March 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

Business owners urged to prepare for no deal – HMRC is urging business owners to prepare now for a no-deal Brexit, highlighting three steps they should take to ensure their businesses can continue to trade with the EU. Firstly they need to register for an Economic Operator and Registration Identification (EORI) number, which HMRC says only 17% of businesses have so far done. Then, businesses need to consider how they want to make customs declarations – which usually means using a customs agent. For businesses that import goods into the UK from the EU using roll on roll off locations, they can take a third step and register for new Transitional Simplified Procedures (TSP). TSP will allow businesses to import without having to make a full customs declaration at the border and postpone paying any import duties. For imports using other locations, and for exports, standard customs declarations will apply. Financial Secretary to the Treasury Mel Stride MP said: “We want businesses to be able continue trading with minimal disruption in any scenario […] Step by step advice can be accessed via GOV.UK – the help is there, we just need business owners to take action.” Meanwhile, the Federation of Small Businesses (FSB) estimates that around just one in seven small companies has started planning for a no-deal Brexit. You can also find Brexit planning guidance in our Year end Tax Guide. (Source: HMRC, 28/02/19)

PM’s ‘renewed determination’ over Brexit – Writing in the Sunday Telegraph, Prime Minister Theresa May says she will return to Brussels to re-open negotiations with “new ideas and a renewed determination”, insisting that she is “determined” to deliver Brexit “on time”, despite calls for a delay from MPs and ministers. The PM has also invoked the support of Jeremy Corbyn to insist the EU must offer concessions on her Brexit deal, saying that the Labour leader believes that the Irish backstop “needs to be addressed with Brussels”. Mrs May also urged those campaigning for a second referendum to “put your efforts behind securing a better Brexit for all of us. Because the UK is leaving the EU.” (Source: The Sunday Telegraph, 03/02/19)

UK economy grows faster than Germany’s and Italy’s – Germany avoided recession by a hair’s breadth last year as activity dived amid a US trade crackdown and Brexit jitters. There was no growth in the final three months of 2018, after a 0.2% contraction in the previous quarter. Italy contracted by 0.1%, tipping it into its third recession this decade. The eurozone as a whole grew by 0.2%, the same as the UK, figures from Eurostat showed. (Source: The Independent, 15/02/19)

HMRC reveals no-deal Brexit port plans – HMRC has said that EU imports will not be subject to extra checks at UK ports in the event of a no-deal Brexit. The Revenue said it has formulated transitional procedures for importing goods from the EU through British ports and the Channel Tunnel, adding that these would be reviewed three to six months after the UK exits the EU. The system will see most goods allowed to leave a port or train station before HMRC has been told that they have arrived, with importers having until the end of the next working day to notify officials that goods have arrived in the UK. Firms, which will have to register and set up a direct debit arrangement, will be allowed to defer paying any duty until the month after import. Ronan Quigley, executive director responsible for trade at the British Chambers of Commerce, said news of the transitional arrangements in the event of the “unwelcome scenario of no-deal” was “reassuring”. (Source: Financial Times, 05/02/19)

Treasury has no-deal options – Richard Partington in the Guardian considers options that Treasury could consider to protect the economy in the result if a no-deal Brexit. He says World Trade Organisation rules could see higher tariffs than under EU arrangements, but cites Paul Dales, chief UK economist at Capital Economics, who says WTO-level border taxes could bring in about £10bn a year extra. Mr Partington suggests the Chancellor, who announced tax cuts in the autumn budget, could raise the personal allowance further, as well as cutting income tax and stamp duty. Cutting VAT, he adds, would help to support consumer spending. (Source: The Daily Telegraph, 09/02/19)

Fears representative rule will hamper post-Brexit exports – The Federation of Small Businesses (FSB) has warned that businesses selling into Europe after Brexit could face a “massive barrier to trade” if proposals to force businesses from third countries to appoint an authorised representative are implemented. The EU is planning to require businesses from countries outside the bloc who trade in certain goods to appoint a responsible person, or “authorised economic operator”, within the single market. UK companies affected by the rules would have to find and appoint a representative if they do not have an existing agent willing to take on the responsibility. For affected companies, the FSB estimates that costs could be at least £1,500 a year per product category they deal in. (Source: The Times, 19/02/19)

…while import tariffs could be cut under no-deal – Trade Secretary Liam Fox may cut tax and tariffs on imports to zero if there is a no-deal Brexit in an attempt keep prices low for consumers. Some commentators have warned that cutting tariffs and taxes on foreign goods could see a surge in cheap imports, with UK firms potentially taking a hit. Laura Cohen, chief executive of the British Ceramic Confederation, described the plan as “foolhardy,” while the National Farmers’ Union warned that cheap food imports would have an “absolutely savage” impact on British agriculture. (Source: Financial Times, 06/02/19)

UK secures post-Brexit membership of WTO procurement pact – The World Trade Organization has agreed the UK can join its Government Procurement Agreement as a non-EU member, protecting access for British businesses to a market worth as much as £1.3trn. Liam Fox, the international trade secretary, hailed the news as an “important win for British diplomacy” while Allie Renison at the Institute of Directors commented: “Whether in defence, construction, or healthcare, being shut out of lucrative government contracts around the world would have been a big backwards blow to British companies, large and small.” (Source: Financial Times, 28/02/19)

UK and US agree post-Brexit derivatives trading deal – Financial regulators in the US and the UK have agreed a pact to cut disruption to the world’s largest derivatives markets following Brexit. The Bank of England, Financial Conduct Authority and US Commodity Futures Trading Commission have reassured banks, investors and other firms in both jurisdictions that they will still be able to access the other’s derivatives markets and services. The governor of the Bank of England, Mark Carney, said: “Market participants can be confident that the clearing and trading of derivatives between the UK and the US will maintain the high standards of today when the UK leaves the EU.” (Source: Financial Times, 26/02/19)

Individuals

HMRC delays late-penalty notices – HMRC usually issues £100 penalty notices for those missing the January 31 deadline in February but has said pressures on resources as Brexit approaches will see this delayed until as late as the end of April this year. HMRC added it would post notices sooner “if the withdrawal agreement is agreed”. (Source: Financial Times, 23/02/19)

Financial fraud complaints soar – The Financial Ombudsman Service has recorded a surge in complaints about fraud and scams – with a fifth more complaints during the current financial year than last year. Chief executive Caroline Wayman said the FOS has received 10,000 new cases so far in 2018-19, up from 8,500 over the entire 2017-18 financial year, with 25% of scam cases concerned with bank transfer, or “push payment”, fraud. (Source: The Daily Telegraph, 14/02/19)

Overseas earners urged not to sign HMRC forms – HMRC has been writing to tens of thousands of people with overseas bank accounts and investments warning them of the risk of prosecution if they “make a false statement or complete a false certificate” in relation to their “UK tax liabilities from offshore income or gains anywhere in the world”. Tax specialists say the bullying letters risk “leaving people open to criminal investigation if error or oversight was ever found in their tax affairs.” Tax barrister Patrick Cannon says: “I absolutely wouldn’t sign this,” adding: “It is a real imposition and very unprofessional of HMRC.” (Source: The Times, 27/02/19)

HMRC seeking extended powers over foreign asset errors – HMRC is seeking an extension to its powers that would enable it to investigate genuine mistakes in tax declarations on foreign assets for 12 years, up from four currently. Those found to have underpaid tax could face fines of up to 200% of the tax owed depending on the seriousness of the offence. Interest would also accrue on all tax debts. Richard Wild of the Chartered Institute of Taxation commented: “If there is a line that marks a fair balance between the powers of HMRC and the rights of the taxpayer, this sees HMRC cross that line. There is no reasonable way many taxpayers will be able to keep all their records for 12 years.” A House of Lords report also called the proposals “onerous” and disproportionate”. (Source: The Sunday Times, 10/02/19)

Mother hits out at HMRC clawback – The Guardian’s Rupert Jones looks at the high income child benefit charge, which took effect in January 2013 and affects parents earning more than £50,000 a year. He highlights the case of a mother who was hit with a £5,400 bill from HMRC, with much of this attributed to the charge which claws back child benefit overpayments via the tax system. The woman says that while she was initially unaware of the high income child benefit charge, HMRC would have known once her wage exceeded the £50,000 mark and yet she was not alerted. Having raised the issue herself after reading about it in a news item, the woman said: “By coming forward and doing the right thing, I’ve actually ended up being penalised.” (Source: The Guardian, 09/02/19)

Tax-free childcare sees fewer than expected takers – Official figures show that only a fifth of the families expected to use the new tax-free childcare system did so in December. While the Government expected 415,000 to claim the support, just 91,000 did. (Source: Daily Mirror, 19/02/19)

Businesses

Small firms in digital tax warning – MPs have been warned that HMRC’s Making Tax Digital initiative – which will see VAT-registered firms with an annual turnover of more than £85,000 filing tax returns online from April 1 – will hit small businesses, creating “very serious problems for a lot of companies”. Martin McTague, policy and advocacy chairman at the Federation of Small Businesses, told the Treasury committee: “HMRC has underestimated the reaction they are going to get. We are literally weeks away so we are very, very close to a very serious problem for a lot of companies.” ICAEW research shows that 40% of affected businesses were unaware of the change, with the institute’s senior policy adviser Anita Monteith commenting: “Making it mandatory at a time when businesses are clearly not ready and when businesses have got Brexit – whatever that involves – at the same time just seems unwelcome.” (Source: The Times, 07/02/19)

SME VAT investigations pull in extra £3.75bn – HMRC collected an extra £3.75bn from SMEs last year through investigations into the underpayment of VAT, with this total marking a 12% increase on the previous year. This extra revenue made up half of all revenue collected through investigations into SMEs in 2017/18, while VAT receipts, which represent over a fifth of total tax receipts, reached a record high of £125bn last year, up 60% on a decade ago. (Source: City AM, 04/02/19)

Probate fee ‘stealth tax’ to hurt family businesses – The Institute for Family Business (IFB) trade body has warned that proposed new “stealth tax” probate fees will hurt small business owners. The proposals, which would see estates worth £2m or more pay £6,000 in probate fees, equates to a 3,770% increase on the current flat fee and, in a briefing to the Parliamentary Delegated Legislation Committee, the IFB has urged the Government to rethink its plans. Simon Davis of the Law Society said the cost of administering a grant of probate was the same regardless of the size of your estate and that the changes were not in the public interest. (Source: Daily Telegraph, 06/02/19)

Small business lending slows – Net lending to SMEs shrank to £500m last year, compared with £700m in 2017, according to a report by the British Business Bank. The study also reveals a dramatic slowdown in the growth of alternative forms of funding, including peer-to-peer lending and asset finance. Lending through peer-to-peer platforms rose by 18% last year, compared with 51% in 2017. More than a third of small businesses said they expected Brexit to make it more difficult to access finance, although half said they still expected to grow in the next 12 months. (Source: The Sunday Times, 10/02/19)

Cashpoint closures hurting small businesses – Cashpoints are closing at a rate of 500 a month leading to calls from consumer group Which? for a watchdog to be appointed to protect access to cash withdrawals. Mike Cherry, of the Federation of Small Businesses, said: “The rapid pace of bank and cashpoint closures is hurting small businesses […] Bank branches and cashpoints create a natural draw for high streets. They give shoppers a reason to visit.” “Going cashless should represent a genuine choice for small business owners,” added Cherry. “It shouldn’t be a move forced by lack of access.” (Source: The Daily Telegraph, 12/02/19)

Construction/property

Housing transactions up in January – New figures released by HMRC show that housing transactions in the UK rose 0.8% in January from December, and by 1.3% on an annual basis. Overall, 101,170 transaction were recorded in the month – a total roughly in line with that seen over the last three years. (Source: The Times, 22/02/19)

Most first-time buyers since 2006 – Last year, Government schemes such as Help To Buy and improved competition in property prices paved the way for the highest number of first-time buyers since 2006. Data from UK Finance reveals there were 370,000 new first-time buyer mortgages completed in 2018, a 1.9% rise on 2017. It is also above the 367,800 mortgages purchased by movers last year, which is barely half the level seen before the credit crunch. The average buyer took on a mortgage with a deposit of just 15%, the smallest proportion since 2008. Loans are also growing compared to incomes, with the median mortgage worth 3.64 times the borrower’s annual income – a record high, up from 3.27 times a decade ago. Meanwhile, lending in December amounted to £5.2bn, rising 4% year-on-year. (Source: The Times, 20/02/19)

London retains top office investment title – London remains the world’s top destination for property investment, a new study from real estate business Knight Frank shows. Buyers spent £16.2bn on offices in the capital in 2018, compared with £14.3bn invested in Manhattan, £12.1bn in Paris and £8.4bn in Hong Kong. Capital from the Far East accounted for 47% of all investment in central London offices, with Chinese investors leading the way – and there was an eight-fold increase in South Korean investment on the previous year. (Source: Evening Standard, 07/02/19)

City building rates climb – An annual crane survey, which gauges the volume of commercial property under construction, has revealed record levels of construction activity in Britain’s cities. Birmingham, Manchester and Leeds saw 88 new developments started last year, up on the 72 recorded in 2017. The number in Belfast was flat at nine, although office development rose by 35%. (Source: The Times, 05/02/19)

Regional pre-lets boom – The number of businesses agreeing to pre-let offices outside London is at a record high, according to real estate firm Cushman & Wakefield. More than 12m sq ft of regional offices were rented out on a pre-let basis in the past two years, with pre-let space now accounting for 8% of all office construction. It is noted that a major reorganisation of the public sector’s property estate, particularly by HMRC, has helped boost demand. (Source: The Daily Telegraph, 05/02/19)

Extra stamp duty for foreign buyers – In a move aimed at solving the homelessness crisis, the Government announced that foreign house buyers will have to pay a higher rate of stamp duty on purchases in England and Northern Ireland. It will affect anybody who has spent less than six of the past 12 months living in the UK. Overseas buyers will pay one percentage point extra in stamp duty when buying homes in England under Government proposals meant to deter foreign investors and bring down house prices. It is expected the increased levy will raise up to £120m a year, with the proceeds going towards efforts to reduce rough sleeping numbers. (Source: The Sunday Times, 10/02/19)

Buy to let

Number of landlords underpaying tax jumps – Analysis by the Telegraph shows that the number of landlords found to have underpaid or under-declared tax on income from letting their property rose by 51% during 2018 to 8,704. Figures from HMRC also reveal a 67% increase in the amount of income tax clawed back from landlords, which hit £32.8m in 2018, with the value of fines totalling £5.6m. Chris Norris, of the National Landlords Association, said: “Tax can be a complicated and confusing process for landlords who are trying to cut costs by doing their returns themselves, rather than seeking specialist advice. It is possible some landlords have unwittingly disclosed less tax on letting income than they should have.” John Stewart, of the Residential Landlords Association, said: “The tax system is becoming ever more complex in the private rented sector, and communication from HMRC on changes to mortgage interest relief has not been sufficient.” (Source: The Daily Telegraph, 09/02/19)

Manufacturing

Manufacturers spend £1bn on Brexit advice – Research from Source Global, a data provider, has found that manufacturers in Britain spent more than £1bn on consultants last year as businesses attempt to navigate the impact of Brexit. Manufacturers were the second biggest private sector buyers of consulting services. Financial services companies spent the most, at £2.6bn. (Source: The Times, 18/02/19)

Vineyards will raise a glass to HMRC – HMRC has updated guidance on what constitutes agricultural use of land for inheritance tax purposes, with the new rules meaning that land where grapes or apples are grown to produce wine and cider can be passed on free of the levy. The move may be seen as a significant extension to tax-planning opportunities. The relief is not limited to land within the UK but extends throughout the European Economic Area, which could be an attraction for investors looking to reduce their inheritance tax liabilities while having the pleasure of owning a vineyard. (Source: The Times, 09/02/19)

Scotch exports hit record high in 2018 – Exports of Scotch whisky hit a record high last year with figures from HMRC showing growth of 7.8% by value to £4.7bn. Blended Scotch achieved global exports of just over £3bn in 2018, while exports of single malts rose by 11.3% to £1.3bn. (Source: BBC News, 13/02/19)

Recruitment

Fresh concerns over skilled worker shortage – A new study by the Recruitment and Employment Confederation has found that an increasing number of employers are worried about a shortage of skilled workers amid falling confidence in the economy. The poll of about 600 recruiters found growing concerns over the availability of skilled staff, especially in engineering, technical, social care and hospitality. REC chief executive Neil Carberry said the survey showed beyond any doubt that uncertainty was “damaging for job creation”. (Source: Scotsman, 27/02/19)

Brexit leaves staff reluctant to move on – Research by the Recruitment and Employment Confederation suggests that Brexit uncertainty has left workers reluctant to change jobs. Figures in the report show that January saw the number of permanent placements by recruitment agencies fall for the first time since July 2016. (Source: Yorkshire Post, 08/02/19)

Millennials pay scarred by financial crisis – New research from the Resolution Foundation has suggested that pay for workers in their 30s is still 7% below the level at which it peaked before the 2008 financial crisis. The think-tank said people who were in their 20s at the height of the recession a decade ago were worst hit by the pay squeeze. The research found those who stayed in the same job in 2018 had real wage growth of 0.5%, whereas those who found a different employer saw an average increase of 4.5%. (Source: BBC, 04/02/19)

Failure to upskill puts millions of workers at risk from robots – A report by the Centre for Social Justice has found that if UK employees were properly “upskilled” with vocational training it would bring a £125bn boost to the economy. The Future of Work study showed employers’ investment in skills training has dropped by 25% in a decade, from £2,000 per year to £1,500 today. The report warns that this “chronically low level of investment” will put millions of workers in the UK at risk from automation. “Upskilling and retraining is the best means of mitigating these risks.” (Source: The Sunday Telegraph, 17/02/19)

Technology

Number of new tech start-ups jumps 14% – Data from Companies House shows there were 11,864 tech firms incorporated in 2018, up from 10,394 the year before. The number of tech firms grew across every UK region except Scotland where numbers fell 4%, while in the north east numbers remained flat. (Source: City AM, 25/02/19)

Are the Government’s IR35 reforms suitable for today’s tech landscape? – Graham Smith, the head of marketing at Curo Talent, questions the wisdom of the Government’s IR35 tax reforms, suggesting they could discourage IT and computing contracting to the detriment of the UK’s fast growing tech industry. Mr Smith says some contractors may decide the burdens are too much and move to permanent employment, reducing the flexibility of the labour market, while UK start-ups may also baulk at the admin involved with proving a contractor is outside of IR35. Mr Smith concludes: “Rising numbers of tech start-ups in the country require the tax system to support them, rather than hinder their hunt for IT talent. If IR35 reduces the talent pool, these start-ups will have reduced ability to develop, implement and manage ground-breaking digital technologies.” (Source: The HR Director, 18/02/19)

Call for digital newspapers to be VAT exempt – A Government-commissioned report has recommended that digital news services should have the same VAT exemption as printed papers in order to help support journalism. The Times points out that last year News UK brought a case against HMRC arguing that its daily tablet and mobile phone editions should be zero-rated for VAT purposes. A tax judge accepted that the digital editions were “fundamentally the same” as the printed newspaper but that they could not be zero-rated without a change in the law. (Source: Daily Express, 12/02/19)

Hospitality

Leisure spending rises – A recent sector report shows that the UK’s leisure industry grew by 2% year-on-year in Q4 2018. Restaurant spending rose 6% while spending in pubs climbed 5%. Coffee shops and sports events saw spending rise by 2%. The report commented that falling inflation, high employment and rising wage growth has led to greater spending power, with consumers choosing to spend the balance on fun experiences, causing an uptick in overall leisure spending. (Source: City AM, 07/02/19)

Dry January and Veganuary dents pub sales – The increased popularity of Veganuary has led to a fall in sales for pubs and restaurants as consumers opted for cheaper vegetable/ plant-based dishes over meat options. Wet-led operators were also hit by the growing influence of Dry January, with much of December’s uplift being undone by lower than average sales. (Source: The Daily Telegraph, 18/02/19)

Liverpool cup run boosts economy – A report compiled by a Sports Business Group has shown that Liverpool’s run to last year’s Champions League final helped contribute £575m to the UK economy, with the impact on the Liverpool region in the 2017-18 football season accounting for £497m of the total. The figures are representative of the revenue generated by establishments such as hotels, restaurants, taxi firms and bars. (Source: The Daily Telegraph, 22/02/19)

Edinburgh to introduce UK’s first ‘tourist tax’ – City of Edinburgh Council has voted in favour of a tourist tax, which could become the first of its kind in the UK. Any new tax will not come into effect until the Scottish Parliament has passed enabling legislation, unlikely to happen before next year. Garry Clark, of the Federation of Small Businesses, criticised the plan, saying: “This isn’t the right time for a new tax and for more bureaucracy for small businesses.” (Source: The Scotsman, 08/02/19)

Online-only retail failures up – A total of 246 online-only retail businesses became insolvent in 2018, 19% up on 2017 and more than double the 120 that failed in 2010. The firm’s Matt Howard commented: “Declining consumer demand, coupled with aggressive discounting, are driving a growing number of online fashion retailers to the wall. The perennial problem is customers returning a high percentage of stock, often 40 to 50%.” (Source: The Times, 13/02/19)


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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