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In the spotlight: Our monthly news round-up (February 2020)

Posted by
Rouse Partners
31.01.2020

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

Sajid Javid tries to calm nerves over post-Brexit rules – The Chancellor has tried to reassure businesses concerned about the UK shifting away from EU rules after Brexit by saying Britain would only diverge when it was in the best interests of industry. Sajid Javid told UK chief executives at a Davos lunch that although the UK could not be a rule taker, for democratic reasons, “it doesn’t mean we will diverge for the sake of it”. Carolyn Fairbairn, CBI director-general, welcomed the clarification adding that the Conservative’s decisive general election victory had been a boost to confidence. (Source: Financial Times, 24/01/20)

Businesses warned over settled status – Businesses are being urged to ensure European staff apply for settled status as soon as possible, or risk losing up to a fifth of their workforce. Analysis shows that a third of UK-based EU nationals have failed to secure their status. New research compiled by legal charity the AIRE Centre shows factory and construction jobs are particularly dependent on EU workers, accounting for 21% of the workforce. Retail and manufacturing could also struggle if EU workers leave the UK, with 50% of all EU nationals working in these industries. Meanwhile, a report for the British Hospitality Association suggests that if free movement ends and no new immigration into the restaurant sector is allowed, the industry would need to recruit an additional 62,000 UK workers each year. (Source: The Guardian, 16/01/20)

IMF downgrades global growth forecast – A report from the International Monetary Fund (IMF) predicts that economic growth in Britain is set to be sluggish over the next two years, with a forecast that GDP will grow 1.4% in 2020 and 1.5% in 2021. The IMF says the forecast “assumes an orderly exit from the European Union at the end of January followed by a gradual transition.” The report suggests the eurozone will see a slightly lower rate of growth, with an increase of 1.3% this year and 1.4% next, while global growth is expected to be 3.3% in 2020 and 3.4% in 2021. Looking at 2019, the IMF expects global growth to come in at 2.9%, lower than its previous prediction of 3%. It predicts that UK GDP rose 1.3% over the last 12 months. (Source: The Times, 21/01/20)

42% of CFOs expect uncertainty to continue beyond 2020 – A Bank of England poll of 2,887 CFOs shows that more than four in 10 believe that Brexit-related uncertainty for business will not be resolved until at least 2021, while a fifth fear that Britain will leave the EU with no deal in place. December’s edition of the monthly poll saw 42% of respondents say they do not expect the uncertainty surrounding Brexit to be resolved until 2021, up from 33% in November. It was also found that 19% believe the UK will leave the EU this year without a deal, up from 16% a year earlier – although the number who expect Brexit with a deal to occur this year rose from 46.2% to 46.6%. The poll saw 53% of CFOs say Brexit was among their top three sources of uncertainty in December. (Source: The Independent, 03/01/20)

Home Office insists on points-based immigration system – The independent Migration Advisory Committee (MAC) has recommended the government lower the salary threshold for migrants coming to Britain with a job from £30,000 to £25,600. The MAC proposals recommended a hybrid system made up of a points-based approach for the most talented as well as salary and skills thresholds for skilled workers. However, a No 10 spokesman said the Government had been clear a “firmer and fairer” points-based system would be introduced from 2021. Alan Manning, chairman of the committee, said the proposals could lead to “very small increases in GDP per capita and productivity, slightly improved public finances, slightly reduced pressure on the NHS, schools and on social housing, though slightly increased pressure on social care.” The Home Office said it would “carefully consider” the report “before setting out further detail on the UK’s future immigration system”. (Source: Financial Times, 29/01/20)

Brexit could mean holiday home perks, for some – An article in The Daily Telegraph considered some of the tax changes that could flow from Brexit, including adjustments to VAT on sanitary products, domestic fuel and other essentials. One other interesting possibility is a change in the rules on furnished holiday lettings, which were first introduced to support the UK tourism industry but had to be changed to apply to holiday homes in the EU after a legal battle. Depending on how negotiations go, individuals who own properties elsewhere in the EU may lose protection from the high tax and social security costs that are sometimes charged by countries on non-EU nationals. (Source: The Daily Telegraph, 29/01/20)

SMEs plan to spend £1.7bn – A survey by finance firm Together has found that British SMEs are set to invest £1.7bn over the next two years, with subsiding Brexit uncertainty seeing firms more willing to spend. The poll saw a quarter of SME bosses say they will look to expand their premises, while 23% expect to hire new staff. With the decisive election outcome offering more certainty, 42% of SMEs are now optimistic about their prospects, compared with just 8% who would have been optimistic if the uncertainty had continued. (Source: Daily Express, 20/01/20)

Individuals

Tax return total climbs – Tax office data shows that almost 300,000 more people have sent in self-assessment tax returns compared to last year. HMRC said 6.3m people had filed their returns as of December 31, an increase of 270,971 on the number who had filed by the same date in 2018, leaving 5.4m people yet to submit their tax return ahead of the January 31 deadline. While last year saw 93% of taxpayers file on time, 731,186 missed the cut-off. Analysis shows that the number of people who send in paper returns has fallen 5.8% to 663,054. (Source: Sunday Express, 05/01/20)

Treasury plots tax windfall for higher earners – The Times’ reports that the Treasury could be set to hand tax relief to those earning more than £110,000. The proposal comes with ministers looking for ways to prevent doctors being hit with huge bills, with those exceeding the figure facing more stringent taxes on their contributions. This has seen senior consultants turning down extra work for fear it will drive them over the threshold. It is understood that the Treasury has proposed raising the “cliff edge” threshold from £110,000 to £150,000 at which pension contributions are counted as earnings and lower tax-free allowances start to kick in. Paul Johnson, director of the Institute for Fiscal Studies, said it was hard to estimate exactly how much the change would cost, saying that the present rules were overly complex. He comments: “A more fundamental review both of the tax system and public sector pensions would be welcome.” (The Times, 16/01/20)

Glitch means self-employed could lose out on pension rights – Experts are warning that thousands of self-employed people could miss out on future state pensions and benefits because they unwittingly omit to pay Class 2 NICs when filing their tax return. If an individual has not properly registered as self-employed a message can appear from HMRC that says they do not need to pay the contributions, but failure to make the payments means they lose their full entitlement to a state pension. Caroline Miskin, a tax manager at the ICAEW says: “It is a system that is not fit for purpose. Potentially people could lose all their entitlement to their state pension. Our concern is that for people who are not represented by an agent may not spot the fact that they haven’t been charged the contributions and then potentially they run the risk of not noticing until they come to claim benefits which might not be until they reach retirement age and they suddenly find that they don’t have a national insurance record.” (Source: The Guardian, 25/01/20)

Thousands deferring state pension to cut tax bill – Some 14,000 people used a little known loophole to turn off their state pension payments as a way of cutting their income tax bills in the 2018-19 tax year. Under the rule, anyone can choose to opt out of receiving their payments, currently payable from age 66. People can boost the amount later when they receive “enhanced” payments when it kicks back in, though the total amount of “enhanced” payment they receive is dependent upon whether state pension age was reached before or after April 6 2016. (Source: Daily Telegraph, 30/01/20)

Entrepreneurs’ tax relief faces the chop – The Prime Minister has suggested that a tax break for entrepreneurs is likely to be axed in the Budget, saying the Treasury is against relief which allows business people to pay a 10% rate of capital gains tax when they sell qualifying assets, compared with the normal 20%. Boris Johnson, speaking to a group of women entrepreneurs in London, said the Treasury is “fulminating against” the tax break as some “staggeringly rich” people are using it to “make themselves even more staggeringly rich.” Craig Beaumont, director of external affairs at the Federation of Small Businesses, warned that for many owners their business was their pension, asking: “What happens to all the people who have been waiting to access this relief for years?” Meanwhile, business groups have said there was room for reform but cautioned against sweeping changes. (Source: Financial Times, 28/01/20)

Household optimism hits 12-month high – A IHS Markit survey has found that UK households became more upbeat about their finances in January, with optimism hitting a one-year high. Households saw living-cost inflation dip in January, while incomes from employment continued to grow. The conclusive election result seen in December and the clarity it brings in regard to Brexit are among drivers of the optimism, with Joe Hayes, economist at IHS Markit, saying: “Latest survey data certainly show some post-election bounce for UK household.” The poll also reveals that 23% of people expect the Bank of England’s next move on interest rates will be a cut, up from 19% in December. (Source: City AM, 21/01/20)

Tax boost for maturing child trust funds – Rules designed to protect the tax-free status of child trust funds will mean money saved in maturing funds can be moved into an Isa without affecting the holder’s annual ISA allowance. (Source: Financial Times, 18/01/20)

HMRC reveals ‘weird and wonderful’ tax return excuses – HMRC has revealed some of the more unique excuses taxpayers have given for missing the self-assessment deadline over the past decade. One person claimed to have been cursed by their mother-in-law while another blamed their hamster, saying it had eaten their post. The list of “weird and wonderful” excuses also details how a DJ said they had been too busy partying in a bowls club to file a return, while someone else said they were unable to collect the forms as they were cruising round the world in their yacht. The taxman also detailed some of the most bizarre claims that had been submitted, including one for tax relief on 250 days’ worth of sausage and chips meals. Angela MacDonald, HMRC director general of customer services, said: “We always offer help to those who have a genuine excuse. It is unfair to the majority of honest taxpayers when others make bogus claims.” (Source: The Times, 18/01/20)

Businesses

Coronavirus hitting multinationals in China – The coronavirus outbreak in China is increasingly impacting multinationals in the region, many of whom have been forced to suspend travel, halt production and shut stores as the crisis deepens. Hundreds of the world’s top 500 companies, including Microsoft, German software company SAP and French carmaker PSA, have a presence in Wuhan – the epicentre of the outbreak. Carmaker Toyota has suspended production at four auto plants, British Airways has cancelled all flights to and from the country for the next few days, while IKEA, Starbucks, McDonald’s and KFC have all closed Chinese outlets. PwC, Facebook, HSBC, Standard Chartered and LG Electronics have suspended or restricted travel by employees to China. (Source: The Daily Telegraph, 30/01/20)

Fake reviews hit small firms – Research from the Federation of Small Business (FSB) suggests small firms are being hit by fake reviews being posted online. Small businesses also warned that sudden changes to terms and conditions are hampering their online efforts. FSB boss Mike Cherry said: “Businesses are using the online opportunities being offered to grow their firms. But huge difficulties lie ahead. Crucial to small firms are websites like eBay, Amazon and Facebook which are central to advertising, sales and exporting aims. However, small businesses’ use of online platforms is not without problems and still too many encounter problems such as fake or malicious reviews, problems with intellectual property and sudden delisting of their products.” (Source: The i, 06/01/20)

Energy mis-selling hurts small businesses – Rogue energy brokers are conning small businesses, charities, churches and care homes out of millions of pounds by signing them up to deals which earn the brokers high commissions hidden within inflated supply agreements. Callum Thompson, the founder of Business Energy Claims (BEC), said 90% of micro-businesses using an energy broker may have fallen prey to mis-selling “in at least some form”. He added that energy suppliers were “completely complicit” because they help to hide the commission in their energy bills. A report on the scandal has been submitted to Ofgem, which campaigners say has failed to act for years on mis-selling. (The Guardian, 27/01/20)

Small firms miss out on tax breaks – Research by digital bookkeeping app Receipt Bank has found that half of business owners feel overwhelmed by the amount of paperwork they need to deal with, and one in five say this slows their growth. A further 33% have suffered a financial loss from not filing all the paperwork demanded by HMRC while a quarter didn’t know that claiming business expenses could help to reduce their corporation tax bills. Rebecca Freeman at Receipt Bank, said: “Tax breaks exist to help small businesses invest and grow. Those that forgo their entitlements are putting themselves at a competitive disadvantage.” (Source: Daily Mirror, 22/01/20)

Construction/property

Central London property investment soars – Investment in central London’s commercial property market soared after the result of the General Election with a spate of deal activity in December. The election result ignited investor confidence, with transactions worth £2.55bn in December alone. In total, 16 transactions of more than £100m were completed over the period, more than in the rest of the year combined, according to CBRE research. The £4.9bn invested in the fourth quarter of last year was a 125% jump on the amount invested in the previous quarter and was on par with 2018. (Source: City AM, 18/01/20)

Property sellers face reduced tax deadline – From April 6th, property sellers will need to submit a one-off return to HMRC and pay any CGT due within 30 days, rather than the current 10 to 22 months from the sale. (Source: Financial Times, 25/01/20)

Demand could push up City space rent – A Central London crane survey shows that the number of construction starts for new office buildings has fallen to the lowest level in five years. This however, has not correlated with a dip in demand, with JLL figures showing the volume of leasing deals in central London totalled about 11.6m sq ft in 2019, up on the 11.5m sq ft leased the previous year. JLL foresees this leading to record rents for the best sites, saying the best City spaces could be let at £90 per sq ft – a £5 per sq ft increase on the current price. (Source: The Times, 21/01/20)

House price growth increases, Nationwide says – Annual house price growth rose 1.9% in January to £215,897, according to Nationwide, up from 1.4% growth in December and the fastest annual growth rate in over a year. Separately, buyers of luxury London homes got less-generous discounts in the final part of 2019, according the Coutts London Prime Property Index, which said buyers in the £1m to £10m bracket got an average discount of 10.2% off asking prices in the three months to December 31, compared to a 12.7% discount in the same quarter a year earlier. (Source: Financial Times, 30/01/20)

Mortgage approvals surged last month – UK banks in December approved the most mortgages since August 2015, according to data from UK Finance, though mortgage lending fell overall last year. Mortgage approvals for house purchases hit 46,815 last month, while the number of mortgages approved rose 7.4% to 982,000 in 2019 compared to 2018. Approvals for remortgages were 7.9% higher over the same period and banks and building societies lent a total of £265.8bn in 2019, which was 1.1% down on 2018. “Repayments continue to offset spending, so that the level of borrowing on cards is currently growing at only 2.4% annually, continuing the general slowdown from the recent high of 6.6% in October 2016,” UK Finance said. (Source: Financial Times, 28/01/20)

Recruitment

Financial services recruitment stymied by Brexit worries and IR35 – A report by recruitment firm Morgan McKinley has found that uncertainty over Brexit and the roll out of IR35 made financial services firms reluctant to take on new staff last year. The report found that banks and asset managers were particularly hesitant as they awaited clarity over the UK’s exit from the EU, and although sentiment has improved, the report warned that Brexit uncertainty will continue in 2020. Morgan McKinley added that IR35, which aims to prevent workers from disguising themselves as freelance contractors as a way to pay less tax, would likely lead to a reduction in short-term contracts, which could hurt recruitment in many financial services sectors. Meanwhile, a group of leading recruitment companies have written to Chancellor Sajid Javid, warning that changes to tax rules for off-payroll workers will hit the industry and could increase tax avoidance. (Source: City AM, 29/01/20)

Over-60s to drive employment growth – Analysis of Office for National Statistics data suggests people in their 60s will deliver more than half of all employment growth in the next 10 years, with this set to rise to almost two-thirds by 2060. In the past 20 years the number of employed over-65s has increased by 188% from 455,000 to 1.31m, while the proportion has grown from just over 5% to just under 11%. (Source: Daily Express, 02/01/20)

Investors want to know about staff treatment – A report from the Financial Reporting Council shows that investors want to know more about how companies treat their workers, saying they “overwhelmingly support” improved disclosure of workplace matters, including wages and working conditions. The watchdog says reporting on such matters needs to improve, advising that firms should view their workforce as “a strategic asset”. (Source: The Times, 21/01/20)

Fewer jobs for school leavers and graduates – An Institute of Student Employers (ISE) survey reveals that employers are planning to recruit far fewer school leavers and graduates than they were a year ago. The ISE report shows that employers are planning to increase graduate recruitment by just 3%, compared with the 18% rise in graduate vacancies predicted this time last year. Growth in the number of apprenticeship and school leaver programme vacancies has slowed to 2% from 7% last year. (Source: The Guardian, 06/01/20)

UK employment hits record high – The latest data from the Office for National Statistics (ONS) reveals the strongest jobs growth in almost a year, pushing the employment rate to a new record. The unemployment rate held at 3.8%, its lowest since the 1970s, but the number of people in work rose by 208,000. In the September to November period, the employment rate hit a record high of 76.3%, the ONS said, up 0.5 percentage points on the previous quarter. When bonuses were stripped out, pay growth slowed to 3.4% in the three months to November. (Source: City AM, 22/01/20)

Technology

Robots to rise in the 20s – The Telegraph says automation is set to be “a key trend” for the next decade– with the Office for National Statistics suggesting 7.4% of the workforce is at high risk of being replaced by robots. They say the UK “has some catching up to do,” with the World Robotics Report showing spending on industrial robots fell 3% in the UK in 2018, with the country 22nd in the league table for density of robots to workers, with 85 per 10,000 staff. (Source: The Daily Telegraph, 03/01/20)

Tech firms question tax plan – Some of tech sector’s biggest players have hit out at tax crackdown on digital firms that has been mooted by the Organisation for Economic Co-operation and Development, saying some areas of proposed new rules are “discriminatory”. The proposed regulations would see tech firms forced to pay more tax in countries where they make sales and profits, even if they do not have a physical presence there. Amazon says that, if actioned, the proposals will lead to “complexity, uncertainty and disputes” and suggested a solution which applies to all firms and potentially sets out “clearly defined, specific exemptions,” while Netflix has called for any reference to “consumer-facing business” to be stripped from the proposals. Spotify has warned that the plans would create an “administrative nightmare”, with Uber arguing the new rules are “discriminatory”. (Source: The Mail on Sunday, 19/01/20)

US and France agree deal on digital tax – The US yesterday dropped its insistence that any international digital taxation agreement should be optional, bringing to an end a tussle between the US and France and paving the way for a global deal in 2020. The secretary-general of the OECD, Angel Gurría, said the negotiating process was back “on track” and he hoped countries would make progress in the next phase of negotiations in Paris next week. But Paris insists digital companies in France will pay their due taxes in 2020 despite allowing more time for an international solution. An FT editorial contends that the UK should join France and implement its own digital tax but suspend the collection of revenue while a deal with the OECD is thrashed out. Elsewhere, the Telegraph’s Jeremy Warner rails at the design of the digital services tax, arguing that shifting the basis for the tax from profit to revenues fails the key tests a new tax should pass: that it be “fair, equitable, simple, transparent and economically efficient.” (Source: Financial Times, 24/01/20)

Tech tax could hit small businesses, Amazon warns – Amazon’s UK boss has warned that the new 2% digital services tax could impact small UK businesses. Douglas Gurr, Amazon’s UK country manager, said the tax would not impact plans to create new jobs and open more distribution hubs but cautioned that the retail giant could offload the additional costs by raising charges for the small businesses that use its platform. (Source: City AM, 17/01/20)

IRS issues new cryptocurrency tax guidance – The US Internal Revenue Service (IRS) has issued updated guidance for reporting cryptocurrency holdings. A new form asks crypto traders in the US to report their cryptocurrency transactions for the very first time. If people are selling virtual currency, the IRS now requires any capital gain or loss on the sale to be recognised, subject to any limitations on the deductibility of capital losses. (Source: Grit Daily, 27/01/20)

Manufacturing

UK manufacturers upbeat amid poor figures, CBI says – New orders among UK manufacturers fell at their fastest pace since the financial crisis in the three months to January, according to the Confederation of British Industry’s (CBI) latest survey. Its confidence gauge however, the difference between businesses reporting higher rather than lower optimism, recorded its biggest swing since the survey began in 1958 – taking confidence to its highest level for almost six years. (Source: Financial Times, 23/01/20)

Hospitality

Triples all round – pubs to get £1,000 tax cut – Sajid Javid has announced a cut to business rates on pubs with as many as 18,000 in line for a £1,000 reduction in their bill. The chancellor said the new relief would start in April for small pubs “in a fresh demonstration of the government’s support for communities up and down the country”. The relief is on top of previously announced plans to slash the bills of small shops and pubs by 50%. The Treasury said that those eligible for both reliefs would get up to £13,500 off their annual bills. (Source: The Times, 25/01/20)

Analyst warns ‘ostrich shops’ over excuses – Writing in City AM, Mark Halstead of financial risk analysts Red Flag Alert looks at what he calls “ostrich shops” – the retailer’s burying their heads in the sand and relying on “a checklist of overused excuses” as to why they are struggling, pointing to factors such as business rates and the challenging retail market. Successful stores, he argues, are those focused on providing shoppers with experiences they “can’t get sat in front of a laptop.” (Source: City AM, 16/01/20)

Charity

ACCA and Charity Commission sign sharing agreement – The Charity Commission and the Association of Chartered Certified Accountants (ACCA) have signed an information sharing agreement that will now see the Commission refer cases of poor professional practice by accountants and finance professionals to the ACCA. The Commission’s ultimate purpose in signing up to the agreement is to provide a mechanism to alert ACCA to poor practice and, by raising the standards of ACCA practitioners undertaking external scrutiny work for charities, help charities comply with their accounting framework and legal requirements. Laura Murphy, Standards Manager of ACCA, said: “Through this partnership, ACCA aims to support our members working in the charity sector to uphold the highest of ethical and professional standards, meet their statutory responsibilities and act in the public interest.” (Source: .GOV, 25/01/20)

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