December 2018

Now it is easy to keep up-to-date, with our monthly ‘In the Spotlight’ news round-up – a hand-picked summary of key tax news and industry developments. If you have any questions on how any of these affect you personally, please do not hesitate to contact us.

Brexit

SMEs unprepared for sharp currency moves – Thirty-four percent of UK SMEs expect sterling to fall by more than 10% after Brexit, a survey by international payments company WorldFirst found. This compares with 11% who thought it would rise by the same amount and 18% who said they did not know how the pound would change after March 2019. Nearly two-thirds said they were not doing anything to prepare for a weaker pound. “There is a worrying disconnect between what the UK’s SMEs are thinking will happen to the pound and what they are actually doing,” Jeremy Thomson-Cook, chief economist at WorldFirst, said. (Source: The Independent, 14/11/18)

Small businesses urged to back Brexit deal – Nearly 70 small business leaders have signed an open letter to the government urging acceptance of Theresa May’s Brexit deal. The letter, co-ordinated by Enterprise Nation founder Emma Jones, warns that livelihoods are at risk from a “no-deal” Brexit. (Source: The Times, 21/11/18)

Brexit boosts inbound tourism – The Press and Journal considers Brexit’s impact on the hotel industry, pointing to research suggesting that uncertainty caused by Brexit has helped inbound tourism but business investment growth has “dampened”. The firm has forecast that hotels will see rising wage and operational costs, coupled with slowing growth, into 2019. (Source: The Press and Journal, 19/11/18)

PM strikes deal on financial services – The Times reports that Theresa May has struck a deal with the EU that would give UK financial services firms continued access to European markets after Brexit. Under the services deal the EU would guarantee UK companies access to European markets as long as British financial regulation remained broadly aligned with that of Europe. Although senior City figures welcomed the deal, they warned that delivering the detail in a legal trade agreement after Brexit would be far harder. Meanwhile, in an interview with the Yorkshire Post, Sam Woods, the Bank of England’s Deputy Governor for Prudential Regulation, said he was confident that the UK’s financial services sector can withstand a no-deal Brexit. Safeguards put in place since 2008 meant the wider economy would be less exposed to stress within the sector, he added. (Source: The Times, 1/11/18)

Individuals

‘Accidentally rich’ face ‘unfair’ IHT – Experts have said that IHT should be cut for “accidental millionaires” as they are being forced to pay a bigger chunk of their inheritance than the ultra-rich. The Office for Tax Simplification found that in 2015-16, bequeathed estates worth between £2m and £8m paid a rate double that paid on estates greater than £10m. Someone who inherited a sum of £2m – now the value of many houses in the South East – would pay an average of 20% of the total in IHT, compared to just 10% of a £10m estate. Despite a new “family home allowance” introduced in April 2017, providing added protection for those passing on their home to direct descendants, experts described the effect of the reliefs as unfair. (Source: The Daily Telegraph, 28/11/18)

House of Lords: remove 12-year offshore investigation limit – The House of Lords has asked the Treasury to withdraw the 12-year offshore investigation limit from the Draft Finance Bill 2018, noting that while it would give HMRC longer to investigate the tax arrangements of the wealthy, it will impact greatly on elderly people, and those on a moderate income. Under the new powers the retrospective time for investigations would be extended from four years to 12, and HMRC would not need to establish non-compliance. Lord Forsyth called the measure “unnecessary and undesirable”, adding: “The government should start a fresh dialogue with representatives of tax professionals to consider how offshore tax matters can be managed more effectively”. Gordon Andrews, financial planning expert at Quilter, said the proposals will “impact a number of very ordinary people who believe they have acted legitimately when navigating complex rules quite a number of years ago and who have used offshore investments for good reason, such as a period working abroad”. (Source: International Advisor, 27/11/18)

Transferable allowance take up improves – New figures show that over eight in 10 married couples are taking advantage of the transferable allowance, worth up to £1,190-a-year. Total take up is expected to be 83% by April, up from the 16% in 2015, the year it was launched. (Source: The Daily Telegraph, 1/11/18)

UK places Bahamas on UK’s money laundering watchlist – Following recommendations from the International Financial Action Task Force, the British government has added the Bahamas to its money laundering watchlist, with HM Treasury now requiring firms to put special procedures in place when dealing with Bahamian resident entities and clients. (Source: International Investment, 4/11/18)

Businesses

Firms in the dark over digital tax plans – A third of businesses have not heard of the government’s Making Tax Digital (MTD) scheme, a recent survey has found. Some 36% of companies were “completely unfamiliar” with the new regime, according to the research. The scheme has been criticised by politicians and sector bodies, with a House of Lords report on Thursday calling its roll out “rushed” and saying poor communication from tax authorities had caused “considerable frustration among taxpayers”. (Source: City AM, 26/11/18)

Small businesses overpaying for mobiles – A lack of competition in the mobile phone market means small businesses are paying £1bn too much for mobile services, according to a report from price comparison website Billmonitor. The firm estimates 49% of UK businesses pay more than twice what they should for mobile services from EE, Vodafone and O2. (Source: City AM, 28/11/18)

Unresolved tax battles drag on for years – The average duration of HMRC’s unresolved tax battles with UK businesses rose from 34 months to 39 months in the year to the end of March, according to research by Pinsent Masons. Although 85% of cases reach a conclusion within 18 months, some are dragging on longer as tax authorities battle through litigation to increase revenues from large firms. Steven Porter, a partner at Pinsent Masons, said: “Businesses face huge disruptions as HMRC continues to drag out even the most basic of tax disputes.” (Source: City AM, 6/11/18)

Construction/property

Mortgages to help parents avoid taxes – The Sunday Telegraph’s Adam Williams says parents are increasingly turning to “joint borrower sole proprietor” mortgages to help children and grandchildren on to the property ladder whilst avoiding stamp duty surcharges and capital gains tax. The loans have been called “camouflage mortgages” as the parent is not named on the property deeds, meaning they are not liable for any stamp duty surcharges and their children can still receive the first-time buyer stamp duty exemption. (Source: The Sunday Telegraph, 25/11/18)

Households seek stamp duty refunds – A freedom of information request by Cornerstone has revealed the number of households applying for stamp duty refunds has almost doubled in a year, from 8,513 in 2016/17 to 15,967 in 2017/18. The rise in refunds, which totalled £75m in 2017/18, is down to solicitors submitting inaccurate bills after using HMRC’s online calculator which failed to apply the correct discounts. (Source: Daily Mail, 21/11/18)

House price growth weakest for five years – House prices are enduring their lowest rate of annual growth since March 2013, according to Halifax’s latest house price index, leaving the average price of a house at £227,869 in October. (Source: The Guardian, 8/11/18)

Recruitment

Thousands in disguised remuneration schemes face tax blow – More than half of the 50,000 workers identified by HMRC as having used disguised remuneration schemes to cut their tax and NI bills are yet to set up formal repayment plans. (Source: Financial Times, 24/11/18)

SMEs fuelling jobs boom – Employment growth at the UK’s SMEs is rising at a significantly faster rate than that of larger firms, according to a new report by Santander Business Banking. The research indicates that SMEs have created more than two and a half times as many jobs over the past five years. (Source: Scotsman, 21/11/18)

Minimum wage rises have not led to job losses – Employment levels have been sustained despite increases in the minimum wage, according to the Low Pay Commission. Business had raised concerns over the costs of rising wages, but most have absorbed them and restructured workforces. The National Living Wage for those aged 25 and over stands at £7.83 an hour and is due to rise to £8.21 from next April. The Guardian reports that about 23% of all of those over the age of 25 who are covered by the national living wage were underpaid this year. Meanwhile, ONS data show one in three new jobs created in the UK over the past decade has been in London. The north-east of England saw the lowest percentage increase in new jobs of any UK region or nation. (Source: BBC News, 28/11/18)

But, Non-UK-born workers turn away from UK… – A study by the CIPD and Adecco reveals a “sudden reversal” in the numbers of EU and non-EU migrants in employment, leading to an increase in the shortage of skilled workers. It said research among over 1,000 employers suggested that vacancies are becoming harder to fill leading employers to increase pay rates. Gerwyn Davies of the CIPD warned that failure to make the post-Brexit recruitment process simpler and cheaper will heighten difficulties “and could lead to negative consequences” for businesses. (Source: The Guardian, 12/11/18)

Technology

Auditors under fire over tech work – Concerns have been raised over conflicts of interest in the audit market after research found that the Big Four routinely investigate their own clients on behalf of software groups. (Source: Financial Times, 23/11/18)

Small businesses drive ahead with automation – Chartered Institute of Management Accountants (CIMA) CEO Andrew Harding examines how and why small businesses are moving ahead of their larger peers with automation and artificial intelligence. He says that although mid-sized businesses have more room to automate processes, their smaller rivals are more light-footed and open to adopting new technologies. He also points out that SMEs recognise that upskilling their workforce is crucial, but despite this, data shows only one in four workers have not participated in any in-work learning in the past year. (Source: Small Business, 15/11/18)

Amazon may escape tech tax – The government’s much publicised ‘tech tax’ may not apply to Amazon because the internet giant’s profits are too low. The new levy is forecast to raise £450m a year but government consultation papers show it will aim to avoid hitting low margin business and having “disproportionate impacts on business sustainability.” Amazon’s global turnover is $178bn (£140bn), but its profit is just $3bn as it reinvests nearly all the money it makes into rapid growth, innovations and new products. Richard Murphy, at Tax Research UK, said: “If there is a low profit get-out there is no way Amazon is going to be paying this tax.” (Source: The Mail on Sunday, 11/11/18)

Hospitality

Extra tourists boost hotel profits – Extra tourists drawn to the UK by the weaker pound have boosted pre-tax profits at the top 100 hotel groups from £609m to £689m in the past year (Source: City AM, 26/11/18)

Cost pressures squeeze small pubs out – Official statistics show that 41.2% of small pubs have closed since 2001 with London’s small venues faring worst. The number of smaller establishments – those with fewer than 10 staff – across the UK fell from 38,830 to 22,840 over the period while the number of larger public houses increased by 16.9%, from 13,670 to 15,975. “Pubs face a number of cost pressures, from high taxes in the form of beer duty, VAT and business rates to wage increases and food inflation,” said Brigid Simmonds, the chief executive of the British Beer and Pub Association. (Source: The Guardian, 27/11/18)

FOBT changes brought forward – Following a massive protest by MPs, a cut from £100 to £2 a go for fixed-odds betting terminals (FOBTs) will now come into force next April rather than October. To cover the expected loss of tax revenue “and to protect vital public services”, a rise in tax paid by online gaming firms is also being brought forward six months to next April. (Source: Daily Express, 15/11/18)

Retailers reiterate need for rates relief – Retailers have renewed calls for an overhaul of business rates, after figures revealed 15 shops are closing every day. They said the £900m relief announced by the chancellor was only a sticking plaster and wider reform was needed. Meanwhile, the Independent’s James Moore says these findings do not necessarily mean the high street is in terminal decline. And that there is still a ‘demand for bricks and mortar shops, but consumers just use them less than they used to’. (Source: Daily Mail, 10/11/18)

10

Charities face £10m a year hit from fee rethink – Charities have warned that a rise in probate fees will cost them at least £10m a year as the increased charges take up larger parts of estates and thus mean smaller donations. Matthew Lagden, of the Institute of Legacy Management, said the losses come at a time when many charities are struggling to meet growing demand for their services. Meanwhile, the Guardian’s Patrick Collinson looks at the increase in fees, noting that the Law Society has deemed it unfair and a “stealth” increase in inheritance tax. (Source: The Guardian, 10/11/18)


This information has been produced by Rouse Partners LLP for general interest. No responsibility for loss occasioned to any person acting or refraining from action as a result of this information is accepted by Rouse Partners LLP. In all cases appropriate advice should be sought before making a decision.

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