New penalties Warning

Following a period of consultation last year, Companies House are increasing the penalties for filing accounts late in order to encourage more companies to file on time. Under the new rules penalties will accrue if accounts are 1 month late rather than 3 months late. The penalties have substantially increased and the level of penalty depends on whether the company is a public or private company. In addition there are double penalties for companies that file accounts prepared under the CA06 regime (where the previous financial year began after 6 April 2008) late for two consecutive years. The new penalties will apply to accounts filed late after 1 February 2009.

Inside this issue:

Boiler Room Scams: Find out how they operate before it’s too late
New Penalties Warning: Did you file your accounts in time?
Budget report findings: Tony Chalmers from Robsons reflects

Wealth Creation Specialist - February 2009 Newsletter

Exerpts from the Pre-Budget Report 2008

Corporation tax rates
The main rate of corporation tax which applies to companies with profits of more than £1.5 million fell to 28% from 30% from 1 April 2008.

The small companies corporation tax rate which applies to companies with up to £300,000 of profits increased from 20% to 21% from 1 April 2008. The intention was to increase this rate to 22% in 2009 but this has been deferred until 1 April 2010.

The effective marginal corporation tax rate for profits between £300,000 and £1.5 million is 29.75% from 1 April 2008 and will remain the same for 2009.

'Income shifting'
The government intended that legislation would take effect from 6 April 2008 to address ‘income shifting’ ie shifting part of an individual’s income to someone else who is subject to a lower rate of tax.

The government has consulted on this issue but, given the current economic challenges, is deferring action and will not bring forward legislation in Finance Bill 2009. The issue will be kept under review.”

The contents of these articles represent the opinions of the authors, and not of Professional Solutions Group Ltd. Neither Professional Solutions Group Ltd nor Tenet Connect Ltd. are responsible for the accuracy of the content of the articles. These articles do not constitute a recommendation to purchase any of the products mentioned.

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Boiler Room Scams

Bogus investment operations have been grabbing the headlines, with the news last month that unsuspecting investors may have lost $50bn in Bernard Madoff's Ponzi scheme.
In November, the FSA played host to the first-ever international conference on another type of scam - share investment scams or, to give them their colloquial name, boiler room operations. Surprisingly, these scams have not attracted the same level of media attention. However, the more we now about such scheme's the better the chance of exposing them and reducing the risk of members of the investing public being defrauded. At the heart of each scheme is the sale by a bogus stockbroker of stocks or shares in a company at prices far greater than their market worth, The precise methods vary but they tend to involve a salesman nurturing a relationship of trust over a period of time with the targeted investor as follows:

The introductory phase
The classic boiler room operation starts with the target investor getting a phone call from a well-spoken young man. He will explain that he works for an impressive sounding investment firm and that as part of the promotion of his brokerage, he wishes to send the target a free analyst's report on one of the companies in which the investor already invests. The persuasive and charming nature of the caller means that the target often agrees to receive a report.

The follow up
After the report has been sent, the salesman will call again. In this and subsequent calls, he will try to introduce his operation's services to the target. He may point him to his firm's website to bolster his credibility. As with the analyst's report, the website will seem highly professional and convincing, with all the trappings of an internationally reputable firm. Often, these are copied from real firms' sites, with only the name being changed.

The bait
The next stage will be the demonstration of the broker's skills. He will suggest that the target looks at a particular share, normally on the Alternative Investment Market or Plus, to see whether his advice is reliable. It will come as little surprise that the bid/sell prices rise over the next few days or weeks. Some companies with thinly traded volumes allow the boiler rooms to manipulate the reported sale prices.

The sell
Having earned the trust and confidence of the targeted investor, the salesman will then move to pitch his first sale. As the plan will be to make several sales, the pitch tends to be measured. The target will be offered a certain amount of shares at a fixed price. Once agreement is reached, the target is passed to a compliance officer to give the semblance of authenticity to the transaction.

Investor payment
The salesman will organise for a confirmation note to be sent out to the target, detailing the company, number of shares, price agreed and providing instructions for payment. More recent schemes in the UK have attempted to instill confidence by having these confirmation notes sent from a London address with payment instructions to a UK company or to a UK bank account. The target will send his instructions and await his share certificate.

Subsequent sales
While the target awaits his share certificate, his notional shareholding may well rise as the boiler room continues to sell the remaining shares in that company. The target may well receive a further call promoting shares in another company. With the notional profits so far made on the first sale, the target may agree to invest further sums, as well as rolling over his original investment into a new recommended stock. A problem may not be discovered for many months. Often, the share certificates are said to be delayed or are subject to resale restrictions. Almost invariably, they will have no or little value.

The victims are not insurance companies or banks, they are individuals and there are a great number of them. The FSA estimates that about 30,000 people each year in the UK alone are defrauded in this way, with annual losses of about £50m to £1bn. By the time the regulators become aware of the boiler room, the investors' money has usually disappeared although in March2008, the FSA did recover over 90 percent of the sums stolen from about 150 investors. The cost is not just financial; it is also emotional, psychological and worse. In one case, a victim committed suicide, leaving his wife to report the nature of the scam.

This is not the only country whose investors are preyed on. The FSA says the problem is global. Boiler rooms are based overseas, often in Spain, Hong Kong or North America, but their victims tend to be in the UK, Germany, US and Scandinavia. The police have estimated that in Spain there are over 400 boiler room operations employing over 600 people marketing to different countries. In previous economic downturns, somewhat counter-intuitively, the prevalence of these scams has increased. This may be because investors are more likely to turn to a broker whose advice on shares appears to be achieving results and perhaps because the Sage of Omaha, Warren Buffett, has described present conditions as the greatest opportunity to buy shares in a lifetime.

The organisers of the scams are highly organised and often very sophisticated, investing significant sums in setting up and maintaining their operations. One US scheme exploited a little-known Delaware securities law which permits a newly incorporated company to use the name of an existing but dormant company. That scheme effectively committed corporate identity fraud on 54 companies which were promoted to more than 15,000 UK citizens, raising more than £70m. Unsurprisingly, some schemes have been linked with organised crime.

One weapon in fighting these scams is to publicise the existence and way of working of boiler rooms. This approach is adopted by the FSA, which has published warnings on its website. It has also been working with the Institute of Chartered Secretaries and Administrators to urge listed companies to send warnings about boiler rooms to their shareholders and with the Association of Private Client Investment Managers and Stockbrokers on a leaflet for customers warning them on boiler room fraud. Together with the City of London Police, there have been several media appearances.

The FSA recently came across a database of potential victims which had been shared by a. number of boiler rooms and wrote to the 11,000 UK names on the list to warn them of the dangers. IFA's can do their bit as well by warning family, friends and clients of these scams. All should beware of unsolicited approaches from individuals who are unauthorised, who are not known personally or who cannot be independently vouched for.

By warning others, IFA's will not only be helping to reduce the impact of these scams but will also be acting in their own interests. Every pound lost by an investor to one of these scams could have been properly invested through an IFA.

The above article was taken form Money Marketing. 8th January 2009