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June News Round Up

13th June 2019

June News Round Up

Simple switching pays dividends

The Telegraph reports that savers are losing £3.5bn a year in interest on account of an inability to summon the energy to switch and many people remaining loyal to high street banks even though these often offer worse rates than smaller, rival firms. According to the Centre for Economics and Business Research, customers with Barclays, HSBC, Lloyds, Royal Bank of Scotland and Santander account for £827bn of the total £1.3 trillion saved in the UK.  And while they are set to make £3.4bn in interest on their savings over the next year, this would more than double, to £7bn, if they swapped to better deals with rivals, the study, which was commissioned by savings platform Flagstone, found. The same is true in many other savings areas," adds the article. "All the current top rates for one to five-year bonds and ISAs are for deals supplied by non-high street lenders."

GDP expectations

U.K. manufacturing slumped in April as the boost from Brexit stockpiling evaporated and car factories halted work, boding ill for the economy in the second quarter, figures Monday are expected to show. Production fell by 1.4% from March, the biggest decline since the start of 2017, according to a Bloomberg survey. With little support from construction and the dominant services industry, the economy probably shrank for a second consecutive month. GDP is forecast to have contracted by 0.1% in April, and purchasing-manager surveys last week suggest there was little if any improvement in May. There were also downbeat headlines on retail sales in recent days, while Ford Motor Co. announced plans to close its engine factory in South Wales, with the loss of 1,700 jobs. Whoever takes over from Prime Minister Theresa May, who resigned as Conservative Party leader on Friday, will inherit an economy under pressure as Brexit uncertainty continues. Bloomberg Economics sees growth in the second quarter slowing to 0.2% from 0.5% in the previous three months. 

Overdraft fee crackdown

A dramatic shakeup of the financial sector could herald the end of free banking in the UK, with all customers required to pay a monthly fee to keep their current accounts open. The financial services regulator has announced a series of major reforms to the overdraft market that consumer rights champions say will stamp out “hideous charges designed to entrap people in debt”. 

Once banks and building societies are prohibited from charging customers fees for borrowing money using an unplanned overdraft, it could become the norm for institutions to impose a monthly “management fee” on all current accounts. Banks and building societies will be banned from charging people who go beyond their overdraft limit fixed daily or monthly fees from 6 April 2020 under the sweeping reforms unveiled by the Financial Services Authority (FCA). However, experts say the new rules mean banks and building societies will be scrambling to find a way to recoup their costs and will likely be considering introducing fees for current account holders. When it comes to recouping costs, normally a bank or building society would need to review their entire range of banking products – any perks or fees on accounts would be looked at to see if they can be sustained. They might chop the perks they are currently paying out or they could add a management fee onto current accounts. If that becomes the norm, of course customers will be irritated but that’s unfortunately how banking shakeups work…banking is a service, and banks need to make money.

Freelancers face tax inquisition  

Many sectors have a long tradition of engaging contractors through Personal Service Companies (PSCs) and while numbers have reduced during the economic downturn, there remains a significant number engaged within the supply chain. Previously the matter of determining if an individual would be taxed as an employee or as self-employed lay with a PSC, but with the introduction of IR35 tax reforms by HMRC that responsibility will now fall to the end-user. In simple terms, the level of tax to be paid has not changed but the liability for making the assessment has changed and this will have repercussions for businesses and individuals throughout the supply chain. Depending on the circumstances, the end-user could be the client at the top of the supply chain or another company within the supply chain. Many are now grappling with the thorny issue of how contractors’ tax should be treated – and if the end-user does not make the correct tax determination, they will leave themselves open to financial penalties. Individuals could potential face a pay cut of up to 25% if their hirer decides they are employed for tax purposes. The changes come into effect from April 2020, but employment law specialists advice to businesses is to act now.

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