The latest results, published on Friday, 27th January, showed an annual increase of 12.6% on the year before, but the service said that this was “due to 1,796 connected personal service companies (PSCs) entering creditors’ voluntary liquidation (CVL) in Q4 following changes to claimable expense rules.”
Excluding these actually meant that insolvencies for 2016 had risen by 0.3% compared to 2015. The rise was driven by a rise of 1.1% in CVLs and a 0.7% rise in compulsory liquidations. All other types of insolvencies fell.
What was the problem with payment via PSCs?
It was estimated that the Government was losing around £400m of tax revenue because of the PSC set-up governing expense rules for freelancers and contractors.
The regulations were changed in the Spring 2016 Budget to eliminate a loophole in the HMRC IR35 provisions that enabled such workers to take their payments as dividends and a minimum wage from specially set up personal service companies thus enabling them to minimise their tax payments.
It was a system widely used by everyone from entertainers, IT contractors and public sector employees. The government argued that they were not contractors at all but “disguised employees”.
The most vulnerable sectors in the UK economy and the outlook for 2017
Sector breakdowns for insolvencies published by the Insolvency Service lag behind by one quarter so the most recently available information is up to the end of Q3, September 2016.
In the 12 months to the end of Q3 2016 the construction sector suffered the highest number of new insolvencies, although the figure was down slightly at 0.05% on the 12 months ending in Q2 (June 2016). Next highest was wholesale and retail trade & repair of motor vehicles and motorcycles sector.
These, together with administrative and support service activities, accommodation and food service activities and manufacturing remain the most vulnerable sectors of the UK economy.
This week, business recovery practice, Begbies Traynor’s latest Red Flag research revealed that more than 275,000 companies were showing signs of “significant” financial distress at the end of last year. In the final quarter of 2016 it found 276,518 businesses were experiencing ‘significant’ financial distress – that’s up 3% compared with the same time in 2015 and of these 91% were SMEs, almost a quarter of them in London.
There are signs that the volatility of £sterling and its effects on import prices for food, oil and raw materials are already stoking up inflation with no likelihood of any reduction in pressure on prices while Brexit uncertainty is ongoing and the likelihood is that there will continue to be an increase in insolvencies in throughout 2017.