UK Watchdog launches investigation into the Big Four accounting firms
Britain’s big accountancy firms could be banned from earning lucrative consultancy fees at businesses they audit following a series of scandals that have rocked the sector.
The UK’s audit watchdog, the Financial Reporting Council, laid out a series of reforms to tackle what it admitted was the “underlying falling trust in business and the effectiveness of audit”.
It also severely rebuked top firm KPMG, the auditor of collapsed construction giant Carillion, finding “a deterioration in the quality of the audits that we inspected to an unacceptable level”.
KPMG earned about £1.5m a year vouching for Carillion’s accounts, and in March 2017 expressed no concern over reported profits of £150m, even though four months later these proved to be illusory.
The FRC report lays bare how dependent the “big four” firms – Deloitte, EY, KPMG and PwC – are on the huge fees generated from consultancy work rather than the more humdrum business of auditing.
It said that in 2017, the big four earned a total of £2.1bn from auditing but another £8.4bn from non-audit consultancy. Just over £1bn of that income came from firms they also audited.
The FRC’s proposals echo calls by a parliamentary committee earlier this year, which demanded that the audit arms of accountancy firms should be detached from their consulting services, to avoid conflicts of interest.
The FRC is itself under intense pressure to improve its performance, after being widely criticised as too timid and too close to the firms it is supervising. It is currently the subject of a government review, led by Sir John Kingman, to determine if it is fit for the future.
The FRC said that it would in future “conclude cases more quickly” and increase fines so that financial penalties against auditors “reflect the gravity of the issue”.
How might Brexit affect UK tax policy?
Nearly two years after the UK voted to leave the European Union, it is still not totally clear what impact Brexit will have on Britain – especially as we await the outcome of the negotiations between the government and the EU. However, one area Brexit may well impact is tax policy – especially for business taxes.
Corporate and general tax issues
“Generally, the feeling is that most corporation tax issues will be quite manageable,” Daniel Lyons, head of Deloitte’s tax policy group, says. “However, there are some implications around withholding tax, and while most of those will be picked up in tax treaties, there are one or two instances where that is not the case.”
“There is lots of uncertainty about the UK corporation tax rate going down to 17% – it’s difficult to see how the economy can afford it,” says George Bull, senior tax partner at RSM. “Are we even sure it’s going to happen? I think two potential changes to consider are: first, what will the corporation tax rate be; and second, are there any tax reliefs where we can be more generous once we’ve left the EU [to boost our competitiveness] because state aid rules currently prevent how generous we can be.”
Philip Hammond says he is strongly considering introducing a so-called “Amazon tax” to try to rescue struggling retailers.
Mr Hammond also warned that the high street would have to change for good.
“We’re changing our shopping habits,” he said. The chancellor was speaking as the latest set of GDP figures were released
“More and more of us are buying online. Indeed, Britain has the biggest percentage of online shopping of any major developed economy. That means the high street will change.
“We’re very clear that you have to support the high street through that process of change.
“The nature of the offer on the high street is going to change over time. There’s going to be less retail, more leisure, bars, community facilities.”
Earlier this week it was reported that paid £4.6m in tax, despite earning an operating profit of just under £80m.
Judicial reviews involving HMRC increase by 36%
17% increase in time taken to answer calls at HMRC
As well as phone answering times increasing 14.6% of individuals waited on the phone for more than 10 minutes before being connected.
The number of full-time equivalent employees dropped by 2,000 to hit 59,332 although staff wages have increased to £1.89bn from £1.87bn in 2016-17. Staff costs stayed constant in 2017-18 at £2.4bn although they are expected to fall to £2.2bn in 2018-19 and £2.0bn in 2019-20.
IT formed 16% of HMRC’s £3.9bn total costs for 2017-18 at £627m with accommodation coming in at £279m (7%).
Over the coming years thousands of HMRC staff will relocate to a small number of locations from the current 137 local offices and centres across the country. Up to 6,000 redundancies are expected due to the geographic relocations.
Moving to regional centres will save more than £300m up to 2025, with annual cost savings of around £90m from 2026, while improving customer service and modernising how HMRC work.
Fuel Prices set to rise?
Last week the Prime Minister announce a new £20bn NHS deal to keep up with the increase in its demand, and offered but an indication of where this money will come from.
Now, the Government is considering raising the tax on fuel. Fuel duty has been kept at a rate of 57.95p per litre since 2011, despite several proposed hikes throughout George Osborne’s tenure as chancellor.
A spokesperson for the AA group said: “Aside from the fact that petrol and diesel in the UK are subject to some of the highest levels of taxation anywhere in Europe, it is also the case that the fuels are at their highest prices for more than three years.With a significantly weaker pound, it would only take a few further oil prices rises this year to see prices start to rocket.”
With an overwhelming number of people only able to spend a set amount on fuel every week, the news has resulted in a heavy backlash from consumers.
NHS funding to increase, Tax to rise?
The Prime Minister has set out a new 5 year plan to fund the currently deprived NHS. After years of a yearly rise of 1% in funding, the NHS is set to recieve an increase in 3.4% over the next five years, in a deal worth £20.5bn in real terms.
The Prime Minister has said this increase in funding will come in part from the ‘Brexit dividend’ but also that taxpayers will have to contribute ‘a bit more in a fair and balanced way’. Could this mean future tax rises? Or will the HMRC be given more power to find and fine tax avoiders?
With the HMRC publishing that £8.5bn has been lost through tax avoidance, George Bull, a senior tax partner at RSM pointed out ‘The Prime Minister, the health secretary and the Chancellor of the Exchequer must explain why they are rushing to impose new taxes, in a “fair and balanced way” we are told, on honest taxpayers when £8.5bn is lost to dishonest taxpayers through tax evasion and the hidden economy.What’s fair about that? Surely it would be fairer to give HMRC more resources to bear down on tax evasion and the hidden economy in the same way that it has successfully tackled tax avoidance?’
Tax refund scams warning by HMRC
HMRC has warned taxpayers regarding the latest tax refund scams targeting individuals through email and text messages.
HMRC is currently processing genuine tax refunds for the 2017/18 tax year and the fraudsters are sending scam messages which claim that taxpayers are entitled to a rebate. These messages go on to request that they provide their personal and account details in order to make their claim.
HMRC stresses that it will only ever inform individuals of a potential tax refund through post or their employer. HMRC will never email or text you regarding a tax refund.
Commenting on the issue, Treasury Minister Mel Stride said
We know that criminals will try and use events like the end of the financial year, the self assessment deadline, and the issuing of tax refunds to target the public and attempt to get them to reveal their personal data’.
HMRC advises to not click on any links that claim to offer a tax refund through the name of the HMRC.
Time ticking for small businesses ahead of GDPR deadline
With new data protection laws set to come into place, many small businesses face an uphill challenge to ensure they are compliant.
In a surprising poll by the Federation of Small Businesses in February, it would that over two thirds of businesses had not exceeded the initial stages of GDPR preparation.
This comes with a warning from the FSB who fear many firms may not be compliant once the May 25th deadline is reached.
FSB Chairmain Mike Cherry said:
“The GDPR is the largest shakeup of data protection laws for years, and whether you are a personal trainer or a consultant, most businesses will have to implement changes to their current practices to make sure they are complying with the new rules.
“Given the extent and the breadth of the changes, it is clear that a majority of small businesses will not be fully compliant before May 25 and will most likely not be compliant when the changes hit. With this in mind, it is critical that the ICO manages non-compliance in a light touch manner with the focus being on education and support, not punishment.”