Month: November 2011

File your tax return on time!

In the past as long as you paid your tax liabilities on time and cleared any self-assessment tax due by 31 January, no late filing penalties were due. Even if you failed to pay your tax on time, late filing penalties were capped at £100 or nil if you were due a tax refund.

The goal posts have moved!

The 2010-11 tax returns have to be filed by 31 October 2011 if you are filing a paper return, or 31 January 2012 if you are filing electronically. If you fail to meet these deadlines you face the following penalty regime, even if your tax payments are up-to-date.

Penalties incurred

  • One day late an initial penalty of £100.
    Three months late a daily penalty of £10 per day up to a maximum of £900.
    Six months late an additional £300 or 5% of any tax outstanding, whichever is the higher amount.
    One year late a further £300 or 5% of any tax outstanding, whichever is the higher amount.

As you can see the minimum penalty for filing 6 months late is £1,300 even if all your tax due is paid on time or you are due a tax repayment
If you have had a relaxed attitude to meeting the filing deadline in the past; you may like to reconsider your priorities for the filing of the 2011 return!

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Interest rate predictions

The MPC’s latest decision was hold and a rise looks a long way off – despite figures showing (18 October) inflation had climbed to a new high of 5.2 per cent.

The committee is focused on heading off a double-dip recession, believing inflation will fall next year, and therefore opted at the October meeting to restart its quantitative easing programme – an electronic form of money printing.  The October MPC minutes revealed members talked about £100billion of QE before agreeing on £75billion.

The vote was 9-0 in in favour of holding rates – the same as in September and August. The vote had been locked at 7-2 for two months before that and it was 6-3 earlier this year when a rate rise looked a possibility.

That shift in voting reflects the remarkable and rapid movement in forecasts for rates over the summer, with predictions for the first rise, week by week, taking huge strides into the future:

– In March/April, a rise was seen as imminent;
– In
June, the forecast was for a hike in July/August 2012;
– By early August, futures markets earmarked early 2013 for the first increase;
– By October, the market priced early 2014 for a rate rise.

The counter argument to low rates is that inflation – at 5.2 per cent in September (18 October), up from 4.5 per cent and way above its 2 per cent target – is a problem and should be tackled.

There was a warning from the OECD that rate rises must happen in 2011 (25 May) to avoid inflation becoming ’embedded’ in the economy.

But the over-arching mood is that the economic recovery remains weak, making it difficult to hike the cost of borrowing.

It’s also worth noting that in the US, the Fed Reserve has said (9 August) it expects its key rate to remain at rock bottom (it’s in a 0-0.25 per cent range) until 2013.

So when will the MPC make the first move?

 Interest rate futures have seen a big shift in recent months. At the extremes, they pointed to an immediate rise in spring, but by early October indicated spring 2015 for the first increase.

Today (1 November) they indicate the first rise to be in September or October 2014. Last month’s plans for more QE had briefly combined with hopes for a euro rescue deal to marginally bring forward the chances of a rate rise – to early 2014 – but this soon reversed.

These market predictions are wildly volatile – as we’ve constantly warned – and should be treated with caution.

However, for now rate rises look like a distant prospect, despite raised concerns about inflation in the wake of QE2.

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FSA warnings over structured products

Structured products offer a “guaranteed return” for a fixed time period usually dependent on the return of a number of financial stock indices.

The regulator has revealed it worried the growing number of structured products is placing a strain on firms’ systems and controls.

The City watchdog made its comments after assessing seven major providers of structured products and uncovering weaknesses in the way firms design and approve their products, thereby increasing the risk to consumers.

As a result of its assessments, the FSA today (2 November) introduced further guidance for firms when developing new structured products which they want to market to consumers.

Nausicaa Delfas, head of conduct supervision for the FSA, said: “Structured products are rising in popularity in today’s low interest rate environment, and we are concerned that the growing number of structured products, as well as increasing product complexity, is placing a strain on firms’ systems and controls.”

“Many of the problems we found with the product design process were rooted in the fact that the firms are focusing too much on their own commercial interests rather than the outcomes they are delivering to consumers.”

This is the second piece of guidance the FSA has published focusing on product design. Yesterday, the FSA and OFT jointly published guidance for consultation aimed at firms that are developing, or planning to develop, protection products similar to payment protection insurance.

The main problem with structured products is understanding exactly what you are buying and a proper assesment of the financial strength of the institution who provides the guarantees. With so many of the banks in trouble right now, it is a brave person who buys a structured product

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House prices turning?

In October, the price of a typical home was 0.8 per cent higher than 12 months ago, taking average house prices to £165,650.

Robert Gardner, chief economist at Nationwide, highlighted that given the “challenging economic backdrop”, the latest data is “encouraging”.

However, he warned that the data does not fundamentally change the picture of a housing market “that is treading water”.

He claimed that property transaction levels remain subdued and prices essentially flat compared to last year.

Mr Gardner said: “The outlook remains uncertain, but with the UK economic recovery expected to remain sluggish, house price growth is likely to remain soft in the period ahead, with prices moving sideways or drifting modestly lower over the next twelve months.

“Overall the pattern of transactions has been fairly stable, but the data indicates that there had been an increase in the proportion of sales occurring in more affluent areas and a similar reduction in less affluent areas.”

Mr Gardner emphasised that there was a correlation between trends in activity and employment.

He said: “For example, there has been a six per cent rise in employment in professional occupations since 2008, which is likely to have helped support housing market activity in ‘wealthy achiever’ neighbourhoods.

“Over the same period, employment amongst process, plant and machine operatives has fallen 13 per cent. Coupled with negative real wage growth, this is likely to have dampened activity amongst ‘moderate means’ and ‘hard pressed’.”

Nicholas Ayre, director of the property buying agency Home Fusion, claimed that average prices have “finally recovered” to where they were at this time last year.

He said: “But that can’t mask the fact that the number of sales is still paltry and the market is essentially stagnant.

“Demand is weak and, in many areas, so too is supply, as sellers hold off trying to sell in such an obviously lousy climate.

“If unemployment continues to rise, then we could see more properties come onto the market as people are forced to sell. This could provide further downward pressure on prices.

“The property market feels a little surreal at present, but while no one will be popping champagne corks today, these latest figures hint that there is still life in the old dog yet.”

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