At almost the last minute, the government cancelled this month’s intended rise in fuel duty. The pressure groups and special interest lobbies claimed a victory; George Osborne looks like a politician who’s listening to ’the people’; the petrol retail industry avoids another rise in costs; and consumers avoid another hammering that they could barely afford. Everyone’s a winner. It was the right result, so why does it still feel like a ridiculous way to deal with something as important as the price of a basic commodity that is essential to a 21st century economy? Perhaps it’s because we’ve now seen this pantomime several times a year recently and, according to the official timetable, we’re due for yet another performance in the run-up to the next scheduled duty rise on September 1.
Or maybe it’s just that the whole subject of indirect taxes is becoming a rather ’difficult’ one for successive governments. After all, no politician wants to be seen to be openly raising revenue by increasing ’direct’ taxation such as income tax. They’ve spent years raising duty on fuel, alcohol and tobacco in the first case we’ve been told that it’s an essential part of ’going green’ and helping avert climate disaster; in the second and third cases it’s about ’health’ and ’anti-social behaviour’. All of which might be true, but none of which can disguise the real purpose of tax increases. Unfortunately, there comes a point where the level of these taxes is so high that they not only distort the market in all sorts of ways, but seem to encourage criminal attempts to get around them. If you have a few spare minutes take a look at the press releases on HMRC’s website. You might be staggered by the number of court cases for cigarette and tobacco smuggling and misuse of fuels like ’Red Diesel’ and, of course, they only report the successful ones
Business and Personal banking should they ever mix?
It was common back in the ’80s and ’90s for retailers to try and avoid the high cost of banking ’cash’ direct into their business accounts by using a personal account at one or other of the building societies. They’d pay the cash in for free and then write out a cheque on that account straight into their normal ’business’ account. It seemed to be a sensible way of minimising bank charges the building societies were usually keen to have cash at their branches, so would turn a blind eye to the fact that they didn’t officially operate ’business’ accounts. And many retailers found it more convenient to visit a local building society branch rather than try and get to their own bank; and in those days the additional three days’ delay before the bank cleared the cheque didn’t seem to matter (very often).
Twenty years later and we thought that the practice had died out. For a start, there are far fewer building societies than there used to be, and even those that are left have cut back their branch networks. And most of the remaining ones still don’t offer ’business’ banking at least officially. So it’s surprising to hear more and more from retailers who’ve just ’discovered’ this way of banking.
In an age when strict money laundering regulations supposedly apply to all financial institutions, it’s hard to imagine how any of them can accept large, regular deposits of notes and coins without asking where the money came from, so we can only assume that they still have a need for cash which outweighs their traditional distaste for offering formal accounts to businesses. With the ’big five’ banks now typically charging between 50-80p per £100 for handling cash, it’s natural that hard-pressed retailers are taking advantage. However, there are possible pitfalls to this practice.
Firstly there’s the delay; it still takes three working days for that building society cheque to clear into your bank current account. And even if you have internet banking from the building society, the transfers are rarely ’instant’. With a very high proportion of every business’ bills now paid by direct debit from their normal bank account, old-style cash flow management ("the cheque’s in the post") doesn’t work any more. Then there’s an accounting problem: many retailers simply pretend that the building society account doesn’t exist. It’s not ’on the books’ of the business the justification being that in theory there’s never any money in that account, although perhaps the real reason is that retailers simply don’t want the hassle of book-keeping for two bank accounts. This can seem fine while things go smoothly, but can cause real headaches if the amounts don’t match for any reason. Any shortage is likely to end up being treated as a private withdrawal or director’s loan account movement.
The next two issues relate particularly to limited companies. If you run an incorporated business, then the money belongs to the legal entity that is the company and strictly speaking it should never go into a personal account of any sort. If you pay it into a personal building society account then you are effectively obtaining a loan from the company, even if only for a short period, and that can come within the area of ’director’s loans’ and start to have potential tax implications for you and your company. The related question concerns security while the ’big five’ banks may be too big to be allowed to fail, smaller financial institutions may be more at risk and more expendable. The Financial Services Compensation Scheme (FSCS) covers bank accounts up to £85,000 per institution which is clear enough for sole traders, but the protection offered to limited companies is restricted to small companies turnover below £6.5m a year and fewer than 50 employees, for example, so are you sure that you’re protected? On a day-to-day basis this may be a neat way of avoiding bank charges but don’t be surprised if your accountant is not ecstatic about it.