The Seamount Blog

 

 

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An update that may be of interest…

  • Midas Group –

The potential failure of Midas Group, which would encompass, Midas Construction Limited, Mi-Space (UK) Limited and Midas Commercial Developments Limited and it appears that notice of intention to appoint Administrators is still in place plus a number of local authorities in the South West have written to Government asking for them to step in and prevent the Group falling into Administration. We should know whether this appeal is successful this week.

·         Bounce Back Loans –

Moving onto other topics, given the National insurance increase, recent energy price increases, inflation potential rising and interest rates being increased, a lot of focus is now on the Government and it has decided to remove guarantees from £240m worth of Bounce Back Loans after banks disclosed errors in their own vetting procedures. The effect will now be that Banks will get tougher on businesses that default on Bounce Back Loan repayments. It is estimated that more than £240m worth of guarantees has been stripped from UK banks owing to mistakes that allowed fraud and error to take place under the Bounce Back Loan Scheme, and the banks themselves have reported errors in their own vetting systems, which has led to the Government removing the guarantee from more than 7,400 Bounce Back Loans worth more than £240m.

MPs have called for fresh efforts to reclaim money from fraudsters that was illegally extracted from the system, which offered loans of up to £50,000 with only light checks applied and a full Government guarantee which would repay the lender. Anti-fraud minister Lord Agnew resigned last week because of his frustration at what he saw as the lack of oversight and errors that have led to large-scale fraud in the Government’s Bounce Back Loan scheme, which lent £47bn to more than £.1m businesses during the pandemic.

The actual quantum of these fraudulent claims is not known as yet but as banks are only allowed to ask the British Business Bank for compensation every three months, with the first deadline having been in December, the 26 per cent fraud figure might be the highpoint because fraudsters are likely to default first, and, given that the first loan repayments were due to start last May, most of the defaulting fraudsters may be known already.

It was originally estimated that 11.1 per cent or £4.9bn worth of Bounce Back Loans would go bad, but a revised view has pushed that down to 7.5 per cent, reducing taxpayer money at risk to about £3.5bn.

It would appear that early indications are that repayment rates are good in the round but clearly not every case of a business taking out a bounce-back loan and then going bust suggests illegality. As for banks taking a tougher approach with defaulters whose guarantees have been withdrawn, memories were still fresh as to how badly some banks behaved in the aftermath of the 2008 financial crisis, when banks unexpectedly called in loans, and the banks will be aware of the reputational risks of unfair treatment of small business customers, with memories of the global financial crisis and its aftermath yet to fade.

  • Exit Strategy –

As we begin to emerge from the pandemic, the thoughts of some will be turning to decisions that have been postponed over the last couple of years including, for business owners, whether it is a good time to hang up the office boots and don the walking boots instead. The combination of pressures now with us is an interesting one: the Office for National Statistics estimated GDP was up by 0.9% last November, raising GDP above its pre-pandemic level from February 2020 by 0.7%. But increasing inflation, tightening of the jobs market, supply chain difficulties, and increased input costs also combine for economic uncertainty.

The government’s need to increase taxes in order to repay the huge borrowings which supported business and individuals during the worst of the pandemic means that thoughts turn to how long the generous tax regime on exiting from a business will continue and it was widely speculated last year that business asset disposal relief would suffer a hike from the present rate of 10% in the budget. It didn’t. As it happens, the lifetime cap had been slashed from £10m to £1m in 2020, which will continue to net additional tax for the government.

Many will still see a tax take of only 10% on £1m chargeable gains as very attractive and even the 20% general rate for gains above that figure as being pretty decent compared with 40% for IHT and 40/45% for income tax.

There is evidence that the pandemic is bringing about changes in our behaviour, which could not be foreseen two years ago: approximately 506,000 working-age people have left the employment market and given the tightening of the labour market, that would suggest that many older workers have “voted with their feet” and that retirement plans have been accelerated.

The conclusions on the above are that there will be a sever knock on effect if Midas Group does go insolvent, that the Banks will be looking at their exposure to the non-recovery of Bounce Back Loans and monitoring the agreed repayments structures currently in place before turning to HM Government to claim under the guarantees given, Debt Collection agencies have been instructed by Banks at an early stage plus objections to strike off applications are made almost immediately and finally that the tax relief offered by Business Asset Disposal Relief will be increased soon, although I would caveat that by saying that is always mentioned as a certainty prior to any Budget being announced.

What next, well if you feel that you may be affected by the above and you feel they could do with some advice and guidance then please do let me know, and we can refer you to an expert in the field.  Their advice is given free of charge and is private and confidential. 

Source: Shaun Tanner, www.undebt.co.uk

 

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