February 2019

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

Spring Statement scheduled before Brexit – Philip Hammond has revealed that he will deliver his Spring Statement in March, shortly before Britain is due to leave the EU. Should the country crash out of Europe with a no-deal scenario then the Chancellor will follow it up with an emergency mini-Budget in April designed to boost spending and confidence in the economy. Mr Hammond said he was not planning to unveil any changes to tax and spending plans in March. (Source: Evening Standard, 30/01/19)

Sterling up on hope no-deal will be avoided – The pound rose yesterday hitting a 13-month high against the euro as the City upped its bets that a no-deal Brexit would be avoided. However, the improved strength of sterling prevented the FTSE 100 from joining in a global stocks rally. (Source: The Daily Telegraph, 26/01/19)

UK services exports to EU soar in the run-up to Brexit – Figures from the ONS reveal that in the first three quarters of 2018, UK services exports to the EU rose by 14% compared with the same period in 2016. (Source: Financial Times, 24/01/19)

UK growth eclipses eurozone – Official figures out this week are set to show the eurozone trailing behind Britain’s economy. City forecasters have pencilled in growth of 0.3% in the final quarter of 2018 for the UK, with the currency bloc’s economy growing by just 0.2%. (Source: The Sunday Times, 27/01/19)

ECB warns eurozone at risk of further slowdown – The ECB has warned that a slowdown in the eurozone economy is showing signs of becoming long-lasting because of global trade tensions, Brexit and financial market volatility. (Source: Financial Times, 25/01/19)

Theresa May’s Withdrawal Bill suffers historic defeat – The Brexit Withdrawal Agreement negotiated by Theresa May with the European Union has been rejected by the House of Commons by 432 votes to 202. The defeat, by a majority of 230, is the biggest ever inflicted on any government. Of those who voted against, 118 were Conservative MPs, making it the largest Tory rebellion in modern British politics. Following the vote, the Prime Minister announced that the Government would make time for a vote of no-confidence on Wednesday. If the government prevails, Mrs May said she would hold cross-party meetings with senior parliamentarians to seek a way forward, alarming Brexiteers who fear this will move towards an even softer Brexit. Mrs May said: “The House has spoken. It’s clear that the House does not support this deal. But tonight’s vote tells us nothing about what it does support.” Jeremy Corbyn, the leader of the opposition, immediately confirmed he had tabled a motion of no-confidence, however, obse rvers expect this attempt to bring down the Government will be unsuccessful and force the Labour leader into pushing for a second referendum. (Source: BBC News, 16/01/19)

Brexit remains the biggest challenge in 2019 – Research from ICAEW shows businesses have the same concerns for the next twelve months as they did in 2018 with uncertainty around Brexit the biggest challenge. Other issues such as slowing UK economic growth, rising UK inflation, plus the lack of clarity on longer-term business priorities also weigh on confidence. Michael Izza, CEO of the ICAEW, said: “We know that the uncertainty around Brexit continues to impact our members and the businesses they advise. This is the busiest time of year for companies in terms of financial reporting and planning for the year ahead. As 29 March looms large, contingency planning is no longer a theoretical exercise, businesses can’t kick the can down the road. They have to make decisions now about jobs, stock levels and supply chains, incurring significant, and possibly unnecessary, cost. We need our parliamentarians to listen to the real concerns of business and find a way forward that a voids a disorderly exit from the EU and provides some much needed clarity.” (London Loves Business, 15/01/19)

Individuals

One in six people overpay tax – One in six people pays too much tax because of mistakes on forms sent to HMRC, a study by Which? has found. About 11.4m people are required to complete a tax return for the 2017-18 tax year, but Which? found 28% find them difficult, 16% made mistakes that resulted in overpayment and 25% had to get professional help. (Source: Daily Mirror, 24/01/19)

200k parents could have pension affected by child benefit complexity – Figures provided to the Treasury Committee by HMRC show that of the 7.9m households in the UK receiving child benefit, around 200,000 could be missing out on entitlements that could boost their State pension. (Source: Financial Times, 24/01/19)

How to reduce IHT bills ‘without selling the family home’ – Harry Brennan provides tips for passing property on after death without “lumping” families with hefty tax bills. He details guaranteed and reviewable whole-of-life insurance policies, borrowing against property to create a debt in the estate, which would reduce the tax liability, and, despite it being “fiendishly complicated,” placing property into trust, among several ways to reduce inheritance tax bills. (Source: The Daily Telegraph, 16/01/19)

Three key changes in tax returns – The Telegraph’s Sam Meadows highlights three key changes those filing a tax return should be aware of this year. For landlords, returns corresponding to the 2017-18 tax year are the first to take account of the phased removal of mortgage interest relief. There is also a new allowance, the trading and property allowance, which gives taxpayers up to £1,000 of tax-free income from either trading or property. Finally, there has been updated guidance on rules for company directors, to make clear they are not required to fill in a tax return if they had no additional income. (Source: The Daily Telegraph, 12/01/19)

Venture capital trusts booming – Investors are steaming into venture capital trusts (VCTs), which offer tax breaks in return for investing in smaller companies, with £116m invested so far in January – 245% more than this stage a year ago. Andrew Wolfson, managing director of Pembroke VCT said his trust is seeing its fastest rate of investment ever this year. The most promising new issues, which are strictly limited and come with 30% income tax relief on up to £200,000 per year, and tax-free dividend payments and capital gains. (Source: The Daily Telegraph, 30/01/19)

Clampdown on EIS tax breaks felt by investors – A change in the rules for tax-efficient investment schemes – barring low-risk investments in favour of innovative, growth-pursuing businesses – led to a 17% fall in schemes open to investment in November 2018. (Source: Financial Times, 12/01/19)

Bereaved missing out on ISA tax break – The Mail reports that just 14% of those eligible to do so are taking advantage of the right to inherit ISAs. Widows, widowers and civil partners gained the right in 2014 to transfer a partner’s Isa into an “additional permitted subscription” ISA, but a FOI request from Zurich revealed that over the past three tax years only 61,000 have used the extra allowance out of a possible 450,000. (Source: Daily Mail, 09/01/19)

Savers scammed out of £23m in 2017 – Action Fraud has reported that, in 2017, £23m was stolen from savers accessing their pensions under freedoms introduced in 2014, with two people losing over £1m. The average loss was £91,000 with a total of 253 savers affected. Pensions expert Steve Webb commented: “The combination of someone being not that financially literate but having lucrative pension savings is obviously hugely attractive to scammers.” (Source: Daily Express, 30/01/19)

Curse causes tax return delay – HMRC has revealed some of the stranger reasons people have given for why their self-assessment tax return was filed late. One taxpayer claimed they were delayed by a witch’s curse put on them by their mother-in-law, while another suggested a broken boiler left them too cold to type. One person said they were unable to submit paperwork on time as they had been busier than normal due to issues with their maids, with another saying they were hampered by being too short to reach a post box. The Revenue also detailed some of the more unique expense claims filed, including one for a music subscription so the taxpayer could listen while they work. HMRC’s Angela MacDonald said: “Help will always be provided for those who have a genuine excuse for not submitting their return on time but it’s unfair to the majority of honest taxpayers when others make bogus claims.” (Source: The Daily Telegraph, 19/01/19)

Small business

MTD strains nerves of small firms – The ICAEW found in October that 40% of firms had no idea the change was coming while others criticise the timing – alongside high business rates, the apprenticeship levy, late payments and rises to the minimum wage, not to mention Brexit. Although some deadlines have been postponed, the requirement for companies to submit their VAT returns online (using government-approved software) from the start of April remain. Anita Monteith, of the ICAEW’s tax faculty, said the government had been heavy-handed in enforcing its new policy. “The problem is not so much the deadline as making it mandatory,” she added. “It should be something that businesses come to in time.” (Source: The Sunday Times, 27/01/19)

Costs weigh heavily on small businesses – Small businesses are spending an average of £480,000 a year on taxes, levies and employment obligations, according to research by the Federation of Small Businesses. The group found that costs such as business rates and pension auto-enrolment rose by 15% from 2011 to 2017. The study also found that the burden was slightly heavier on businesses in Wales, Scotland and Northern Ireland than in London. The construction sector has suffered most, with a 28% increase in policy-linked costs while manufacturing costs are up a fifth in just two years. Mike Cherry, FSB chairman, said: “The minute you start firing on all cylinders as a business owner – you’re struck with an avalanche of additional costs. That has to change.” (Source: The Times, 29/01/19)

Surge in start-ups defies economic uncertainty – Figures due to be released this week will show the number of companies being formed in Britain bounced back last year and while London was still by far the most popular place to form a business, Birmingham, Manchester, Leeds and Bristol saw sharp increases in new ventures. The total number of new businesses started in Britain increased by 5.2% to 645,774 last year – an annual record and a return to growth following a decline in 2017. “These figures demonstrate the resilience and confidence of entrepreneurs,” said Matt Smith, the director of the Centre for Entrepreneurs. “The achievement is especially noteworthy as contractor accounting firms . . . seem to have been replaced by genuine local business activity.” However, although the UK was ranked third by the OECD for start-ups, it fell to thirteenth in the world for scale-ups in 2017. An early-stage investor, Malcolm Evans, says: “Scale-ups, which are what matter, requir e changing the shape of the commercial world around you by showing precision and human flair. It’s quality over quantity.” (Source: The Sunday Times, 13/01/19)

…meanwhile, 200k start-ups utilise streamlined registration – Over 200,000 UK start-ups have used the Streamlined Company Registration Service set up by HMRC and Companies House. The service lets new entrants register as a company and for tax at the same time. Financial Secretary Mel Stride said: “It’s never been easier to setup a business in the UK,” while Small Business Minister Kelly Tolhurst added: “We are making it easier for small businesses to grow and flourish.” (Source: The Press and Jounral, 07/01/19)

HMRC warns over no-deal tax scam – The Government’s no-deal Brexit preparations are being used by fraudsters to target 240,000 businesses with scams, according to HMRC. Companies trading with the EU are being targeted with fake websites posing as the taxman which instruct firms to register for a “UK trader number”, for a fee. The service is free from HMRC. (Source: The Daily Telegraph, 12/01/19)

Construction/property

First-timers overtake movers – First-time buyers are dominating Britain’s housing market, as the level of current homeowners moving house fell the most in seven years, according to Lloyds Bank. It found that the number of homemovers fell by 4% last year from 2017, while the number of first-time buyers increased by 3%. It is the first year since 1995 that people buying their first home account for more of the market than homemovers, at 51% and 49% respectively. The cost of moving home is putting pressure on homemovers, said Andrew Mason of Lloyds Bank, with an average deposit now at just below £100,000, while stamp duty cuts and the Help to Buy scheme are helping out new buyers. (Source: The Daily Telegraph, 19/01/19)

More first-time buyers secure mortgages – November saw 36,200 new first-time buyer mortgages completed, rising 5.8% from the same month in the previous year, according to UK Finance. The £6.0bn of new lending in the month was 9.1% more year-on-year. New buy-to-let loans marked a 9% decline from a year earlier and a 11% drop in value, although buy-to-let remortgaging was up 9.5%. A separate new Bank of England survey shows that lenders are forecasting the demand for mortgages to plummet. The Bank’s gauge of demand for mortgage lending over the next three months fell to -17.5 in the fourth quarter of 2018, dropping from 0.2 in the third quarter and marking its lowest level since the end of 2010. Credit not secured with property also dropped and is expected to fall further up to March. (Source: Evening Standard, 18/01/19)

6 in 10 areas see housing transactions drop – Analysis of the latest Land Registry data by modular homebuilder Project Etopia has found that home sales improved in just 36% of local authorities last year. Sales dropped in 64.4% of markets, leading to an overall drop in transactions of 2.3%. The 133 local authorities that saw transactions rise saw sales increase by 3.5% on average, the report shows. Stevenage recorded the worst fall at 27.5% drop in housing sales, followed by Newcastle-under-Lyme (16.2%) and Cambridge (16%). In the areas that saw falls in sales, the average decline was 4.9%. The City of London saw the biggest increase with sales up 66%. (Source: Daily Mail, 07/01/19)

Manufacturing

Factory output jumps amid Brexit stockpiling – Britain’s manufacturers ramped up their stockpiling efforts last month in response to the prospect of a no-deal Brexit, with factory output rising to the highest level in six months. The IHS Markit/Cips manufacturing purchasing managers’ index rose to 54.2 in December from 53.6 in November, on a scale where a reading above 50 indicates economic growth. The pound’s weakness also helped support export orders, with growth from the US, Europe, China, India, Brazil and Africa. (Source: The Times, 03/01/19)

Textile firms fined over pay – Clothing manufacturers have been forced to pay almost £90,000 to employees after failing to pay them the minimum wage, according to HMRC figures provided to the Environmental Audit Committee. Since 2012, HMRC has investigated 93 textile industry employers, and in 24 cases found arrears of £87,158 owed to staff. It said 14 investigations were ongoing. Mary Creagh, chair of the Committee, said payment of illegally low wages is “rife” in the UK’s textile industry and goes hand in hand with a “culture of fear and intimidation”. (Source: Financial Times, 25/01/19)

Car sales slump – The Society of Motor Manufacturers and Traders (SMMT) has reported that 2.36m new cars were registered in 2018 down 6.8% on the previous year, the biggest drop since an 11% fall in 2008. The SMMT blamed last year’s fall in cars sales – the second consecutive year that the market has declined – on uncertainty over Brexit and a shortage in supply of some vehicles due to a new emissions testing scheme. (Source: Financial Times, 08/01/19)

Recruitment

Fastest growing firms ‘hoovering up’ jobs from rivals – A report by the Enterprise Research Centre suggests Britain’s fastest-growing businesses could be contributing to job losses. A study of the performance of more than six million companies over a period of 17 years found that companies with the fastest employment growth tended to grow by “hoovering up” jobs from slower-growing businesses in the same region, in what the researchers called a “crowding-out competition effect”. (Source: The Times, 22/01/19)

Labour shortages squeeze firms – UK firms are being squeezed by labour shortages, rising prices and a slowdown in sales. More companies than ever before are finding it hard to recruit staff according to the British Chambers of Commerce. Four fifths of employers in manufacturing, and almost as many in the service sector, reported difficulties in finding the right workers. (Source: The Times, 03/01/19)

Employment highs could support rate rise – Employment rose to a record high (75.8%) in the three months to November, according to the ONS, which also revealed that wage growth had hit a 10-year peak – up 3.3% on last year to £527 per week. Samuel Tombs, chief economist at Pantheon Macroeconomics, said the rise in wages strengthens the case for an interest rate rise “even if the Brexit outlook remains uncertain”. (Source: Financial Times, 23/01/19)

Technology

Tax tricks to help soothe Bitcoin losses – The Telegraph looks at recently-published tax guidance showing how money lost in cryptocurrency investment can be used to offset future bills on capital gains. The guidance notes that one way to retrospectively reduce a tax bill is by channelling gains into tax-friendly investments such as the Government’s Enterprise Investment Scheme (EIS), which benefits from “deferral relief”, among other tax breaks. Any gain made in the past three years that is reinvested is deferred until the EIS investment is sold at a later date. Tax due, therefore, is also deferred. (Source: The Daily Telegraph, 08/01/19)

Carney: Digital ID cards could keep online finance safe – Accessing money online could be may safer by the introduction of digital ID cards, Mark Carney has said. Speaking at the Bank’s Future Forum, the Bank of England Governor admitted that the idea would raise privacy concerns, but “having a consistent and comprehensive digital ID” would unlock a lot of opportunities and provide some of the protections needed for a digital financial system. Mr Carney added that ID cards were a decision for the Government, not the bank. (Source: The Daily Telegraph, 29/01/19)

Austria announces digital tax on tech firms – Austria plans to follow France by imposing a digital tax on large tech companies such as Google, Amazon, Apple, and Facebook. The proposal, which comes after the European Union failed to finalise a new EU-wide levy, is set to come into effect by 2020. (Source: Software Testing News, 04/01/19)

Treasury fears online sales tax would breach EU state aid rules – The Treasury has ruled out an online sales tax to help high street shops because under the draft withdrawal agreement Britain has accepted “dynamic alignment” with Brussels on state-aid rules. The Times reports that Mel Stride, financial secretary to the Treasury, has written to Nicky Morgan, chairwoman of the Treasury select committee, to say there was a “high risk” that any such tax would breach the bloc’s state aid rules. Campaigners had urged the Government to introduce a sales tax to rebalance competition arguing online retailers had an advantage over traditional businesses due to the lower rates they need to pay. (Source: The Times, 25/01/19)

Hospitality

December decline for goods sold – Figures from the Office for National Statistics show that consumers pulled back on spending in December, with Black Friday deals in November seeing some shoppers bring forward their Christmas spending. The quantity of goods bought last month fell by 0.9% compared with November, with all sectors except food and petrol declining. Figures for the three months to December showed that the quantity of goods bought dropped by 0.2%. Over the whole year, sales grew by 2.7% in 2018 – exceeding the 2% growth recorded over 2017. (Source: The Times, 19/01/19)

Nutritional brownie maker wins VAT case – Nutritional bar maker Pulsin has won a court battle with HMRC over whether the brownies that it makes are cakes or confectionary. Tribunal Judge Amanda Brown decided in favour of Pulsin after sampling the brownies. She said that although they could be considered confectionary, this did not exclude them from being cakes. Pulsin said that it had wrongly been paying VAT on the products for four years and is now entitled to claw back £300,000. (Source: The Times, 16/01/19)

Major retailers failing on sustainability and worker protection – The Environmental Audit Committee has found a group of major UK fashion retailers, including JD Sports, Sports Direct, TK Maxx, Amazon UK, Boohoo and Missguided, is failing to take action to promote environmental sustainability. The six firms are the “least engaged” in the industry. The EAC wrote to 16 leading retailers last year asking what they are doing to reduce their environmental and social impact. Next, Debenhams, Arcadia Group and Asda Stores are “moderately engaged”, while Asos, Marks & Spencer, Tesco, Primark and Burberry are the “most engaged”. (Source: The I, 31/01/19)

Business rates leading to closures, says M&S boss – M&S chief executive Steve Rowe has said punishing business rates have directly contributed to the High Street’s struggles as the retailer revealed its latest round of store closures. M&S said it would shut another 17 shops as it seeks to cut costs, putting over 1,000 jobs at risk. So far it has closed 30 out of a total of 100 shops earmarked for closure. (Source: Daily Mail, 16/01/19)


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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