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In the spotlight: Our monthly news round-up (June 2019)

Posted by
Rouse Partners
31.05.2019

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

PM announces departure – Theresa May will stand down as Conservative leader on 7 June. Announcing her decision, Mrs May she said she had done “everything I can” to deliver Brexit and convince MPs to support the withdrawal deal she had negotiated with the EU, adding that it was a matter of “deep regret” that she had been unable to do so. She added that her successor would have to secure agreement in Parliament to deliver Brexit, saying: “Such a consensus can only be reached if those on all sides of the debate are willing to compromise.” Commenting on Mrs May’s departure, Scotland’s First Minister Nicola Sturgeon said: “The prospect of an even more hard-line Brexiteer now becoming PM and threatening a no-deal exit is deeply concerning,” while Brexit Party Leader Nigel Farage commented that two Conservative leaders whose “instincts were pro-EU” had now gone and the party either “learns that lesson, or it dies”. (Source: BBC News, 25/05/19)

Brexit Party on top in EU elections – The Brexit Party has come out as the clear winner in the UK European election, with the pro-EU Liberal Democrats coming second. The Conservatives saw their share of the vote collapse by 14.9% to just 9.1%. The Brexit Party polled 31.6%, followed by the Liberal Democrats with 20.3%, Labour 14.1% and Green 12.1%. Reflecting on the result, Brexit Party leader Nigel Farage said: “If we don’t leave the EU on 31 October, tonight’s results will be repeated in a general election.” (Source: BBC News, 27/05/19)

Brexit uncertainty deepens gloom in services sector – Optimism in the business and professional services sector, which includes accountancy, worsened in the three months to May, with a CBI poll showing a net balance of -8% of companies feeling positive about their business situation. Sales volumes in business and professional services firms fell at the sharpest pace since August 2012, according to the survey of 129 businesses, while the CBI warned that volumes are likely to decline further in the next quarter. (Source: The Times, 29/05/19)

Car production suffering under Brexit instability – Factory shutdowns during April saw car production drop by 44.5%, according to figures from the Society of Motor Manufacturers and Traders (SMMT). The self-imposed production shutdown had been scheduled to follow the UK’s expected departure from the EU on 29 March. SMMT boss Mike Hawes said: “Prolonged instability has done untold damage, with the fear of ‘no deal’ holding back progress, causing investment to stall, jobs to be lost and undermining our global reputation.” (Source: The Times, 30/05/19)

…but growth set to outdo Europe – Official figures set to be released reveal that the economy shrugged off Brexit uncertainty in Q1, with economists forecasting growth of 0.5% in the three months to the end of March. This would outdo continental Europe, which saw growth of 0.4% over the same period. The figures place the UK second in the G7 list of the largest developed countries, with only the US, where quarterly growth hit 0.8%, seeing a faster increase. “It’s some rare good news for the UK economy,” said Rob Wood of Bank of America Merrill Lynch. Samuel Tombs, chief UK economist at Pantheon Macroeconomics, added: “Brexit uncertainty doesn’t seem to have held the economy back much at all.” (Source: The Sunday Times, 05/05/19)

UK exports at record high – UK exports reached a record high of £640bn in the last financial year, up by £18.5bn on the previous year. The ONS figures showed UK firms sold more overseas in the last financial year than at any time since records began. UK exports also grew faster than those of Germany, France and Italy between 2016 and 2018, according to the Organisation for Economic Co-operation. Britain’s 13.8% rate also outstripped the EU’s overall rate of 11.9%. However the total UK trade deficit has widened to 3.4%. International Trade Secretary Liam Fox said: “These new numbers highlight the quality and innovation of British goods and services and how much they are valued across the globe.” (Source: Sunday Express, 12/05/19)

Individuals

Freelance workers in the dark about IR35 tax reforms – A survey has found 92% of contractors have not been contacted by their client or recruitment agency to discuss IR35 reforms, which come into force in April 2020. All companies, unless they have fewer than 50 workers or less than £10.2m annual turnover – will be required to assess the tax status of all contractors in order to determine whether they should be taxed as an employee or not. The study by Qdos also revealed that found 59% of UK businesses were considering a blanket approach to managing the legislation because they did not have time to assess contractors individually. Seb Maley, Qdos chief executive, said: “Accurate IR35 decisions are made with joined-up thinking and input from each party in the supply chain. Therefore, we urge the businesses engaging contractors and the agencies placing these workers to start preparing for IR35 reform now, irrespective of any potential tweaks to the legislation.” (Source: Financial Times, 30/05/19)

More pensioners file tax returns – The number of pensioners required to file a tax return has risen by 100,000 in the past two years, despite HMRC’s efforts to move towards digitisation. Data from the tax office shows that 1.8m people over the age of 65 filed a return for the 2017/18 tax year, up from 1.7m in 2015/16. Former Pensions Minister Sir Steve Webb said: “The number of pensioners filling in tax returns should be going down, not up, and HMRC needs to take action to reverse this trend.” Overall, 11.6m people submitted a return for the most recent tax year, marking an annual increase of 200,000. (Source: The Sunday Telegraph, 05/05/19)

Investors set for dividend shock – Investors face a “£1bn raid on their dividends” when they fill out their annual tax returns, with the amount savers can receive in dividends without paying tax having been cut from £5,000 to £2,000 in a tweak which took effect from the 2018/19 tax year. According to The Sunday Telegraph, many investors “didn’t spot the change” which estimates suggest could net the Treasury an additional £870m – although wealth manager Hargreaves Lansdown believes the total could hit £1bn. (Source: The Sunday Telegraph, 05/05/19)

Over-60s at risk of complex IHT rules – An HMRC report published last week indicates that more than a million over-60s are at risk of falling into the inheritance tax net but 54% of those have little understanding of IHT rules. NFU Mutual’s Sean McCann said IHT rules were “fiendishly complex, feared by many and understood by few”, and that this lack of knowledge could lead to needless tax bills running into the tens of thousands of pounds. Elsewhere, investment platform AJ Bell says almost half of people who gift money are unaware of inheritance tax rules that could see their estate taxed at 40% if they die within three years. Up to £3,000 can be given away each year tax-free, but 12% of people over the age of 70 are handing out gifts of £20,000 or more. Tax is not paid on larger gifts if you survive for longer than seven years, but just 45% say they understood these rules. (Source: The Daily Telegraph, 22/05/19)

Grandparents miss out on perk – Figures show that while more than 10,000 grandparents have made use of a scheme designed to assist those who look after their grandchildren to help their children get back to work, there are still many more who have not. Steve Webb, director of policy at Royal London, says that while it is great news that thousands of grandparents had used the “specified adult childcare credits” initiative to receive national insurance credits, “the numbers are still a drop in the ocean out of all those who could claim” the credits, which are worth around £250 a year during retirement. While the 10,000 claimants is a steep rise on the 1,300 recorded in 2016, analysis suggests 1m or more could be eligible. (Source: The Guardian, 18/05/19)

Tax-efficient EIS companies take in £2bn despite clampdown – Investors put nearly £2bn into tax-efficient Enterprise Investment Scheme companies in 2017-18 despite a new “risk-to-capital” test. Experts say the popularity of EIS is partly driven by cuts to pension tax relief. (Source: Financial Times, 31/05/19)

ISAs see growth – Moneyfacts has said that fears that tax breaks on savings could be removed by a future Labour government have led people to rush to put their money in cash Isas. The financial data firm says that the proportion of searches for cash Isas on its site rose from 17.5% up to 22.7% in March. Experts linked the trend to the ongoing uncertainty over Brexit and fears of a bonfire of tax reliefs under a Jeremy Corbyn government. (Source: The Times, 25/05/19)

Fall in pound sparks renewed pension protests – British retirees residing in mainly Commonwealth countries are protesting after the fall in sterling left them worse off because their pensions are “frozen”. A spokesman for the Department for Work and Pensions said: “The Government has a very clear position, which has remained consistent for around 70 years: the UK state pension is payable worldwide but is only uprated abroad where we have a legal requirement to do so or a reciprocal agreement is in place.” One ex-pat who retired to Canada in 1998 is said to have received £27,945 less than his peers in Britain even though he has made the same level of NICs. Source: The Daily Telegraph, 23/05/19)

Businesses

Money laundering fines up 90% – HMRC figures show a 91% increase in the value of fines handed to companies that failed to comply with anti-money laundering obligations in 2017/18, with charges totalling £2.3m compared to £1.2m in 2016/17. The average size of fines increased from £1,310 to £3,450. Jamie Cook of financial services regulatory consultancy Fscom said: “Cracking down on money laundering is at the top of the government’s agenda and HMRC is responding by increasing the value of fines it hits businesses with.” (Source: City AM, 07/05/19)

Fines for breaking data rules rise 30% – British companies paid 30% more in fines last year for breaching privacy rules, according to a recent report, with even bigger penalties forecast for this year. Marketing activities triggered the largest number of infringements last year, accounting for half the cases, with 64% of those resulting from telephone gambits. A quarter of enforcement actions related to personal data security breaches. Mark Taylor, a partner at Osborne Clarke Legal Practice commented: “While GDPR has made international compliance easier, it hasn’t unfortunately made it a one-size-fits-all approach everywhere.” Mr Taylor predicted that “enforcement activity will step up, with companies that are undertaking higher-risk processing likely to be most at risk”. (Source: The Times, 30/05/19)

Construction/property

Buyers return to housing market – More money entered the UK housing market in April than at any point since 2007, according to industry group UK Finance, with almost £9bn of home purchase mortgages approved for nearly 43,000 such loans. The number of mortgages was up 6% on the month and more than 11% on April 2018, while remortgaging also picked up – with more than 31,000 homeowners shopping around for a new loan in the month. (Source: Financial Times, 29/05/19)

City enjoys construction boom – Construction of new offices in London has hit its highest level since the EU referendum, according to a biannual crane survey. The survey found the amount of space under construction was up 12%, with 37 new schemes breaking ground in the past six months. Brexit. International Trade Secretary Liam Fox said: “This is a far cry from the doom and gloom predicted when the UK voted to leave the European Union in 2016 and reinforces the City’s global pre-eminence as an investment destination.” (Source: The Times, 20/05/19)

US buyers flock to London property – Buying agent Black Brick says that the number of Americans looking to buy expensive property in central London has soared, accounting for nearly a third of the firm’s clients in the year to June. US buyers are taking advantage of a 40% discount on top-of-the-market prices, with prime London property prices down 15-20% and the value of the pound dropping. (Source: The Daily Telegraph, 31/05/19)

Buy to let

Tenants face rent hikes as landlords bail – The withdrawal of tax breaks for landlords is leading to an exodus from the buy-to-let market risking a crisis for tenants, according to the Residential Landlords Association (RLA). The RLA says that tenants face less choice and higher rents if landlords sell up. David Smith, of the RLA, said: “The government’s tax increases on the sector are already making it difficult for tenants to find a place to live, with many landlords not renewing tenancies. If rushed and not thought through, planned changes to the way landlords can repossess properties risk making the situation even worse.” (Source: The Times, 14/05/19)

Landlords profit by abandoning buy-to-let – Research by Hamptons International shows buy-to-let landlords who are leaving the market because of a government clampdown have been making an average profit of £80,000 for each property sold. In England and Wales, landlords made £79,770 before tax last year, having owned the property for an average of just over nine and a half years. However, the average gain was still £3,660 less than the £83,430 that landlords made in 2017. (Source: The Times, 13/05/19)

More pensioners investing in buy-to-let – There has been a notable rise in the number of over-65s investing in the buy-to-let sector, according to figures from Commercial Trust. The share of buy-to-let mortgage applications by 65 to 75-year-olds increased by 5.43% in 2018, owed in part to the fact that a number of mortgage lenders have recently increased their maximum age at the end of the mortgage term criteria from 75 to 85 years, while also pushing up their maximum mortgage term. (Source: Landlord Today, 14/05/19)

Meanwhile, landlords braced for tenant fees ban – Landlords could face more pain as letting agents prepare to increase fees ahead of new rules limiting charges to tenants. Landlords have already seen their profits squeezed by tax changes and the Residential Landlords Association says over a quarter are now looking to sell at least one property in the next year, the highest number since 2016. (Source: The Daily Telegraph, 11/05/19)

Manufacturing

Brexit stockpiling boosts economy – The UK economy picked up in the first three months of the year after manufacturers’ stockpiling ahead of Brexit helped to boost growth. Growth was 0.5% in the quarter, up from 0.2% in the previous three months, the Office for National Statistics said. The manufacturing sector grew at its fastest rate since 1988 in the period, driven by manufacturers rushing to deliver orders before the original Brexit deadline of 29 March. But economists warned that the boost from stockpiling was likely to be temporary and would unwind in the coming months. (Source: BBC News, 11/05/19)

UK will have world’s first plastic tax – The Treasury has announced that the UK will be the first country in the world to introduce a plastic tax. The levy will hit plastic manufacturers that fail to include 30% recycled content. (Source: Daily Mail, 13/05/19)

UK could be an “exporting superpower”, says Liam Fox – Liam Fox will today set out his ambition to increase exports as a proportion of UK GDP from 30% to 35% as the international trade secretary outlines his plan to make the UK a “21st century exporting superpower”. Dr Fox will say around 400,000 UK businesses have the potential to export but currently are not and will announce a new digital platform to help businesses better access financial incentives and loans. The new Exports Strategy will also include an online tool enabling businesses to submit the non-tariff barriers they face. Those UK exporters most likely to benefit from up to £50bn worth of export finance and insurance support from UK Export Finance will be targeted in an awareness campaign. Mike Cherry, Federation of Small Businesses national chairman, said the strategy is “strong on aspiration”, but warned “it’s concerning to see a lack of definitive, detailed interventions”. (Source: Economia, 31/05/19)

Recruitment

10% of firms plot contractor change – AGCC research shows that one in 10 firms will look to convert contractors into full-time employees in response to new legislation relating to off-payroll working rules, with IR35 legislation set to come into force in April next year. (Source: The Press and Journal, 29/05/19)

Court victory for HMRC spells more woe for contractors – HMRC won a case against payroll services firm Costelloe Business Services in March prompting the taxman to send out letters to contractors it believes may have used similar companies. Healthcare contractors used Costelloe to bill their clients and process payments, usually as dividends, reducing their tax and NI liability. HMRC argued this structure was in breach of legislation governing “managed service companies” (MSC) and that the income should be taxable as normal. (Source: The Daily Telegraph, 11/05/19)

Number of businesses planning to hire increases – The quarterly survey of employers by the Chartered Institute of Personnel and Development (CIPD) has found a higher proportion of businesses plan to increase staff levels compared with three months ago. Confidence is highest in business services, construction, healthcare and information technology. However, two in five employers say it has become harder to retain staff, with a majority increasing salaries in response to recruitment and retention challenges. Despite this, overall pay rise expectations are down slightly in the private sector from 2.5% to 2%. The public sector has seen a rise from 1% to 1.5%. (Source: The Times, 13/05/19)

Managers and professionals drive employment surge – A surge in employment is being driven by well-paid managers and professionals, according to the Office for National Statistics, while growth in lower-skilled trades has been far slower. Higher-paid roles make up more than three quarters of the rise in employment, helping drive pay growth to more than 3% in the past year. Alok Sharma, the employment minister, commented: “From electricians to architects, scientists to business managers, over 2.6m more people since 2010 have not just entered a job, but a career. With the UK economy being the second biggest employer in Europe, these skilled workers are driving our economic growth.” (Source: The Daily Telegraph, 20/05/19)

Technology

Video games and apps are the new route to wealth – According to this year’s Sunday Times Rich List, people are now making their fortunes not from industries and professions such as banking, stockbroking and the law, but from dating apps, video games and social media platforms. You need £6.85bn to join the Top 20 of The Rich List, while Sri and Gopi Hinduja and family are at the top of the pile with £22bn. (Source: The Sunday Times, 12/05/19)

AI boost for capital SMEs – Small firms in London are to be given a boost, with Mayor Sadiq Khan announcing that 200 small businesses in the capital will receive a share of £200,000 to enhance their use of AI. Mr Khan said London is “a leading hub for innovation,” with some of the advances being made “revolutionising how business is done.” He added: “Small businesses are the lifeblood of our economy, and I firmly believe these innovations should be available to companies of all sizes, not just the ones with the deepest pockets.” (Source: City AM, 07/05/19)

UK fintech start-ups rake in £4.5bn – A new report by start-up body Tech Nation reveals that Britain is the world’s top fintech hub, with high-growth companies attracting over £4.5bn in investment over three years. London and Cambridge lead the country in attracting high-growth tech investment, with the former receiving £9bn between 2015 and 2018, and the latter £583m. Eileen Burbidge, chair of Tech Nation, remarked: “The UK has an incredibly pivotal role in the global tech scene. Nowhere is this more evident than in the Fintech sector where the UK is ranked number one in the world, an enviable position that has been established with decades of hard work, entrepreneurial talent, innovation and supportive policymakers.” (Source: City AM, 15/05/19)

Life sciences fear R&D rule change – Government proposals to cap R&D tax credits are being fought by biotech bosses who fear the move could decimate the UK’s life sciences industry. Biotech developers say they will be disproportionately affected by proposed laws that would restrict payments to lossmaking companies. HMRC estimates that its R&D plans would hit 5% of all small businesses. (Source: The Sunday Times, 12/05/19)

Robot tax ‘bad for business,’ Minister warns – Business Minster Andrew Stephenson has warned against taxing robots and automation to better support investment and boost productivity, jobs and pay. “We need more robots, we need more automation, we need to incentivise businesses to invest and become more productive,” he told the Business, Energy and Industrial Strategy Committee, adding: “We are actively looking at what further incentives can be provided. There is R&D tax credits, there are capital allowances, there are various things the Government is doing to incentivise businesses to invest in working in a more productive, smarter way.” (Source: The Daily Telegraph, 16/05/19)

Hospitality

Online drives retail sales in April – The ONS has revealed that retail sales stalled in April, but warmer weather boosted sales of clothing, which offset falls in other areas of spending. In the three months to April, sales increased by 1.8%, with a record quarter for the online sector. Sales from online-only retailers rose 9.4% over the three-month period – the highest three-month-on-three-month growth rate since records began, the ONS said, boosted by promotions and sales. Department stores sales dropped by 0.5% and those in household goods stores declined by 2.9%. Compared with a year earlier, sales were up by 5.2% after a 6.7% annual rise in March. (Source: BBC News, 25/05/19)

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