they don’t own their properties in this way may see their tax bills fall as the actual rates of wealth tax are reducing.”

The changes are set to be adopted by the French parliament by mid-July this year and are still subject to change.  But in KPMG’s view most UK residents with property in France are set to pay increased French taxes from next year.

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Tax avoidance campaigns continue

New campaigns targeting VAT defaulters, private tutors and e-marketplaces will be launched by HM Revenue & Customs (HMRC) over the next year.

HMRC will use cutting-edge tools such as “web robot” software to search the Internet and find targeted information about specified people and companies. Using the software, the department can pinpoint more accurately people who have failed to pay the right tax. The “web robot”, used with the department’s Connect computer system, also helps find people who are trading without telling HMRC.

Connect alerts HMRC to previously invisible tax evasion by matching a vast amount of HMRC and third-party data, enabling a fast and focused response to tax evasion. It shines a light onto previously hidden relationships, uncovering anomalies between such elements as bank interest, property income and lifestyle indicators before homing in on unexplained inconsistencies.

Before designing and launching the campaigns, the department will seek input from interested parties.

HMRC announced last month that a campaign targeting VAT rule-breakers trading above the £73,000 turnover threshold but who have not registered for VAT will be launched in the summer.

Other campaigns that will be launched in 2011/12 will focus on:

  • Those who provide private tuition and coaching. This addresses the risk posed by all professionals who, because of their field of expertise, are able to earn money from providing tuition and coaching – either as a main or a secondary income. It covers people providing private lessons, regardless of whether they have a teaching qualification, and could include, for example, fitness/dance/lifestyle coaches through to national curriculum subject tutors and others.
  • E-marketplaces. This will cover those who are using e-marketplaces to buy and sell goods as a trade or business and who fail to pay the tax owed. People who only sell a few items and who are not traders are unlikely to be liable to tax and will not be targeted by this campaign.
  • Trades. This will build on HMRC’s plumbers’ campaign and give an opportunity to another group of tradespeople to come forward and declare unpaid tax.

Mike Wells, HMRC’s Director of Risk and Intelligence, said:

“We want to make sure HMRC listens to as many informed views as possible for our future campaigns. We want the views and experience of people and organisations outside the department to play a fuller part in the campaigns that we design for customers.

By being open about our areas of interest for the coming year we hope to maximise that exchange of information and ensure we reduce the tax gap and help customers pay what they owe.

We will use the information we gather to pursue people who choose not to use the opportunities we provide for them to put their affairs in order on the best possible terms. It will be more expensive if we come and find people, so I urge them to come forward and disclose voluntarily.”

So far, more than £500m has been raised by HMRC from voluntary disclosures and a further £100m from follow-up activity. Previous campaigns have targeted offshore investments, medical professionals and people working in the plumbing industry.

Information on campaigns for 2011, including how people can work with HMRC to influence their development, will appear on the HMRC campaigns pages shortly.

Those who believe the coming campaign activity may apply to them and who want to come forward now and voluntarily disclose can call 0845 601 5041.

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Uk inflation rate still above target

The UK’s annual inflation rate has fallen slightly over the past month but remains above the government’s target measure, the latest official data reveals.

Figures published by the Office for National Statistics shows that the consumer price index rose by 4.2 per cent on an annual basis in June, down from the 4.5 per cent recorded in the previous month.

However, this is still over the 2 per cent target measure. The last time inflation came in below the official target was November 2009, when it stood at 1.9 per cent.

The ONS says that food and non-alcoholic beverages placed the largest upward pressure on consumer prices in June, with bread and cereals, meat, and milk, cheese and eggs producing the most notable rises. Fuels and lubricants also drove the consumer price increases.

Downward pressure on the UK’s inflation came from falls in recreation and culture prices, especially from games, toys and hobbies, particularly computer games, and audio-visual equipment and related products.

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