in the spotlight

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

Posted by
Rouse Partners
02.04.2019

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

May’s deal voted down for a third time – Despite leading Tory Brexiteers such as Dominic Raab, Jacob Rees Mogg and Boris Johnson switching sides and backing Theresa May’s deal, the Withdrawal Agreement failed to win support of parliament for the third time on Friday – the day the UK was supposed to leave the EU. The Government lost by 344 votes to 286, a margin of 58 and now faces a no-deal Brexit on April 12th or requesting a long extension from Brussels. Following the defeat, the PM said that the UK would have to find “an alternative way forward” adding: “I fear we are reaching the limits of this process in this House”. Government sources indicate Mrs May will attempt to bring her deal back to the Commons for a fourth time next week in a “run off” against any preferred course of action determined by indicative votes due to be held on Monday, the most popular of which so far are a customs union arrangement or a second referendum. MPs seeking to overturn Brexit with Monday’s votes have also revealed plans to take control of the Commons timetable again next Wednesday so they can force through legislation requiring ministers to act on any majority found on the Monday. If they are successful it would put them on a collision course with the Government and could precipitate a general election. (Source: Financial Times, 30/03/19)

Consumer confidence underpins growth – Despite growing uncertainty over Brexit, consumer confidence remains steady, with Britons spending more than they earned for a record ninth consecutive quarter at the end of last year, according to figures from the ONS. Consumer spending offset falling business investment as disposable real income edged up 1% over 2018 while December’s wage growth of 1.4% also helped to push up Britain’s savings ratio. But there were signs households have been borrowing heavily or dipping into their savings to sustain spending, leading to concerns over the sustainability of economic growth. GDP growth was confirmed at 0.2% for Q4 2018, though compared with the final quarter of 2017 the economy grew by 1.4%, slightly stronger than the 1.3% previously estimated. Andrew Wishart at Capital Economics commented: “The figures released today illustrate that if a no deal Brexit is avoided, solid consumer spending can underpin a strengthening in the economy. (Source: Financial Times, 30/03/19)

Mervyn King: Nothing to fear from no-deal – Former Bank of England Governor Mervyn King told BBC Radio 4’s Today programme on Friday that the UK should leave with no deal and accused MPs of exaggerating the economic risks of no-deal Brexit. Lord King said Philip Hammond’s failure to accelerate spending on no-deal preparations had been “disastrous” and cost the UK negotiating leverage. He added that economics was not the main issue with Brexit and considerations of identity, culture and politics were more important. The Mail’s Alex Brummer says that even if the Chancellor has failed to properly prepare the UK for a no-deal Brexit, the BoE’s current Governor Mark Carney and leading businesses have “not been so foolish” – nor have large parts of Europe – there’s no reason to fear a well-prepared no-deal Brexit. (Source: Daily Mail, 30/02/19)

1,000 EU firms sign up for continued City access – More than 1,000 EU firms have signed up to the Financial Conduct Authority’s ‘Temporary Permissions Regime’ which offers continued access to the City in the event of a no-deal Brexit. The FCA’s international director, Nausicaa Delfas, said the watchdog was “pleased” with the uptake and that fund managers representing thousands of funds had also signed up to the scheme. However, Ms Delfas also reiterated that a no-deal Brexit still presents risks to the financial sector and its customers. (Source: Financial Times, 22/03/19)

European investors double investment in Britain – Companies on the continent have embarked on a major deal spree in the UK over the last three years, despite Brexit, reports the Telegraph. S&P Capital IQ data shows 553 purchases of companies, property and stakes in fast-growing firms totalled $31.1bn over the past 12 months, up from $21.2bn over 497 purchases in the previous 12 months, and $13.6bn on 454 transactions in the same period of 2016-17. (Source: The Daily Telegraph, 04/03/19)

Fraudsters play on Brexit confusion – Bodies including the Financial Conduct Authority have warned that scammers are using Brexit-related confusion and anxiety to target victims. Examples include criminals who are claiming to be HMRC officials to issue false tax demands, while businesses have reported receiving emails saying they need to register for a “UK trade number” if they wish to trade in the EU after Brexit, with the correspondent linking to a fake website which asks for personal details. (Source: The Times, 23/03/19)

Individuals

A guide to new tax year changes from April 2019 – From April, the personal allowance in England and Wales rose by £650, from £11,850 to £12,500 and the threshold after which 40% tax is paid rose to £50,000. The amount you can leave tax-free in your estate will remain at £325,000. However, the additional £125,000 allowance that you get if passing on your main home to a direct descendant has risen to £150,000. The pension lifetime allowance rose from £1.03m to £1.055m, but the limit on the amount you can save into a pension tax-free each year remains £40,000. The stamp duty exemption for first-time buyers that applies to the first £300,000 of properties worth up to £500,000 in England has been extended to shared-ownership properties, backdated to November 22, 2017. (Source: The Times)

A million savers face large pension tax bills – Researchers have warned that 1.25m people face losing hundreds of thousands of pounds from their savings when they retire, with 290,000 savers already too late to avoid pension tax bills of up to 55%. Analysis by Royal London shows that salaries of £60,000 to £90,000 a year could trigger rules that previously hit only the highest earners after successive Governments cut the lifetime limits on pension savings from £1.8m to £1.03m. Sir Steve Webb, a former pensions minister, now at Royal London, said: “Large numbers of workers will be caught by a limit originally only for the super-rich”. On possible reform, he added: “My preference would be no lifetime allowance, even if the annual limit had to come down quite a bit.” A Treasury spokesman said: “We want people to save into a pension, which is why we allow the majority to make contributions tax-free. But we have to get the balance right between encouraging saving and managing government finances.” (Source: The Sunday Times, 24/03/19)

FSCS will now protect investments worth up to £85,000 – From today the limit to investments consumers will have safeguarded by the Financial Services Compensation Scheme will increase from £50,000 to £85,000, bringing it in line with protections for cash savings. The move is designed to make it easier for consumers to understand the scheme. Mark Neale, chief executive of the FSCS, says: “Increasing the limit further strengthens financial confidence and means people will have protection for more of their money.” Claire Walsh, personal finance director at wealth manager Schroders, points out: “The FSCS won’t compensate you just because your investments perform badly. Neither does it pay out to people who have lost money to a scam.” Ms Walsh adds: “Always check any product you are considering benefits from FSCS cover. Unregulated investments are not usually covered.” (Source: The Mail on Sunday, 31/03/19)

HMRC warns of landline scams – HMRC is warning households with a landline telephone number to be vigilant of phone calls from fraudsters pretending to be the tax authority. Following a crackdown on email and SMS phishing, criminals are increasingly turning to the traditional method of cold-calling publicly available phone numbers to steal money from taxpayers. (Source: The Daily Telegraph, 02/03/19)

Businesses

MTD will give one million businesses more financial control – The Government’s Making Tax Digital programme becomes law today (1st April 2019), meaning most businesses above the VAT threshold will need to keep their records digitally and submit their VAT return using MTD-compatible software for VAT periods starting on or after 1 April. HMRC says MTD will make it easier for businesses to get their tax right first time. During the first year of the programme, HMRC will take a light touch approach to penalties by not issuing filing or record keeping penalties where businesses are doing their best to comply with MTD. Emma Jones, founder of small business support network Enterprise Nation, commented: “Encouraging small firms to adopt more digital functionality offers real benefits. For example, having accurate and timely financial information to hand helps companies make better, more informed decisions and using digital tools more broadly, including time management, helps businesses increase productivity. In the longer t erm we feel Making Tax Digital and the digitisation of tax records will present significant advantages to business.” However, critics say the process of registering for MTD was “excruciating” for small companies. (Source: Financial Times, 01/04/19)

…but warnings of MTD concern for small firms – Software firm Xero has warned that Making Tax Digital could pose a greater risk to SMEs than a hard Brexit. Xero says 300,000 SMEs are unprepared for the move to digital filing, with the firm’s managing director Gary Turner describing the switch as “the biggest change to VAT filing in decades”. (Source: Sunday Express, 24/03/19)

Blue Monday for firms as burdens rise – Not only do small businesses have to cope with Making Tax Digital, but with the new personal tax year starting on Saturday, owners will also be required to put more aside for employees saving into auto-enrolment pension schemes. The minimum total contribution to such schemes will rise to 8% of an employee’s qualifying earnings, up from 5% last year with employers required to shoulder 3% of the contribution. FSB national chairman Mike Cherry said the combination of the two made today “blue Monday for small business owners”. (Source: The Times, 01/04/19)

Construction/property

Housing demand hits six-year low amid Brexit uncertainty – Demand for housing has slumped to its lowest level in almost six years, according to data from the National Association of Estate Agents (NAEA), which shows that sales to first-time buyers, who are taking full advantage, have risen to a seven-month high. The number of buyers registered per estate agent branch dropped by 15% to 252 in February, the lowest number since July 2013. Mark Hayward, chief executive of NAEA Propertymark, said house hunters are delaying their plans until the impact of Brexit is clearer. (Source: City AM, 26/03/19)

UK house price growth subdued in March – House prices are lower in England compared with a year ago – the first annual fall in property values since 2012, according to the Nationwide. In the first three months of the year, prices in England were down 0.7% from the same period in 2018. The average house price rose to £213,102 in March from £211,304 in February. London remained the weakest performing region, with prices 3.8% lower than the same period in the previous year – and the biggest fall for a decade. But despite declines in London and the southeast dragging down prices for England as a whole, overall UK house prices in March were up 0.7% from the same month a year earlier. Northern Ireland had the biggest annual increase in the first quarter at 3.3%. Prices rose by 2.4% in Scotland and 0.9% in Wales. (Source: BBC News, 30/03/19)

Mortgage approvals remain sluggish – Data from UK Finance has revealed that the UK housing market remained sluggish during February. Overall 39,083 mortgages were approved for house purchases, down from a revised figure of 39,910 for the previous month. The figures also show 26,890 re-mortgage loans were approved in February, which was lower than in January but slightly up compared with December 2018. UK Finance had to reissue the figures after initially suggesting that 35,299 mortgages were approved, which would have been the lowest figure since April 2013. (Financial Times, 27/03/19)

…while 40-year mortgages becoming ‘new normal’ – Homeowners paying off mortgages into their 70s are expected to become the “new normal” as more than half of loans can now be extended over 40 years. Data compiled by Moneyfacts shows 51% of mortgage deals available on the market are available over a maximum repayment period of 40 years, up from 36% in 2014. By contrast just 3% of deals require borrowers to repay within 25 years, down from 7.5% in 2014. Moneyfacts suggested that home loans are getting longer due to the sharp rise in house prices, and that by choosing longer terms homeowners can afford to take out bigger loans, although they will be more expensive in the long run as more interest will be paid. (Source: The Daily Telegraph, 19/03/19)

Home buyers overpaying by £13,000 – Home buyers are spending an average of £13,000 more than they should due to errors made by estate agents when measuring floor space, in what has been described as a “great scandal of the property market”. The average property in the UK is over-egged by 54 sq ft, according to the research by Spec, a property tech firm, meaning buyers could be overpaying by £13,090 based on the typical price per square foot of £242. In London, this figure soars to almost £34,000. (Source: The Sunday Times, 10/03/19)

HMRC targets estate agents – HMRC has launched a crackdown on money laundering in the property industry which has seen a number of estate agent branches targeted in unannounced inspections. Those which have been found to be failing to comply with regulations could face fines or criminal proceedings. The crackdown saw Countywide fined £215,000 for “failing to ensure policies, controls and procedures at group level; and for failures in conducting due diligence; timing of verification and proper record keeping”. Tepilo, which went into administration in December, was handed a £68,595 fine. Simon York, director of HMRC’s Fraud Investigation Service, said: “These inspections are a wake-up call that if you continue to trade illegally we will come knocking.” (Source: The Times, 05/03/19)

Manufacturing

Manufacturing hits four-month low – Manufacturing activity fell to a four-month low last month, according to the Markit/CIPS UK manufacturing purchasing managers’ index. The index showed a reading of 52.0 last month, lower than a revised reading of 52.6 in January. The research also revealed that manufacturers’ optimism about their prospects for the rest of the year fell to a 27-year low last month amid record stockpiling to cope with the potential fall out of a no deal Brexit. (Source: The Times, 02/03/19)

Hard Brexit could shrink exports by a fifth – An analysis of the Government’s no-deal tariff plans suggests Britain’s exports would shrink by as much as a fifth under a hard Brexit. The study by Sussex University’s UK Trade Policy Observatory also estimates that manufacturing and agriculture output would fall by up to 11% as those industries faced new barriers to trade and increased competition from overseas. (Source: The Sunday Times, 24/03/19)

Recruitment

Reed: Time to get on with it and make a success of it – James Reed explains to the Mail why he moved his recruitment business back to the UK last year. Britain is Reed Group’s biggest and best market, he says, and that data shows the jobs market will boom after Brexit. Reed, who voted to remain in the EU, adds that a post-Brexit UK could easily implement policies to protect itself from a downturn and it’s now time “to get on with it and make a success of it.” (Source: The Mail on Sunday, 17/03/19)

Cheer for UK economy – The Guardian’s monthly tracker of economic news has revealed that employment has reached the highest level of record and consumers are continuing to spend on the high street, despite Britain’s looming departure from the EU. Companies stepped up their hiring to add another 222,000 people to the workforce in the three months to January, according to the latest available figures. This took the overall number of people in work to a fresh record high of 32.7m. Despite the data, business groups said the political situation has developed into a full-blown national emergency, with the uncertainty over Brexit putting their investment plans in jeopardy. (Source: The Guardian, 27/03/19)

Criticism remains despite rise in apprenticeship numbers – New figures from the Department for Education show that 225,800 people started apprenticeships in the first six months of 2018/19 academic year, a rise of almost 10% on a year ago. However, the latest figures – which cover August 2018 to January 2019 – are still almost a fifth down on the number of people beginning vocational training two years ago, before the apprenticeship levy began. Despite changes to the system, however, industry remains critical with manufacturing and construction companies saying the levy is exacerbating the skills shortage. Anne Milton, skills minister, said the scheme was making “good and steady progress” but the Federation of Small Businesses said that starts were “still worryingly low”. (Source: Financial Times, 29/03/19)

Side jobs surge – Research by academics at Henley Business School at the University of Reading suggests that a quarter of British workers have an extra business outside their normal work, with this attributed in part to the fact that traditional jobs are becoming increasingly insecure. The study questioned 500 business leaders and more than 1,000 other adults, finding that one in four have a business project alongside their regular work, with a quarter of those saying it means their working week extends to at least 50 hours. Henley Business School economists estimate that businesses outside of a person’s core role add £72bn to the economy. The Times notes that HMRC is “becoming increasingly sophisticated in finding side-hustlers who have not paid their full tax bill”. (Source: The Times, 23/03/19)

Technology

One in three small firms have no cyber strategy – Analysis by charity Business in the Community (BITC) shows that over a third of small businesses in the UK have no cyber security strategies in place, with 40% taking no action on cyber security over the past 12 months. It was also found that over three-quarters have no policy for controlling access to their data systems. BITC chief executive Amanda Mackenzie said: “While it’s often big companies which hit the headlines as victims of digital crime, when a small business is struck by a cyber-attack decades of hard work can be erased in moments.” (Source: City AM, 19/03/19)

EU scraps plans for digital tax – The EU will shift attention to securing global agreement on a digital tax on tech giants after several member states opposed an EU digital tax. Although companies such as Google and Facebook may be relieved for now, it is noted that both the UK and France will continue to pursue plans for digital taxes at a national level. Senior US Treasury official Chip Harter described unilateral national taxes as “ill-conceived” and urged countries to instead pursue the international tax reforms outlined by the OECD. Elsewhere, the Telegraph’s Anna Isaac considers how a UK tax on tech giants could harm the chances of a good British-American trade deal. (Source: City AM, 13/03/19)

‘Nostalgia tax’ must be fair – Matthew Moulding, chief executive of The Hut Group, has rejected calls for a digital sales tax, saying a levy on online retailers is “simply a nostalgia tax, an attempt to turn back the clock by those who have missed the ecommerce revolution.” He said that if policy makers are going to push ahead with such a tax, it must be applied fairly, applying levies to all sectors where online presences have disrupted traditional players, including banks, payment services and estate agents. (Source: The Times, 11/03/19)

Hospitality

Small businesses share £500m rates cut – Thousands of small businesses will benefit from a one-third discount on their rates bills from today as part of a policy announced by the Chancellor in the budget last year. The tax relief will support all retail properties with a rateable value of up to £51,000 for the next two years. Philip Hammond said that would help “up to 90% of all independent shops, pubs, restaurants and cafés”. Councils have set aside £502m this financial year to cover the cost. Meanwhile, the FT reports that online retailers will face higher business rates bills from April 2021 onwards, when the current high rents on warehouses will be used as the basis for setting rates. Finally, the BRC has warned that a “multiplier”, which will come into force from today will costs English retailers an additional £187m. (Source: Financial Times, 01/04/19)

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