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MP blasts HMRC over interest rate swaps

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30th Nov 2012
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HMRC's attitude toward business mis-sold interest rate swap products is "disappointing" , says Tory MP Guto Bebb. 

Interest rate swaps are the latest in a growing queue of banking schemes that have blighted business. In this instance, companies seeking finance were offered interest rate hedging products as part of the financial package. As interest rates dropped, many have found that their commitment to keep feeding the hedge has growing, putting many into unsustainable situations.

While banks have taken a more relaxed view toward affected businesses, Bebb, chairman of the 50-strong All Party Group on Interest Rate Mis-selling, said HMRC have been "less than sympathetic". 

Bebb raised MPs concerns about  HMRC's attitude in a letter to HMRC director general of enforcement and compliance Mike Eland.

"These products have resulted in significant financial consequences for the businesses in question," he said. "Actions taken by HMRC actually threaten the ability of individual businesses to survive. It is very concerning to see that HRMC appears intent on pushing businesses that might well be eligible for redress into administration." 

An HMRC spokesman responded: “HMRC offers a range of support to businesses in temporary financial difficulties, to help them manage their cashflow problems. Where businesses are facing genuine short term cash flow difficulties for whatever reason it is important they approach us as soon as they realise, so that we can consider early on whether time to pay is appropriate.”

In response to the rates-swap problem, the FSA set up a redress scheme for businesses. The pilot phase of this proces is almost finished. 

Eleven high street banks are involved with the scheme, including HSBC and Barclays, and have suspended swap payments for businesses seen as particularly vulnerable. Bebb said the redress scheme is expected to be rolled out in the New Year. 

Bebb said while the aim of the scheme is to aim to protect businesses, including FSA instruction that no banking facilities should be changed or withdrawn from businesses while their cases are reviewed, it was "very disappointing" that HMRC showed no similar flexibility.

HMRC said in a statement today: "HMRC is always happy to meet with recognised representative groups to discuss the needs of the groups they represent." 

"HMRC offers a rage of support to businesses in temporary financial difficulties to help them manage their cash flow problems. Where businesses are facing genuine short term cash flow difficulties for whatever reason, it is important they approach us as soon as they realise, so that we can consider early on whether time to pay is appropriate." 

Bebb and Eland are due to meet privately this week to discuss the issue. 

Law firm Berg, which is dealing with a number of cases of businesses mis-sold the products, agreed with Bebb's view. 

Managing partner Alison Loveday said HMRC was giving affected businesses a "hard time".  

"Some businesses are pushed to the brink of insolvency to meet the interest swap payments. Banks have agreed to defer some payments and are taking a more relaxed view, but there seems to be an anomaly between their attitude towards it and HMRC's," she said. 

"The FSA report, MP's highlighting of the issue and interest groups such as Bully Banks, set up by businesses mis-sold interest rate swap agreements, have changed affected businesses' attitudes toward this, making them realise they now have a chance at compensation," she added. 

Daniel Hall of Treasury product claims specialists All Square Treasury said depending on specific cases, there is scope for HMRC to be more flexible.

"If businesses cannot pay their bill as a direct result of the payments they are required to make under the swap, then there could be a case for HMRC taking the same approach as some of the banks and showing flexibility. This should be distinguished from situations where the business is struggling, regardless of any swap product that they hold," he said. 

He also praised the parliamentary group on interest rate mis-selling: "It has done a great job of raising the profile of swaps mis-selling at a parliamentary and ground level. However, I think there is still much work to be done here but it is encouraging to see this committee grow in profile, size and influence. Small and medium sized businesses are the lifeblood of the UK economy and the country needs strong performing enterprises to help get us clearly out of the recession. It is imperative that their collective voice is heard."

Advice for businesses from Hall who have been mis-sold products or swaps include:

  • Check when you were sold the swap or other interest rate hedging product as there are legal time limitation rules that may bar a potential claim, should litigation be necessary
  • Seek professional advice from an accountant, solicitor or other competent financial adviser
  • Businesses can deal directly with their bank, but that might not always be the best solution for a variety of reasons.

What kinds of compensation businesses are likely to claim is yet unknown, he added.

"There are a couple of interesting recent developments that should provide some clarity around this, such as the development provided by two recent rulings by the Financial Ombudsman. Having ruled in favour of the business, the Ombudsman makes reference to “fair compensation”. Currently there is no clear indication of what this “fair compensation” looks like, but clarity should be arriving soon," Hall said. 

Banks' roles as trusted advisers to business is breaking down, according to Hall: "The mis-selling of swaps is a prime example of the aggressive sales push culture that existed at the time, fuelled by complex products paying generous commissions to those that sold them.  On top of that, you have numerous other banking scandals surfacing such as LIBOR fixing, PPI and packaged bank accounts, to name a few. It is easy to see why that trust is eroding." 

Berg has produced a helpful infographic to help simply explain the interest rate swap product mis-selling. 

Click on the image to view it at full size.

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By Oppco
30th Nov 2012 11:25

Unfair to blame HMRC for this one, surely. Presumably they are only trying to collect what is owed in tax. Is that not what HMRC are for?

The government should look to the light touch regulation they initiated, allowing all these mis- selling schemes to flourish.

Since when were banks 'trusted advisers'?  Not in my working lifetime

 

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By andrewwatling
30th Nov 2012 12:08

Who is advising the "victims?"

All well and good to blame HMRC for this, but they are just doing their job, which is to try to collect taxes

In my experience, when provided with proper evidence that a debtor is addressing a particular issue that is causing issues for the business as a whole, they will generally be supportive and listen to what is being said.  However, all too often business owners think that they can simply make a telephone call and their problems will all go away

HMRC can't therefore be blamed for appearing to ignore the long line of businesses that are using the excuse that they have been missold a swap or hedge to disguise other underlying issues within the business and in many cases, they will discover they are by far the largest, oldest creditor - they don't have the option to turn of the supply tap that other creditors do so their arsenal is limited to enforcing through execution and winding-up

And if the only reason the business is on the precipice is the delay in receiving recompense, HMRC and other creditors will surely consider a CVA proposal if the MP is so averse to the Administration route, as long as it is set out properly

 

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