in the spotlight

In the spotlight: Our monthly news round-up (June 2018)

Posted by
Rouse Partners
01.06.2018

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

UK economy bouncing back – Analysts at Goldman Sachs say Britain’s economy is rebounding rapidly from a slow start to the year. The investment bank believes GDP growth could hit 0.5% in the second quarter, shrugging off a 0.1% slump in the first quarter. However, manufacturing growth is set to fall to an 18-month low, amid weakening demand from Europe and concerns about global trade wars. Economists expect the IHS Markit/CIPS PMI manufacturing index score for May will come in at 53.6, down slightly from 53.9 in April. (Source: The Sunday Times, 27/05/18)

…and OECD upgrades UK growth outlook – The OECD has upgraded its forecast for UK economic growth – expanding by 1.4% this year before slowing slightly to 1.3% in 2019. “The authorities should stand ready to further increase productivity- enhancing measures on investment if growth weakens significantly ahead of Brexit,” the OECD noted. (Source: The Times, 31/05/18)

EU company registrations falls – The number of French, Dutch and Belgian businesses registering in the UK has fallen dramatically since Britain’s decision to leave the EU, according to figures from Companies House. Lynne Hardwick, the head of marketing at Evolution Money, which compiled the report, said: “The decrease in EU company registrations sets a worrying precedent, suggesting that overseas organisations may not see the UK economy as a safe place to do business. We can only hope this trend reverses as these businesses are a vital part of our infrastructure.” (Source: The Guardian, 21/05/18)

Brexit customs plan could cost £20bn a year – Jon Thompson, the CEO of HMRC, has said that the post-Brexit customs systems favoured by leading Brexiteers could cost businesses up to £20bn a year. He told MPs on the Treasury Select Committee that firms would have to pay £32.50 for each customs declaration under the so-called “max fac” solution. That would add a £6.5bn cost to businesses on the UK side of the customs border, with Mr Thomson saying this figure would be doubled to take account of declarations on the EU side. Along with EU rules of origin requirements, Mr Thompson told the MPs the total cost to businesses of the “max fac” model is “somewhere between £17bn and £20bn” per year. Conservative Brexiteer John Redwood said he did not accept what he described as the HMRC’s “general figures” but added that “if it is going to cost this much it is the wrong system”. Iain Duncan Smith said HMRC’s assumptions have no basis in reality.” (Source: Financial Times, 24/05/18)

Individuals

HMRC trial finds taxpayers more likely to pay too much – A trial of HMRC’s new digital tax system found taxpayers are more likely to overstate their tax liabilities than understate them, calling into question the claim that the Making Tax Digital system will help close the tax gap. The trial pre-populated incomes for more than 685,000 on their self-assessment forms using existing data and found that it reduced the income declared more often than not. HMRC CEO Jon Thompson told MPs in a letter: This “had a small net negative impact on overall tax receipts due to improved accuracy of self-assessment returns”. He added: “Decreases in overpayments outweighed the reductions in small ¬underpayments.” (Source: The Daily Telegraph, 07/05/18)

Brexit puts brakes on HMRC’s digital revolution – HMRC CEO Jon Thompson has told members of Parliament’s public accounts committee that 39 initiatives would be adversely affected by the Government’s focus on Brexit. Among the projects that will be halted or delayed are online services for tax credits for new claimants, new services for personal tax accounts, and Making Tax Digital for Individuals. (Source: The Times, 05/05/18)

Plans to extend offshore tax investigations come under fire – Government plans to extend the time limit for HMRC to assess cases involving offshore tax matters to 12 years have been criticised as unnecessary and damaging. (Source: Financial Times, 19/05/18)

Executors take care – you are liable for IHT – The Daily Telegraph details how the executor of a will can find themselves liable for the IHT bill of the estate, even if they are not a beneficiary. One case offers a cautionary tale. Glyne Harris was left owing HMRC £340,000 in death duties after discharging the assets of an estate on what he claims was the understanding that the beneficiary would pay the IHT owed. But the beneficiary left the country for Barbados without paying up. Mr Harris launched an appeal but tribunal judge Nicholas Aleksander rejected it. It can therefore pay to instruct a lawyer where inheritance tax is payable. (Source: The Daily Telegraph, 26/05/18)

Cyber criminals aim to exploit privacy policy updates – Cyber security experts have warned that incoming General Data Protection Regulation may lead to a spike in cyber-attacks, as criminals try to exploit the communications between businesses and customers regarding updated privacy policies. Meanwhile, HMRC has warned people to be vigilant against scammers stealing details through fake tax rebates. Fraudsters are contacting people via email and text message with “phishing” messages to persuade them to hand over bank details. HMRC received 84,549 phishing reports in March and requested 2,672 such phishing websites be taken down. (Source: The Daily Telegraph, 15/05/18)

Pensions dashboard faces delay – Government plans to create an online “pensions dashboard” displaying each person’s retirement savings have fallen behind, as new figures show that seven million people have lost track of at least one pension pot. Research from the insurer Aegon found that 22% of savers were unable to trace one or more pensions, up from 21% last year. A feasibility study into the dashboard plans was due to be released by the DWP in March but has not yet appeared. (Source: The Times, 31/05/18)

France cuts tax on wealthy – France has scrapped an “exit tax” paid by high earners when they move assets outside the country. The Macron government said that it was fulfilling a campaign promise to encourage investment by ending the 30% levy. (Source: The Times, 03/05/18)

You’ll pay for Wedding enterprise – The Telegraph discusses how if people cashed in on the Royal Wedding they can expect HMRC to be coming after them. The article claims that the tax man will be looking at eBay sales, Airbnb listings and using its Connect system to identify any “apparent mis-alignment” that could indicate income was generated from the event. The article notes that homes in Windsor overlooking the route of the wedding were being rented to international broadcasters for more than £300,000. (Source: The Daily Telegraph, 24/05/19)

Latest Tax Freedom Day for 20 years – May 29th marked the latest ‘Tax Freedom Day’ for two decades, according to the Adam Smith Institute. The think-tank found British taxpayers have effectively worked 148 days to cover their tax bills in 2018 – three days more than in 2017. Figures from the Office for Budget Responsibility show HMRC will collect £724.9bn this year, equivalent to 34.3% of national income. The last time the tax burden was higher as a proportion of GDP was in 1969-70. (Source: The Daily Telegraph, 29/05/18)

Businesses

Data regulator will not make example of small businesses over GDPR – The FSB is urging the Information Commissioner’s Office (ICO) to show understanding in its enforcement of GDPR, claiming many small firms in the UK are still not ready for the regulation. Information Commissioner Elizabeth Dunham said they would not be expecting “perfection” from small firms from day one. (Source: The Independent, 26/05/18)

SMEs expect steady growth – Small firms have reported moderate confidence in the state of the economy over the past three months. SMEs told the CBI that they expect to grow steadily in the coming months, despite their investment plans taking a knock amid signs of weaker export growth as the eurozone economies slow down. (Source: The Daily Telegraph, 03/05/18)

High costs hurting small businesses – A survey by the Federation of Small Businesses has found seven out of ten small business leaders saw costs rise in the second quarter with wage bills, utility charges and fuel all eating into small companies’ finances. Business rates and commercial property tax were also a concern, the FSB said. (Source: The Times, 24/05/18)

More SMEs turning to alternative finance – Analysis by Wesleyan has found that rather than rely on overdrafts, savings and credit cards to facilitate growth, 59% of SMEs had used external funding – including crowdfunding and invoice funding – on at least one occasion to drive growth. The figure is up from 30% in the same survey in 2016. Some of 27% SMEs said they now “regularly” turn to external finance, up from 20% three years ago. The report also reveals that 54% of SMEs are feeling “more confident” about their firm’s prospects compared to last year and just 11% are “concerned” about the potential impact of Brexit. (Source: P2P news, 31/05/18)

US companies begin to reduce bond holdings after tax overhaul – The US tax law requiring companies to pay 8% to 15.5% tax on all profits held offshore has prompted managements to radically change the way they spend their excess cash. (Source: Financial Times, 15/05/18)

Construction/property

Construction industry rebounds – The UK construction industry recovered in April from March’s inclement weather, according to IHS Markit/CIPS’ latest construction survey, which said PMI rose to 52.5, its highest level for five months. April’s rebound was driven by the housebuilding sector, for which the PMI jumped to its highest level since May last year. However, the commercial construction and civil engineering industries face deeper problems. (Source: The Times, 03/05/18)

Mum and Dad bankroll a quarter of all house sales – More than one in four transactions this year are expected to depend on the Bank of Mum and Dad. Parents will contribute £5.7bn to help their adult children to buy homes in 2018, according to Legal & General. That cash will fund almost £82bn of property purchases, or about 315,000 transactions. (Source: The Times, 29/05/18)

Sharp Brexit could delay interest rate rise – Mark Carney said yesterday that a “disorderly” Brexit could delay rises in interest rates. The Bank of England governor re-iterated the Bank’s analysis that the referendum result had damaged the economy adding that the negotiations were entering a “critical phase” and the Bank was prepared to use stimulus measures in case the transition was not “smooth”. (Source: BBC News, 25/05/18)

HMRC must scrap employer’s NI to make tax fairer for contractors – Writing in the Telegraph, Dave Chaplin, the CEO of Contractor Calculator, says instead of rolling out rules to the private sector requiring employers to assess the employment status of their off-payroll contractors, HMRC should restructure the tax system. He writes that the cases of BBC presenters being tried under IR35 rules currently governing the private sector illustrate how organisations will push risk and costs onto contractors. Public-sector bodies have been doing this by forgoing proper assessments and instead assuming that all contractors are within scope of the new legislation, leading to lower incomes for contractors, which subsequently pushes them to find arrangements to minimise their losses, often resulting in large tax bills later. HMRC’s strategy will “be a complete car crash,” says Chaplin, and will see private firms striving to keep their contractors outside of IR35, reducing their access to employment rig hts and stiffening up the flexible labour market. The solution is the gradual removal of employer’s NI which would allow for better alignment of tax and employment law, he concludes. (Source: The Sunday Telegraph, 20/05/18)

Buy to let

Offshore landlords cash in on student housing – The Guardian reports that thousands of undergraduates are paying for accommodation at universities where developers are cashing in on the privatisation of student housing using offshore companies. More than 20,000 students were found to be paying for rooms owned by companies based in places such as Jersey, Guernsey, the British Virgin Islands and Luxembourg. The holding structure means overseas investors are able to sell on the rooms without paying tax on their gains and allows buildings to change hands without a stamp duty bill. Complex company arrangements also give firms the opportunity to minimise the tax they pay while charging students up to £14,000 a year in fees. (Source: The Guardian, 28/05/18)

Manufacturing

Pressures gather for exporters – A study by DHL and the British Chambers of Commerce shows 66% of manufacturers looking to hire and 57% of services exporters are struggling to find the right staff. Adam Marshall, director general of the BCC, said hiring problems and uncertainty have been compounded by increasing price pressures, with “manufacturers particularly feeling the pinch from costs at the factory gate”. He added: “While the fall in the pound has provided a boost for some exporters, it’s been a drag for others, who report rising costs for inputs and components.” (Source: The Independent, 25/05/18)

April rebound in UK car sales obscures underlying downtrend – UK car sales climbed 10.4% last month compared with a year earlier, the SMMT said, but overall sales for the first four months of the year remain down by close to 9%. (Source: Financial Times, 05/05/18)

Recruitment

UK in new crackdown on tax avoidance by contractors – The Treasury is consulting on a rule change that will make companies or recruitment agencies responsible for determining whether the contractors they hire are genuinely self-employed in a crackdown on non-compliance with IR35 rules. HMRC last year ruled that freelancers working for public sector bodies through a personal service company would have their taxes taken at source, before their fees were paid. The government has now launched a consultation that lays out plans to extend these reforms to contractors working for private companies. The Treasury says the cost of non-compliance is expected to increase from £700m in 2017-2018 to £1.2bn by 2023. However some experts have warned that the reform would see companies being asked to determine employment status in an area where legal definitions were blurred. (Source: Financial Times, 19/05/18)

Skill shortages push up wages – Wages are rising at their fastest rate in three years in response to a strong jobs market and growing skills shortages. Economists expect the ONS to say average wages rose by 2.9% in the 12 months to March, representing an acceleration from 2.8% in February. (Source: The Daily Telegraph, 14/05/18)

Nurses lured into avoidance schemes – The Times reports on emails showing how recruitment consultants continue to offer workers on their books to be paid through “umbrella” companies that are being investigated by HMRC. The schemes take payment from employers then pay the worker back in loans that claim to circumvent tax laws. The paper says public-sector employees such as nurses and social workers are being targeted with a loan model operated by Smart Pay, which has led many to receive letters from the Revenue warning them they are using a tax avoidance scheme. Graham Webber, a director of tax at WTT Consulting, says: “HMRC has scored some very minor victories against such schemes,” but in terms of “striking them down in court, almost nothing has happened.” (Source: The Times, 05/05/18)

Brexit hitting job applications, EEF says – The manufacturers’ organisation, EEF, has warned that job applications from people from other European countries have fallen 17% since last year while a further 13% of manufacturers reported an increase in EU workers leaving their firms. Half its members are concerned that they will struggle to find employees with the skills they require after 2019. Tim Thomas, the director of skills and employment Policy at EEF, said: “Skills shortages are endemic in manufacturing and engineering, and companies are becoming increasingly concerned about their ability to access the skills they need post-Brexit.”. (Source: The Guardian, 22/05/18)

Fewer staff phoning in sick – The number of companies reporting a rise in workers going in when they are ill has more than tripled since 2010, according to a survey by the CIPD. Its report reveals that “presenteeism” has hit a record high, but warns that this is affecting the country’s productivity. Some 86% of companies said people were coming to work ill, up from 72% in 2016 and 26% in 2010. (Source: The Times, 02/05/18)

Apprenticeship numbers plunge – Official figures have revealed a 25% plunge in the number of people starting apprenticeships, amid growing criticism of the Apprenticeship Levy, which critics say has caused confusion among businesses. Small companies, who do not pay the levy, are also abandoning training because in most cases they must now pay 10% of the cost of the apprenticeship. (Source: The Times, 18/05/18)

Technology

Contractor wins IR35 appeal against HMRC – A tribunal judge has dismissed HMRC demands for £26,000 in payment from an IT contractor it claimed had fallen foul of the IR35 tax avoidance rules. The Revenue claimed Ian Wells’ 11-month stint working for the Department for Work and Pensions had been incorrectly classified as an outside IR35 engagement between the two parties. But Judge Jennifer Dean said there are numerous elements to how Mr Wells worked with the DWP that reinforce the fact that he worked for the department as an independent contractor, and not a salaried employee. (Source: Computer Weekly, 18/05/18)

Social media giants face new internet safety tax – Ministers are considering a new social media tax for companies such as Twitter and Facebook to pay for improvements to internet safety. Matt Hancock, digital secretary of state, is set to announce that new laws will be created to “address the Wild West elements of the internet”. (Source: The Sunday Telegraph, 20/05/18)

Hospitality

Snow freezes consumer spending – March saw the weakest consumer spending in more than five years, according to the Bank of England’s latest data, which shows just £254m was spent on credit cards and personal loans over the month, blighted by blizzards in much of the UK, the lowest since November 2012. (Source: The Times, 02/05/18)

…but retail sales bounce back – The latest figures from the ONS have shown that retail sales rose by a better-than-expected 1.6% in April as consumers resumed spending. In the three months to April, sales rose 0.1% on the previous quarter. Retailers have had several obstacles, following unseasonably cold weather earlier in the year and the introduction of new regulation, such as GDPR. The upcoming months are likely to provide a number of opportunities for retailers to drive sales and navigate this assault course, including bank holidays and the World Cup, although it is clear that trading will remain challenging. (Source: The Guardian, 25/05/18)

VAT trouser charge takes the biscuit – The Times carries an article on the complexity of VAT rules on cakes, biscuits and pasties, recalling the court ruling that Jaffa Cakes were a cake rather than a biscuit and therefore tax-free. The article notes that if a gingerbread man has two chocolate spots for eyes it will be VAT-free, but add chocolate trousers and suddenly it is liable for tax. (Source: The Times, 29/05/18)

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