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

Posted by
Rouse Partners
02.12.2019

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

Conservative manifesto and tax plans – Boris Johnson pledged an extra 50,000 NHS nurses, thousands of doctors and primary care staff and to restore a nurse bursary in his manifesto launch. Central to Mr Johnson’s manifesto was his commitment to “get Brexit done” in order to move the country forward. The PM pledged not to raise the rates of income tax, national insurance or VAT – a “triple tax lock” – and promised a £10bn plan to raise the national insurance contributions threshold for working people. Mr Johnson acknowledged that the Tories were “not prioritising tax cuts for high earners at the moment” and the manifesto did not include a previous promise to cut stamp duty. The Conservative Party’s manifesto also pledges to increase the R&D tax credit rate from 12% to 13% and initiate “the fastest-ever increase in domestic public R&D spending, including in basic science research”. A review of the definition of R&D to include investment in areas such as data gathering and processing, and cloud computing would also be undertaken. Business leaders welcomed the “pro-enterprise” manifesto but some were left in doubt that it alone would be sufficient to turbocharge Britain’s economy. Other policies include scrapping parking charges at NHS hospitals for patients, relatives and staff; spending billions on making homes energy efficient; a ban on the export of plastic waste to developing countries; a review of CGT relief for entrepreneurs. In an interview with the Mail on Sunday, Mr Johnson says his pledges are all fully costed and sound and that tax cuts will be paid for by “turbo-charging the economy”. The PM argues that Jeremy Corbyn’s planned £400bn spending splurge and tax rises targeted at the rich would take “a total sledgehammer to the economy”. The Tories are regarded in the press to have played it safe with this manifesto, with day-to-day spending increases 28 times lower than Labour’s. (Source: Sunday Times, 24/11/19 and Financial Times, 25/11/19)

…while PM postpones corporation tax cut – The Prime Minister has announced that planned cuts to corporation tax are to be put on hold. The rate paid by firms on their profits was due to fall from 19% to 17% next April but Boris Johnson said the potential £6bn cost would be better served going on “national priorities” such as the NHS. Mr Johnson told the Confederation of British Industry (CBI) conference that the UK already had the lowest rate of corporation tax of “any major economy”, highlighting that corporation tax had already fallen from 28p to 19p in the pound since 2010, adding that further cuts would be “postponed”. He added that the move comes as the Conservatives “believe emphatically in fiscal prudence”. Mr Johnson also said the Tories plan to lower business rates, saying a reduction – “particularly for SMEs” – will boost the high street. He also said employers’ national insurance contributions – which he described as a “jobs tax” – will come down. (Source: The Times, 19/11/19)

…and plans to cut NI and rethink income tax for workers – Boris Johnson says the Conservatives aim to change the National Insurance threshold so people do not pay it until they earn £12,500. The Prime Minister said it would be raised from the current £8,628 to £9,500 in the party’s first budget, with plans to increase it by a further £3,000 in the future. This would, he says, ensure “low tax for working people”. The Institute for Fiscal Studies has said an increase to £9,500 in 2020/21 would mean a £85 boost for workers, while an increase to £12,500 could save workers up to £465 a year. Details of the tax plans were revealed by the PM during a Q&A at an engineering plant in Middlesbrough, with Mr Johnson also saying: “We are going to be making sure we cut business rates for small businesses. I am a tax-cutting Conservative but I want the people who need it most to feel the benefit of the tax cuts,” he added. The Conservatives could also rethink the income tax threshold, with the Prime Minister previously suggesting the level at which people start paying higher-rate income tax in England could rise from £50,000 to £80,000. Chancellor Sajid Javid has also suggested that he was considering scrapping inheritance tax, while the Tories have also promised to look at the pension tax rules for higher earners. (Source: BBC News, 21/11/19)

Labour manifesto and tax plans – Labour has unveiled its election manifesto, confirming plans for tax reform. If elected, the party plans to increase income tax on high earners, with those earning more than £80,000 a year to pay 45% on their income – a rate currently applicable to those earning £150,000 or more. Those earning more than £125,000 a year will face a new “super-rich” rate of 50%. Labour forecasts that the mooted income tax changes will raise £5.4bn per year. The party will also deliver a change for capital gains tax, bringing it in line with income tax. Meanwhile, corporation tax would rise from 19% to 26%, with a 21% rate for smaller firms. The manifesto also shows that the family home allowance would be stripped out of inheritance tax and the marriage tax allowance will be scrapped. Labour would also launch a review into business rates and look at a “land value tax” on commercial landlords, while fee-paying schools will lose their VAT exemption. The Institute for Fiscal Studies (IFS) said Labour’s plans would create “just about the most punitive corporate tax regime in the world”, while some tax advisors warned: “Business owners may face an effective rate of tax of over 60% on their profits.” (Source: Financial Times, 22/11/19)

…while Labour plans to cut business rates – Elsewhere at the CBI event, Labour leader Jeremy Corbyn said his party would reform business rates if elected. He also suggested Labour could raise corporation tax from 19% up to “2010 levels”, when it stood at 28%. Meanwhile, Lib Dem leader Jo Swinson said she would scrap business rates, replacing the system with a levy on landowners. She added that abolishing business rates would cut taxes in 92% of local authority areas and help rebalance the economy. (Source: The Times, 19/11/19)

…scrap the existing IHT system – Labour has also pledged to scrap the existing inheritance tax system, instead imposing a lifetime cap of £125,000 on the amount that can be inherited tax-free. The Lib Dems have previously vowed to tax capital gains as income and plan to introduce a flat 25% rate of tax relief on pension contributions. (Source: The Times, 02/11/19)

…and to offer free full-fibre broadband by 2030 – Shadow chancellor John McDonnell has announced plans to give every home and business in the UK free full-fibre broadband by 2030 if Labour wins the upcoming election. Mr McDonnell told the BBC that the party would nationalise BT’s digital network arm Openreach to create a government-owned, UK-wide network, with shareholders to be compensated by the issuing of government bonds. Funding for the plan would also come from a tax on tech giants like Apple and Google. The Tories said it was “fantasy plan” that would cost taxpayers billions. (Source: BBC, 15/11/19)

What the General Election could mean for investors? – The Telegraph reports that investor bills would double under the Liberal Democrats or Labour. A higher-rate taxpayer with a £60,000 portfolio who sold off just £3,000 of profits each year would be hit with an annual CGT bill of more than £700 under Labour’s plans. Currently, they could sell £12,000 of their profits each year and pay nothing in tax. Under the Lib Dems, the same higher-rate taxpayer would have to fork out more than £12,000 for regularly selling off parts of the £60,000 portfolio over a 10-year period. (Source: The Daily Telegraph, 30/11/19)

Brexit and trade wars will hold back economy, BoE warns – Amid the backdrop of global trade tensions, the Bank of England (BoE) has warned that Boris Johnson’s Brexit deal is likely to hold back growth in the UK economy over the next three years. UK national income will be 1% lower by 2022 than originally thought, the BoE said in its quarterly economic statement, most of which due to “weaker global growth, driven by trade protectionism.” The Bank expects the annual pace of growth to rise from around 1% at the end of this year to more than 2% by the end of 2022, but warned that growth over the next three years will be 1% down on its August forecast. Policymakers believe the UK economy grew 0.4% in the three months to September, double their estimate in August. Meanwhile, two external members of the BoE’s Monetary Policy Committee – which sets interest rates – have called for an immediate interest rate cut. Michael Saunders and Jonathan Haskel voted to cut interest rates to 0.5%, from the current rate of 0.75%. (Source: The Times, 08/11/19)

Individuals

High earners in tax warning over pension contributions – HMRC has warned that high earners are failing to declare their pension contributions and may owe millions of pounds in tax. In a letter to pension scheme administrators, HMRC said people may be forgetting to declare in their yearly tax returns big pension increases that may breach their annual allowance, which currently stands at £40,000 – noting that in some cases the oversight may be deliberate. Steve Webb, director of policy at the insurer Royal London, said many taxpayers do not understand they have to declare any contributions over the threshold in their tax returns, while others are unable to work out how much they have put in so simply give up. This admission means that potentially thousands of people may have failed to declare large pension inputs on their tax return and could face a large bill when HMRC finally catches up with them”. (Source: The Sunday Times, 01/12/19)

…while emergency tax from pension withdrawals hits record high – The amount of “emergency tax” reclaimed by savers withdrawing money from their pensions totalled £54m in the three months to September 30, the highest quarterly figure since pension freedoms were introduced in 2015. Royal London director of policy Steve Webb said HMRC has snubbed calls for an overhaul from the Office of Tax Simplification: “It cannot be right that tens of thousands of people each year have too much tax taken out of their pension and then have the hassle of filling in a form to get back money that is rightfully theirs.” (Source: Sunday Express, 10/11/19)

Property-related IHT refunds climb – Research from financial adviser NFU Mutual shows the rate at which people who inherited properties are claiming money back from the taxman as homes have fallen in value by the time they were sold. The analysis shows that property-related refunds granted by HMRC rose 86% from 2,177 in the 2016/17 tax year to 4,052 in 2017/18 and climbed 11% to 4,516 in the year to this April. Sean McCann at NFU Mutual said many people may have paid more IHT than they need to, noting: “When property prices and share values fall, rebates are not given automatically and need to be proactively claimed.” While people who sell a property for less than its IHT valuation within four years of paying the tax can reclaim the tax they have overpaid, there are concerns over a lack of knowledge about the potential rebate. (Source: The Times, 16/11/19)

HMRC in scam warning – HMRC has warned people to be wary of potential scams, having received almost 900,000 reports of people impersonating HMRC and trying to obtain taxpayers’ personal details via bogus calls, text messages and emails. The most common method involves correspondence related to fake tax refunds, with more than 620,000 complaints about bogus tax rebates. HMRC has sought to reiterate warnings over such scams in the run up to the self-assessment deadline, reminding people that it will never contact customers asking for their PIN, password or bank details. (Source: The I, 21/11/19)

Businesses

Fees climb as firms ‘throw more bodies at audits’ – Oliver Shah in the Sunday Times points to anecdotal evidence suggesting that prices charged by Deloitte, PwC, EY and KPMG are rising by 20%-50% in tender processes. He says the Big Four “are beginning to throw more bodies at audits and do them more thoroughly,” suggesting that competing on price alone “is not worth the reputational risk if things go wrong”. If you are facing increasing audit fees you may like to find out more about how we can offer high quality, value for money audit services here. (Source: The Sunday Times, 01/12/19)

Taxman extends MTD deadline – HMRC has given some small firms an extra year to comply with Making Tax Digital (MTD). The policy, introduced in April, sees self-employed people and business owners with a turnover above the £85,000 VAT threshold filing their returns online using specialised software. HMRC had said it would not issue any fines to businesses filing late in the 2019/20 tax year unless they were deliberately avoiding the new rules. It has added a concession which will give businesses with complex or legacy IT systems until April or October 2020, depending their filing deadline, to make their first submission. A spokesman said: “HMRC allowed all MTD businesses a one-year soft-landing period to put digital links in place,” adding that ongoing engagement with businesses and stakeholders has prompted it to offer a process to apply for additional time. (Source: Daily Telegraph, 22/11/19)

OECD warns on global growth – The OECD has warned that the global economy is set to grow at its slowest pace since the financial crisis this year, increasing 2.9% in both 2019 and 2020 – the weakest rate in 10 years. Growth is forecast to hit 3% in 2021, a dip on the 3.5% predicted a year ago. The report says that while growth in the UK will hit 1% next year and 1.2% in 2021 if the Prime Minister’s Brexit deal is passed by 31 January, “an exit from the EU without an agreed deal would significantly damage the economy.” (Source: The Guardian, 22/11/19)

Construction/property

House prices forecast to rise by £35k in five years – UK house prices will go up by an average of £35,000 in the next five years, according to Savills. However, data from the estate agent suggested there will be large fluctuations across the country. The average value of a home in Britain is expected to rise 15.3%, but in some areas the increase will be as high as 24%, which is the case for the North West whilst in other parts of the country, such as in Greater London, they will rise by just 4%. The rises are forecast as concerns over the current political and economic uncertainty begin to subside. (Source: The Times, 14/11/19)

First-timer mortgages rise in September – Figures from UK Finance show there were 29,100 new first-time buyer mortgages completed in September, a 1.6% increase on September 2018. The number of home movers was also up year-on-year, climbing 1.8%, but these were outnumbered by those taking their first step onto the property ladder, with 50 more first-timers than movers. The data also shows that 5,500 new buy-to-let home purchase mortgages were completed in September, a dip of 3.5% on the same month a year ago. September saw 17,740 new remortgages with additional borrowing, a 5.9% rise, while re-mortgages with no additional borrowing were up 8% on September 2018, with 19,140 completed. (Source: Daily Mail, 20/11/19)

Overseas buyers face higher stamp duty – The Conservatives plan to introduce a 3% stamp duty surcharge for non-UK residents, whether the overseas buyer is an individual or a company. Rishi Sunak, the Treasury chief secretary, said the move could raise up to £120m, adding that this would be used to tackle rough-sleeping. Meanwhile, the Liberal Democrats would crack down on foreign buying of second homes with a stamp-duty surcharge on overseas residents buying such properties. (Source: The Daily Telegraph, 22/11/19)

Buy to let

BTL repossessions jump 40% – There has been a 40% rise in buy-to-let (BTL) repossessions this year on last year, according to banking trade body UK Finance, with around 800 BTL-mortgaged properties taken into possession in the third quarter of 2019 and 4,550 BTL mortgages in arrears of 2.5% or more of the outstanding balance in the same period. Separate figures from a study of around 2,000 landlords by the RLA has found that a third of private landlords are looking to sell at least one property over the next year. (Source: Daily Mail, 21/11/19)

Landlords could get tax breaks to sell to tenants – The Conservatives are considering exempting landlords from capital gains tax if they sell homes to existing tenants, the Telegraph reports. Boris Johnson’s team have been weighing the possible manifesto pledge designed to help private renters onto the property ladder. (Source: The Sunday Times, 10/11/19)

HMRC pressures tenants to reveal details of overseas landlords – The Times reports on how HMRC has been writing to tenants asking them to provide details on their overseas landlords and threatening to charge penalties if the tenant has not deducted tax from their rental payments. But Ray Boulger from the mortgage broker John Charcol says: “It is outrageous for HMRC to ask tenants any questions beyond the name and address of their landlord, unless they want to offer the tenant a contract to do some sleuthing.” A letter sent to tenants in August says: “This property is legally owned by an overseas company. You may need to take off tax from your rent. We want to make sure you take off the right amount of tax and pay this to us.” Brian Slater from the Chartered Institute of Taxation says tenants have no legal obligation to respond to the letter. (Source: The Times, 23/11/19)

Recruitment

Hiring firms hit by skills shortage – A quarterly recruitment outlook from the British Chambers of Commerce (BCC) shows that 73% of firms that attempted to take on extra workers faced recruitment difficulties in Q3, up from the 64% recorded in Q2. The analysis, produced in partnership with Totaljobs, shows that 11% of businesses decreased their workforce in Q3, with a quarter increasing their total headcount. BCC director-general Adam Marshall said: “Jobseekers will welcome the fact that many businesses are continuing to hire staff, but policymakers should be alarmed that skills shortages continue to bedevil firms – particularly in the skilled roles that will be needed to drive healthy manufacturing and export performance following Brexit.” (Source: The Scotsman, 21/11/19)

UK employer confidence down – New data from the Recruitment and Employment Confederation’s (REC) show a fall in employers confidence to its lowest level in over three years. Confidence levels in the economy fell from minus 31 in October to minus 34 in November, the worst since records began in 2016. However, significantly more employers were looking to increase rather than decrease their permanent staffing but were being held back by political and economic uncertainty. Neil Carberry, chief executive of the REC, said: “This month’s figures show there is a great deal of potential in Britain’s businesses waiting to be unleashed.” (Source: City AM, 27/11/19)

Tax rules hit contractor market – The Telegraph considers the tax rules under the IR35 regime which have left the contractor market “in disarray”. The article suggests that with employers to be responsible for assessing the tax status of their contractors as of April, a number of self-employed people are closing down businesses and returning to full-time employment. This comes as a number of firms have said they will no longer employ contractors so as to avoid legal disputes with the taxman. (Source: The Telegraph, 16/11/19)

…while FSB calls for halt to IR35 changes – The Federation of Small Businesses has called on politicians to put the self-employed “front and centre when drawing-up business policies for their election manifestos” warning that confidence among sole traders is in negative territory for a fifth consecutive quarter. The federation said that the self-employed were finding it particularly hard to raise finance and called for a delay to the expansion of IR35 rules into the private sector until confidence has improved. Mike Cherry, national chairman of the FSB, said: “Against such an uncertain backdrop, the self-employed certainly don’t need an IR35 rule change that makes hiring contractors less attractive. We’ve already heard noises from big corporates to indicate that, if this change does take effect in April as planned, they’ll pull the plug on sole traders. Common sense dictates that a delay to the April roll-out of these rules is now needed.” (Source: The Times, 11/11/19)

Technology

Economy set for tech boost – Virtual reality (VR) and augmented reality (AR) technologies are forecast to add £62.5bn to the UK economy in the next decade. Research suggests that more than £44bn of the 2.44% injection to UK GDP will come from AR, with VR to provide over £18bn as businesses embrace innovation. On a wider scale, VR and AR could add £1.4trn to global GDP in the next 10 years, the report suggests. (Source: City AM, 19/11/19)

Just Eat in digital services tax warning – Food delivery firm Just Eat has urged ministers to rethink plans for a tax on online sales, saying a digital services tax that would involve a 2% charge on sales by large internet firms would cost it £7m a year and hurt the tech industry. Just Eat CFO Paul Harrison said the tax “will penalise UK tech businesses already doing the right thing”. Data from the Centre for Economics and Business Research suggests the tech industry would see an extra £70m tax in the first year of the levy. (Source: The Daily Telegraph, 04/11/19)

Be the Business doubles corporate supporters – An industry-led campaign to tackle Britain’s productivity problem has doubled the number of corporate supporters and secured about £10m to extend its programme to more underperforming small companies. Be the Business has now struck deals with 23 blue-chip companies, including Lloyds Banking Group, Amazon, BAE Systems, Aviva, McKinsey, Royal Bank of Scotland and News UK. The businesses are providing mentors and management training as well as incentives for technology adoption to boost low-productivity firms. (Source: The Times, 15/11/19)

Manufacturing

Factory orders up but still low – The Confederation of British Industry (CBI) says that factory orders remain near decade lows despite growth this month. The CBI said while orders are up to similar levels as those recorded in August, they are still close to October’s nine-year low. while over 300 manufacturers’ total order books improved compared with October, the sector officially contracted in Q2 and flat-lined in Q3, leaving it close to recession. The analysis shows that that manufacturing sector was 1.4% smaller in the three months to September than in Q3 2018. Anna Leach, the CBI’s deputy chief economist, said that while “the thick fog of uncertainty from a no-deal Brexit has lifted somewhat”, weak global trade and a subdued domestic economy means pressure remains, adding: “It’s clear that the outlook for the sector remains precarious.” (Source: The Times, 20/11/19)

UK firms lose £9.2bn to fake imports – The Organisation for Economic Cooperation and Development (OECD) has warned that the flood of fake goods into the UK is costing companies £9.2bn a year in lost sales. Britain’s economy has lost more than 86,000 jobs and the exchequer £4bn in tax revenue as a result. China and Hong Kong were the worst culprits for counterfeiting and piracy, the OECD said. Marcos Bonturi, the OECD’s director of public governance, said: “Countries need to work together if they want to win the fight against illicit trade and against all other illicit activities linked to it.” (Source: The Daily Telegraph, 31/11/19)

Hospitality

Stores see Black Friday boost – Figures from retail consultant Springboard show that Black Friday footfall rose for the first time since 2016. The number of people visiting stores was up 3.3% overall, compared to a decline of 5.4% last year and a fall of 3.6% in 2017. Shopping centres led the way, with a 6.6% increase, while visitors numbers climbed 2.4% on the high street and 1.8% at retail parks. (Source: Sunday Express, 01/12/19)

…while Brits likely to be top Xmas spenders – Britons are set to be Europe’s top spenders this Christmas, with a recent study suggesting UK shoppers will spend an average of £567 each this Christmas. This total is 39% higher than the European average of £409 and includes £299 on presents and £143 on food and drink. The average spend is up 1.3% on last year’s figure. The survey found that a third of UK shoppers plan to buy most of their presents in November, while three in five said they preferred to shop for Christmas presents in stores. (Source: Daily Mail, 19/11/19)

Hospitality sector urges rates reform – UK Hospitality, which represents 90% of the industry, has called for a root and branch reform of business rates, calling it a “discriminatory” tax. UK Hospitality has called for a digital services tax to be levied on online business and also wants taxes on out-of-town warehouses brought in line with those levied on town centre shops. (Source: Daily Mail, 20/11/19)

PM promises rate relief for neglected towns – Boris Johnson has pledged to cut business rates for shops and pubs as part of efforts to revitalise Britain’s high streets. The package will include extending the retail discount on business rates to 50% next year. For businesses with a rateable value of less than £51,000, this will increase the retail discount from 33% to 50% in 2020/21. Cinemas and music venues will qualify for the retail discount on business rates for the first time while pubs will get a new £1,000 business rate relief to help them stay as vital centres of their communities. Recent research shows 1,234 stores disappeared from the high street in the first half of 2019 – the highest number since records began in 2010. (Source: The Guardian, 15/11/19)

Pubs would drink to tax cuts – The British Beer & Pub Association has called for a cut in beer tax, saying such a move by the next government would help safeguard an industry which is “vital to the UK economy, our culture and way of life”. The body has called for a real-terms cut in beer duty and suggested beers up to 3.5% in strength should be brought into the low tax threshold. It has also urged an overhaul of business rates, saying pubs face an “unfair” burden as they pay 2.8% of the total rates bill while only accounting for 0.5% of business turnover. (Source: Daily Mirror, 18/11/19)

Charity

Soft-play centres should pay VAT – HMRC recently sent out an advisory note reminding not-for-profit providers they cannot claim VAT on soft-play centres because it doesn’t consider them to have “an exercise purpose”. In contrast, adult exercise venues run by not-for-profit institutions, such as climbing centres run by charities or the local council, are VAT-exempt. (Source: The Times, 31/11/19)

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