September 2017

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

Britain can benefit from low-tax option – Several papers present further reaction to Philip Hammond’s pledge that the UK will not slash taxes and regulations after Brexit. The Telegraph’s leader argues that leaving the EU offers an opportunity for Britain to break with “the high-tax, dirigiste European approach,” and says the chancellor should be making the case for a low tax economy. Elsewhere, the Sun suggests Mr Hammond has surrendered “a potent bargaining chip” when it comes to striking a trade deal with Brussels. Meanwhile, the FT argues that while low tax rates and efficient regulation “are thoroughly desirable, the UK will not benefit from trying to undercut its neighbours on either front.” (Source: The Daily Telegraph)

Strong support for Brexit amongst SMEs – Small UK businesses are bullish about international trade, and have been taking advantage of the weak pound to increase overseas sales since the EU referendum, a survey by OFX has revealed. Of the 500 owners and senior managers surveyed, 67% said they feel confident about doing business overseas. Since the EU referendum, almost half (48%) have increased international sales, while 36% expect to start or increase exports in the next twelve months. Since the EU referendum, 28% of the SMEs surveyed have seen sales decrease to UK customers, while 44% say rising inflation is the biggest current concern for their business. (Source: Insider, 03/08/17)

BoE lowers 2017 growth forecast – The Bank of England has lowered its growth forecast for the UK economy in 2017, and now expects GDP to expand by 1.7%, down from a May estimate of 1.9%. Inflation is expected to be up by 2.7% this year, before falling back to 2.6% in 2018 and 2.2% in 2019. Separately, the Bank’s rate-setting committee voted 6-2 in favour of leaving interest rates at 0.25% according to minutes from its most-recent meeting. The minutes note that, should the economy evolve as the Bank is expecting, interest rates could be lifted by more than financial markets are currently pricing in. Those market expectations are for two rises to 0.5% and then to 0.75% over the next three years. (Source: Financial Times, 04/08/17)

UK must prepare a Brexit fallback – Mervyn King, the former governor of the BoE, has said the UK needs a “credible fallback” in case no EU trade deal is reached during Brexit negotiations. He said British negotiators needed to show Brussels the country has an alternative over a bad trade deal post-Brexit. Lord King added that no deal was “not the first preference of anybody”, and suggested the Government had probably wasted a year on its contingency plans. Meanwhile, the Sunday Telegraph claims that Britain is prepared to pay up to £36bn (€40bn) to the EU to settle the so-called Brexit divorce bill. Senior Whitehall officials have concluded that such an offer is the only way to break the current deadlock in negotiations. However, the UK will only agree to pay the sum it if the EU agrees to negotiate the financial settlement as part of a deal on future relations, including a trade deal. (Source: BBC News, 06/08/17)

Individuals

Lisas gaining in popularity – Following their launch nearly four months ago, Lifetime Isas – or Lisas – are becoming increasingly popular. Launched in April, a Lisa lets you save tax-free for either a property or retirement. The difference to standard Isas is that you also get a government bonus equal to 25% of what you save. It will be yours to keep either when you buy a property or reach 60. Skipton Building Society has revealed that 28,000 people had opened its cash version of the Lisa in just six weeks. Elsewhere, Hargreaves Lansdown said it had opened more than 22,000. (Source: The Guardian, 05/08/17)

Bereaved savers miss out on Isa tax breaks – An investigation by the Mail has found bereaved savers are in danger of missing out on a new tax break due to a lack of information. Widows, widowers and bereaved civil partners were given the right to inherit Isas without paying tax on the returns under rules launched two years ago. However, a probe has found many staff in major High Street banks are unaware the Isa inheritance rules even exist. (Source: Daily Mail, 02/08/17)

HMRC wrongly chased 1m for late tax returns – The Sunday Telegraph reveals that HMRC has been chasing nearly 1m people for filing late tax returns despite them not being required to file self-assessment forms. The Revenue says that the 963,000 taxpayers found to be unnecessarily registered for self-assessment in the past two years and have now been taken out of the system altogether. Frank Askew, head of tax in the ICAEW, said the scale of the problem “would suggest that there are systemic problems with the taxpayer records that needed to be addressed, for example whether those returns were actually due”. (Source: The Sunday Telegraph, 13/08/17)

UK retirees rushing to settle in Europe – Financial advisers have reported a rush of British retirees looking to settle on the Continent before Brexit. Experts say moving to countries such as Spain, Portugal and France will likely become much harder for people once they finish working unless there are reciprocal rights, especially for healthcare. (Source: The Guardian, 14/08/17)

Almost £1.5bn UK tax relief claimed on individuals’ charity gifts – Figures from HMRC show almost £1.5bn of tax relief was claimed by individuals making gifts to charity last year – an increase of more than 50% since 2012. (Financial Times, 28/08/17)

Businesses

SMEs take profit hit to pay living wage – Nearly two-thirds (64%) of small firms impacted by the National Living Wage have met the latest rise to £7.50 per hour by taking lower profits, according to the FSB. Some 39% have put up prices, while 24% have cancelled or scaled down investment plans. A fifth have reduced staff hours (22%) or hired fewer workers (19%). (Yorkshire Post, 04/08/17)

Government proposes new fund for start-ups – The government is planning to set up a national investment fund to help fledgling UK businesses compete with their US counterparts. The Treasury said a consultation had identified a £4bn funding gap between US and British firms, as well as highlighting that British businesses currently rely on financial backing from the European Investment Fund. “Britain is an innovation powerhouse and it’s vital that we make sure our cutting-edge firms have the funding they need to meet their potential and conquer new markets,” said Philip Hammond. (Source: The Independent, 30/08/17)

VAT change to eBay trading hurts small traders – Small traders are receiving 20% VAT charges on fees paid to eBay when they sell on the platform following a restructuring measure introduced at the beginning of August. This resulted in UK customers no longer contracting with its Luxembourg entity, eBay Europe, but with eBay (UK) Limited. The move follows the provision of powers to HMRC to force online marketplaces to ensure that their overseas customers were registered and accounting for VAT. This change should not adversely affect the vast majority of VAT-registered sellers as the additional tax being charged by eBay should be recoverable via the seller’s VAT returns. However, those microbusinesses turning over £40,000 to £60,000 will be impacted. (Source: Mail on Sunday, 13/08/17)

Construction/property

First-time buyers are on the rise – First-time buyers took out 20% more mortgages in June than in May, according to HMRC figures. The increase has been put down to stamp duty changes which have deterred buy-to-let investors. Elsewhere, former Country Life editor Clive Aslet, details in the Times how the government’s decision to tax heritage maintenance funds has led to a sharp reduction in maintenance work carried out on listed buildings. (Source The Times, 23/08/17)

Help to Buy review – The Department for Communities and Local Government has commissioned a team from the London School of Economics to evaluate the Help to Buy scheme as part of a regular review process. According to reports, scrapping the scheme entirely or introducing a tapering system are possible options. Some 38% of private completions make use of the scheme, according to Liberum, while government figures show the loan had contributed 14% of total new build housing output. Responding to the concerns, the DCLG said it is committed to continuing the scheme until at least 2021. (Source: City AM)

House price growth slows – House price growth slowed to 2.1% in August, from 2.9% in July, amid fears Brexit-fuelled inflation is placing pressure on household spending, says the Nationwide. Property values fell for the first time since May, down 0.1% month-on-month to an average of £210,495. However, property prices are still predicted to rise by 2% in 2017. (Source: The Times, 30/08/17)

Increase in firms feeling the strain – A report from Begbies Traynor reveals that UK companies are experiencing the biggest increase in financial distress in three years. The firm said around 330,000 UK firms were suffering “significant” distress – a 25% increase in a year. The report highlights concern that a cooling housing market is proving particularly challenging for property and construction companies, with smaller firms bearing the brunt. Julie Palmer, a partner at Begbies, said: “While we are seeing rising levels of distress across all corners of the UK economy, the quarterly deterioration in the property and construction sectors is particularly concerning,” adding fears that Brexit and the rising cost of imported goods may add to the strain. (Source: The Times, 01/08/17)

Home repossessions drop amid low interest rates – Repossessions of homes in the UK fell from 1,900 in the first quarter of the year to 1,800 in April to June, according to lenders’ trade body UK Finance, the lowest since quarterly data was first published in 2008. However, the number of households evicted from rented accommodation remains much higher. Figures from the Ministry of Justice showed that between April and June landlords made 32,077 claims for possession, county courts issued 25,195 orders and there were 8,819 actual repossessions of homes by county court bailiffs. (Source: BBC News, 11/08/17)

Flippers need to watch for CGT sting – Those planning to profit from a resurgence of property “flipping” should not take it for granted that they will not be stung with a bill from HMRC for CGT gains, even if they take ten months to sell a property on. The taxman could argue that such a quick transaction counts as trading, where you will be charged income tax at your highest rate on any profit made. (Source: The Times, 12/08/17)

Buy to let

Offset mortgages could help ease tax pain – The Times suggests that those landlords hurt by new restrictions on claiming mortgage interest as a tax-deductible expense use offset mortgages to help mitigate the higher tax bill. Paul Elliott, the head of specialist lending at John Charcol, a mortgage broker, says: “This a better way of using your savings and it puts you in a better position to pay your tax bill, particularly for landlords who are on the borderline of whether the property is profitable or not.” (Source: The Times, 12/08/17)

Overseas landlords exit Britain – The proportion of overseas landlords with properties in Britain has dropped over the past 12 months following the introduction of tougher tax measures. Research from Countrywide found that overseas landlords owned just 5% of all homes let in the UK in 2017, down from 12% in 2010. (Source: Daily Mail, 04/08/17)

Stamp duty surcharge fails to deter buyers – Figures from Hamptons International suggest the 3% stamp duty surcharge has not dampened Britons’ hopes of owning a second home. During the past 12 months, about 2.1% of properties (25,213 homes) sold went to buyers who already owned a home, up from 2% (17,591 homes) in 2011. (Source: The Times, 18/08/17)

Escaping the stamp duty surcharge – The Times’ David Prosser advises parents who may be buying a second home for their child while at university that the additional 3% stamp duty surcharge applies, and any profit from the sale of a second home will be liable for CGT. “It may make more sense for your child to make the purchase. The property will be held in their name, but you’ll avoid the stamp duty and CGT,” he says. (Source: The Times, 26/08/17)

Manufacturing

Surge in exports boosts manufacturing – A surge in export orders helped to lift manufacturing activity last month, according to a closely-watched survey. The Markit/CIPS manufacturing PMI rose to 55.1 in July, up from 54.2 the month before. A figure above 50 indicates expansion. Meanwhile, a survey by the CBI suggests SME manufacturers are enjoying the fastest production growth for seven years. The business group said its poll of 364 SMEs also found growth in orders “remained solid” in the three months to July. (Source: The Times, 02/08/17)

Importers expect costs to rise – A survey by Funding Circle has revealed that more than two thirds of small businesses that import goods and services expect their costs to rise after Brexit. It found that found that importers expected their average costs to increase by £5,300 a month, or nearly £64,000 a year. Overall, 69% expected higher import costs. (Source: The Times, 07/08/17)

Holiday goods in demand – Sunglasses, swimwear and ice creams are among holiday goods that account for hundreds of millions of pounds-worth of UK exports, according to new figures. International Trade Secretary Liam Fox said the £302m-worth of holiday products exported in 2016, including £160m-worth of sunglasses, £93m-worth of swimwear and £16m-worth of ice cream, showed “increasing demand” for British goods. He also highlighted the £8m-worth of flip flops exported around the world last year, according to HMRC figures. (Source: The Independent, 12/08/17)

Recruitment

EU citizens rush to find City jobs – Figures from Morgan McKinley show the number of people looking for a job in the City rose last month, as EU citizens rushed to find employment in the UK ahead of Brexit. There was a 12% month-on-month increase in those seeking jobs in London’s financial industry in July, compared with a 14% drop during the same period last year. (Source: The Times, 15/08/17)

IR35 rule change hits contractors in the public sector – New tax rules that came into effect in April have seen self-employed contractors who work primarily for public sector bodies lose up to 30% of their income. In the past, the responsibility for determining whether a contractor lay inside IR35 – and paid a higher rate in tax – lay with the contractor; now however, in the public sector it lies with the hiring company, leading to greater caution when labelling contractors. IT recruiter CW Jobs says that 71% of its clients have seen a reduction in income in the last four months, with a quarter of them reporting a reduction of close to 30%. (Source: The Daily Telegraph, 02/08/17)

Top CEO pay falls by a fifth – Top chief executives’ pay has fallen in the past year, but there is still “a huge gap” between them and the rest of their staff, a report by the High Pay Centre and the CIPD has found. The bosses of FTSE 100 companies now make on average £4.5m a year, down 17% from £5.4m in 2015, according to the research. It also shows that men at the top of the biggest public companies earn up to 77% more than their female counterparts. The 94 male chief executives of FTSE 100 companies earned £4.7m on average last year, compared with an average of £2.6m for the six women leaders. (Source: The Times, 03/08/17)

But, could wider pay rises be around the corner? – Pay could be about to pick up as Bank of England’s agents, who study economic conditions across the UK, observe hints that wages are rising as companies seek the employees they need. The index tracking recruitment difficulties has risen to its highest level since the end of 2015, the Telegraph notes, and manufacturers are facing the tightest capacity constraints since 2007, pointing towards rising wages. (Source: The Daily Telegraph, 10/08/17)

Technology

Tech start-ups losing access to investment funding – British start-up technology companies are being denied access to the European Investment Fund (EIF), as European institutions begin to cut the UK out of future projects. Since March, several venture capital funds say they have been told that the EIF has now effectively turned off the tap to new British commitments. Before the vote to leave the EU last year the fund indirectly invested more than half a billion pounds a year in Britain’s technology sector, its largest single source of money. The British Venture Capital Association is urging the government to ensure that the British Business Bank can step in to replace the lost funding. (Source: The Times, 15/08/17)

World’s first ‘robot tax’ introduced – South Korea has introduced a tax on robots amid fears that automation could lead to mass unemployment. The country will limit tax incentives for investments in automated machines as part of a newly proposed revision of its tax laws. It is hoped the policy will make up for lost income taxes as workers are gradually replaced by machines. (Source: The Daily Telegraph, 10/08/17)

Firms fail to invest in cyber protection – SMEs are failing to set aside enough cash to bolster their cyber security defences, according to data compiled by Zurich. The insurer found 875,000 SMEs across the UK have been affected by a cyber-attack over the last 12 months, and of the companies hit, just over a fifth reported that it cost them more than £10,000. But in spite of the potential losses, a survey of over 1,000 UK SMEs also showed almost half (49%) plan to spend £1,000 or less on their cyber defences in the next 12 months. (Source: The Independent, 01/08/17)

Cyber-attacks hit more than 875,000 SMEs – Research by Zurich has found that more than 875,000 British SMEs were hit by cyber-attacks over the last year. The study found that 16% – or roughly one in six – SMEs were attacked over the last year. Zurich said that 21% of the firms said the attacks cost them more than £100,000, while 11% fell victim to attacks that cost them more than £50,000. Despite the figures, 49% of respondents said they would spend less than £1,000 on cyber security over the next year, while 22% were unsure how much they would spend. (Source: SME Web, 09/08/17)

Hospitality

Retail sales beat expectations – UK retail sales increased in July as stronger spending on food offset a fall in the purchase of other goods, according to official figures. The volume of sales grew by 0.3% compared with June, the ONS said. (Source: The Times, 18/08/17)

Boom in US tourists visiting the UK – Figures from the ONS show that over the past six months there was a 25% rise in visitors to the UK from North America compared to the first half of last year. A spokesman at Visit Britain, said the influx was largely down to a “Brexit effect” – more international awareness of the UK and a fall in the value of the pound against the dollar. Overall the number of overseas visits to the UK for January to June this year hit a record 19.1m, up 9% compared to the same period in 2016; contributing a record £10.6bn to the economy, up 11% on 2016. (Source: BBC News, 19/08/17)

Payment processing too costly for SMEs – A survey by the AA has found that over 40% of SMEs in the hospitality and leisure sectors believe that they are paying too much for their card payment terminals, with the figure hitting 29% for small retailers. David Searle, director of AA Financial Services, which surveyed more than 1,000 SMEs, said: “Small businesses are in a tie when it comes to card payment. Increasingly, the terminal is an essential piece of equipment that customers now expect, but a lack of choice, poor reliability, high costs and surprise add-ons lead, understandably, to mistrust and a reluctance to invest.” (Source: Sunday Express, 20/08/17)


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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