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

Posted by
Rouse Partners
01.07.2019

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

Less than 10% of firms apply for TSP status – Many UK businesses “are not even close to being ready for a no-deal” Brexit, figures suggest. HMRC launched the Transitional Simplified Procedures (TSP) scheme in February, aimed at easing imports in the event of the UK leaving the customs union and single market abruptly, but less than 10% of the 240,000 firms estimated to require the status had applied for it as of 26th May. TSP measures would allow UK firms to import goods from mainland Europe without filling out new customs declarations at the border. UK businesses would also be allowed to postpone the payment of import duties for one year. Mike Spicer from the British Chambers of Commerce said: “If it really is this low we’re far, far away from being day one no-deal Brexit ready – it’s a very low number.” (Source: The Times, 13/06/19)

Pound falls amid rising no-deal threat – The pound is at its lowest in almost six months on heightened fears of a no-deal exit, points out Neil Wilson, chief market analyst at Markets.com. “The calculus is simple – failure to take Britain out of the EU this year risks a General Election and wipe out at the polls at the hands of the Brexit Party, potentially handing Jeremy Corbyn the keys to Number 10,” he says. “The EU says it won’t renegotiate (it may have to), MPs won’t accept the existing deal, and Parliament has limited scope to stop this train. Sterling is increasingly reflecting the no-deal risk.” The pound has stumbled quite badly against the dollar over the past three months, currently at $1.2531, down 0.02% on the day, and is now getting close to a year low. Professor Costas Milas, of the University of Liverpool’s management school, thinks there is a good chance that the pound could rebound if Rory Stewart goes through to the next round of the Tory leadership race, due to his firm stance against a no-deal Brexit. (Source: BBC News, 19/06/19)

Bank freezes rates – The Bank of England has kept interest rates on hold at 0.75% amid heightened no-deal Brexit fears and as UK growth falters. The MPC voted unanimously to keep rates unchanged as it cautioned the “downside risks” to growth had increased since its last set of forecasts in May. The Bank also trimmed its expectations for second quarter growth, predicting GDP will remain flat against a previous forecast for 0.2% expansion, after official data showed the economy dipped by a worse-than-feared 0.4% in April. However, the Bank reiterated that “gradual” rate hikes would be needed over the next three years to keep inflation to its two per cent target. (Source: Financial Times. 21/06/19)

SMEs resilient despite low confidence, study finds – The latest SME health check index by Clydesdale Bank owner CYBG found sentiment among SMEs dropped by 6.6 points to 48.5 in the first quarter of 2019, its lowest rating for a year. The fall was driven by lower SME borrowing and an increase in businesses operating below capacity. Gavin Opperman, group customer banking director, at CYBG, said: “The latest SME Health Check Index paints a picture of resilient SMEs despite low confidence and a reluctance to borrow.” (Source: Yorkshire Post, 13/06/19)

Global slowdown will continue into 2020 – Fitch Ratings has warned that the global slowdown will continue into next year as mounting trade war uncertainty forces businesses to rein in spending and Chinese consumers turn cautious. Fitch trimmed its 2020 global growth forecast to 2.7% from 2.8%. It added that growth would slow a further 0.4 percentage points to 2.4% if President Trump carried out his threat to slap tariffs on the remaining $300bn of Chinese imports and Beijing retaliates. (Source: The Daily Telegraph, 18/06/19)

Individuals

Warnings over new trust registration rules – New EU rules for trusts coming into force by March 2020 will require the trustees of all UK resident trusts to register their trusts on the UK Trust Register, regardless of whether the trust has incurred any UK tax liabilities. The Association of Taxation Technicians (ATT) is warning that the extension of registration rules will put trustees at risk of civil and criminal sanctions if they fail to comply. Jon Stride, co-chair of the ATT’s technical steering group, said: ‘While it is impossible to know how many more trusts will need to register under the new rules, the sheer scale of this task must not be underestimated.” (Source: Accountancy Daily, 28/06/19)

Summer childcare costs made easier with Tax-Free Childcare – Working parents could be entitled to Tax-Free Childcare worth up to £2,000 per child per year to pay towards regulated holiday clubs during the school holidays. For every £8 that parents pay into their Tax-Free Childcare account, the government will make a top-up payment of an additional £2. The scheme is open to working parents, including the self-employed, who earn between the minimum wage and £100,000 per year and have children aged 0-11 years old. Find out how more about the scheme and how to apply in our article. (Source: Press Release, 29/06/19)

Freelancers face a looming tax nightmare – The FT considers the impact changes to tax laws on off-payroll working will have on companies and contractors, with reformed rules giving firms the responsibility to decide if freelancers should be considered self-employed. The FT compares the ways employed and self-employed people currently pay tax, noting that the difference between what employees and contractors working through companies pay in tax is “less marked” than it previously was. Elsewhere, the paper says the Check Employment Status for Tax tool HMRC has developed to assess whether a contractor is defined as self-employed is “particular bone of contention” between ministers, companies and contractors. (Source: Financial Times, 08/06/19)

HMRC: Tax gap at 5.6% – HMRC has revealed that the tax gap for 2017/2018 was 5.6%, meaning the Revenue collected 94.4% of all tax due. The figures show that the tax gap, which shows the difference between the amount of tax that should be paid to HMRC and what is actually paid, has fallen from 7.2% since 2005/2006. The duty-only excise tax gap has reduced from 8.4% in 2005/06 to 5.1% in 2017/18, while the corporation tax gap has reduced from 12.5% to 8.1% in the same period. HMRC says avoidable mistakes are costing the Exchequer over £9.9bn a year, with £3bn of this attributable to VAT. The Revenue says efforts to tackle tax evasion, tax avoidance, and non-compliance mean it has secured and protected more than £200bn in extra tax that would otherwise have gone unpaid since 2010. Commenting on the report, Financial Secretary to the Treasury Jesse Norman said: “The UK’s low tax gap underlines both how the vast majority of people are paying the correct amount of tax, and how effective HMRC has been in its efforts to clamp down on tax evasion and avoidance.” (Source: The Daily Telegraph, 21/06/19)

London-Shanghai share trading initiative launched – Britain and China began selling shares in each other’s companies yesterday under a landmark deal between the UK Financial Conduct Authority and China Securities Regulatory Commission. Under the cross-border investment program called Shanghai-London Stock Connect, investors and issuers in the UK and China will have a mutual access to both capital markets through depository receipts. “This new scheme will deepen and strengthen connectivity between U.K. and China capital markets to the advantage of both countries,” FCA CEO Andrew Bailey said. The two countries have also agreed a protocol on beef trade giving UK farmers access to the Chinese market by the end of 2019. (Source: Financial Times, 18/06/19)

Islands to reveal who owns offshore firms – Jersey, Guernsey and the Isle of Man are to adopt public registers of the true owners of offshore companies incorporated in their jurisdictions, with fully public registers to be introduced by 2023. MP Margaret Hodge and the Conservative MP Andrew Mitchell, who have suggested legislation should be used to force the dependencies to introduce the registers, welcomed the new announcement as “an important first step towards our goal of ensuring greater transparency in the fight against tax avoidance, tax evasion and money laundering”. However, they have called for clarification over some elements of the proposals, saying the 2023 timetable for implementing the new registers was “unacceptably long”, that current proposals would grant banks and accountants access to the information before the public and the media, and that it was unclear if the data would be free of charge. (Source: The Guardian, 28/06/19)

Duchess will have to file US tax return or renounce nationality – The Duchess of Sussex could be barred from re-entering the US under legislation allowing the country to exclude tax “refugees”. The US government has started enforcing provisions to a 1986 rule targeting Americans who drop their citizenship to avoid paying US tax on earnings they make overseas. Boris Johnson, who left the US at the age of five, renounced his US citizenship in 2016. He had to pay tax to the US on the profit he made on the sale of his home in London, which he described as “outrageous”. Other notable renunciants include Eduardo Saverin, co-founder of Facebook and John Dorrance III, the heir to the Campbell’s soup empire. (Source: The Sunday Telegraph, 30/06/19)

Businesses

SMEs remain confused about MTD – A survey has found that 11% of SMEs are unaware of new rules on keeping digital tax records. More than one million firms with an annual taxable income of in excess of £85,000 are now legally required to submit VAT returns online. But nearly half of those polled who thought they were compliant were found not to be. HMRC has said it will take a “light touch” approach to penalties in the first year of implementation. However, this is only where businesses are doing their best to comply. Chris Evans, VP and country manager at Intuit QuickBooks UK, advises businesses to read up on Making Tax Digital or try QuickBooks’ free MTD Checker tool. (Source: The Independent, 18/06/19)

Tax disputes reach record length – The length of time taken to settle tax investigations into large businesses has increased by 10% according to law firm Pinsent Masons, to a record 43 months as of March 2019. According to the firm, many of these disputes are related to transfer pricing. “HMRC’s inflexible approach to The length of time taken to settle tax investigations into large businesses has increased by 10% according to law firm Pinsent Masons, to a record 43 months as of March 2019. According to the firm, many of these disputes are related to transfer pricing. “HMRC’s inflexible approach to tax avoidance is driving delays as it frequently aims to win every point against the business,” said Jason Collins, a partner at the firm. “This can make it difficult to settle even the simplest disputes”, he added, noting that it can lead to an inefficient deployment of HMRC’s resources. (Source: Economia, 11/06/19)

8 in 10 SMEs have no wellbeing strategy – A study commissioned by AXA PPP healthcare shows that 82% of small and medium businesses do not have a health and wellbeing strategy in place. The report reveals that two-thirds of staff at SMEs experience stress or anxiety related to their job, while almost half said they continue to “power through” even when ill. On the impact a wellbeing strategy could have, half of the staff polled said they would feel less stressed, while 52% said they believe it would deliver an improvement in productivity. Tracy Garrad, CEO at AXA PPP healthcare, said: “The reality is small businesses make up more than half the UK’s workforce and their employees are crying out for greater support.” (Source: The Sun, 21/06/19)

Firms urged to act over IR35 – Employment law specialist Claire Scott says the introduction of IR35 tax reforms by HMRC “has the potential to cause increased costs and risks to businesses.” Although changes come into effect from April 2020, Ms Scott advises businesses to “act now, don’t delay.” She says firms “would be wise” to conduct an audit to establish how many contractors are engaged through Personal Service Companies and whether they are engaged directly or through an agency or other intermediary. (Source: Scotsman, 07/06/19)

The SEIS has raised more £800m for start-up companies – The Seed Enterprise Investment Scheme (SEIS) has raised more than £799m and helped 8,840 companies since April 2012, according to the latest data from HMRC, which supervises the scheme. SEIS was created after the global financial crisis to help small business considered high risk who could not source funding from banks. (Source: iExpats, 04/06/19)

Construction/property

Builders hit by decline in orders – Figures from Bibby Financial Services show that construction firms have seen order books shrink by a third over the past year. Subcontractors said that they had only 19 weeks of work in the pipeline, down from 27 weeks a year ago. Bibby’s study saw a quarter of firms identify Brexit as a significant threat on the horizon, with two thirds saying that they had not prepared for it. (Source: The Times, 12/06/19)

Newly listed asking prices back near record highs – The national average price of a newly marketed property has been pushed up by 0.3%, thanks to buoyant property markets in the north according to Rightmove. Despite Brexit uncertainty weighing down house price growth over the past year, the average price of a property coming on to the market was £309,348, close to June 2018’s record high of £309,439. Miles Shipside, director at Rightmove said that resilient markets in the north and Midlands are helping to boost average prices due to the “relentless strength of buyer demand”. “Buyers in four regions are seeing higher new seller asking prices on average than ever before,” he added. (Source: The Daily Telegraph, 18/06/19)

…which sees mortgage lending growing in solid start to the year – The value of new mortgage commitments rose 4.5% on a year earlier to £63.8bn in the first quarter, according to the Bank of England’s latest mortgage lenders data, which indicated that the outstanding value of all residential mortgage loans rose to £1.45bn – a 3.4% rise on last year. Despite the Prudential Regulation Authority airing concerns over “risky lending,” mortgage loans with a loan to value (LTV) ratio of more than 90% increased to 4.5%, compared with 3.3% the previous year. (Source: City AM, 12/06/19)

Buyers paying over the odds in stamp duty – Research by the Daily Telegraph suggests homeowners are being forced to pay excessive levels of stamp duty and then wait weeks for refunds. A Freedom of Information request submitted to HMRC shows that 43,187 people applied for a stamp duty refund in the 2018/19 tax year, with almost £400m handed back to those who paid too much in the period. The paper’s Adam Williams says the complexity of the system means many buyers may be failing to make claims for overpayments. A separate Freedom of Information request revealed that of the 43,187 refund requests, just 34,599 were processed within HMRC’s 15 working day target. Paula Higgins of lobby group the HomeOwners Alliance describes the stamp duty system as a “mess”, saying thousands of people are “being caught out, even though they have done nothing wrong.” (Source: The Daily Telegraph, 22/06/19)

Judge rules against stamp duty dodge – Property buyers who used annuities to avoid stamp duty could be pursued by the taxman, reports the Telegraph’s Sam Meadows, who points to a case where tribunal judge Victoria Nicholl threw out an appeal against a £30,600 bill. Instead siding with HMRC to rule that a process which saw a property paid for via a complex web of annuities and companies registered offshore was a contrived way to avoid tax. Mr Meadows says similar schemes have been promoted to the public by several firms. He goes on to say that while most schemes claiming to mitigate stamp duty are likely to fail, there are a number of ways to limit or eliminate the bill, including: buying a property worth less than £125,000; being a first time buyer; buying overseas; buying commercial property; or being gifted the property. (Source: The Daily Telegraph, 21/06/19)

Buy to let

Harsh mortgage deals for buy-to-let professionals – A crackdown on higher-rate income tax relief on mortgage interest for buy-to-let has led more landlords to consider moving their flats and houses into a limited company, the Sunday Times reports. However, those who do are facing substantially higher mortgage rates than those acting as individuals (2.99% compared with 1.81%). (Source: The Sunday Times, 16/06/19)

Scotland offers the quickest return on buy-to-let investment – Scotland offers the quickest return on buy-to-let investment, London estate and letting agent, Benham and Reeves has found. The annual rent returns the original asking price in 17.7 years in Scotland, 18.9 years in Northern Ireland followed by England (25 years) and finally Wales at 26.4 years. Marc von Grundherr, director of Benham and Reeves, commented: “What this research demonstrates is that while buy-to-let remains a lucrative business despite the government’s attempts, it should be viewed as a long-term one and not a method for making a quick buck.” (Source: The Scotsman, 04/06/19)

Manufacturing

Factory output slows – According to the latest industrial trends survey from the CBI, factory output almost ground to a halt in the three months to June. The business lobby group said that a net balance of 2% of businesses reported an increase in output during the period. This was down from 14% the previous month, when manufacturers were lifted by Brexit-related stockpiling. The CBI said that ten out of sixteen sub-sectors experienced growth. The balance of manufacturing businesses reporting higher-than-usual orders fell to -15% in June, down from -10% last month. (Source: The Times, 20/06/19)

Recruitment

Permanent placements dip – An employment survey by the Recruitment and Employment Confederation shows a fall in permanent staff placements in May, as well as the slowest increase in temporary roles in over six years. Vacancy rates stayed at an 80-month low, while starting salaries for permanent staff grew at their slowest rate in 25 months – although temp wages increased at the quickest pace for six months. (Source: 07/06/19)

High street employment up, but retail roles dip – Figures from the Office for National Statistics show that employment in high street businesses rose to almost 3m in 2017, up 10% from 2012. In the period, retail employment on the high street fell by 26,000 to 926,000, while the number of staff working in accommodation and food service activities on high streets rose to at least 130,000, a climb of more than 30%. Services industries, such as estate agencies and solicitors, saw an increase of 14%, adding a net 180,000 jobs. (Source: The Daily Telegraph, 08/06/19)

Regional jobs being created in financial services – A new report from TheCityUK has found that tens of thousands of jobs have been created away from London as part of a big shift since 2016. The trade body says the number of people employed in the financial services sector in Wales has jumped by more than a fifth – or 11,000. There has also been a 10,000 rise in the West Midlands, 12,000 in the East of England, and 24,000 in Yorkshire and Humber. In contrast, the number of financial workers in London has dropped by 10,000 since 2016, and by 32,000 across the South East of England. The research also revealed that there has been a 6,000 drop in financial services jobs in Scotland. (Source: Yorkshire Post, 06/06/19)

Technology

More cybersecurity startups join government-backed scheme – A scheme to provide support to cybersecurity startups has signed up 15 new members. The London Office for Rapid Cybersecurity Advancement (Lorca) opened last year with £13.5m in funding from the Department for Digital, Culture, Media & Sport. Lorca gives start-ups access to experts from the Centre for Secure Information Technologies at Queen’s University Belfast. (Source: The Daily Telegraph, 03/06/19)

AI to take on a fifth of jobs – A report from Harvey Nash forecasts the impact artificial intelligence will have on the jobs market, suggesting more than a fifth of roles will be overtaken by computers in the next five years. A survey of more than 4,000 technology leaders saw most respondents say that at least 10% of the workforce would be replaced by automated roles, with a third saying the rate would be 20%. (Source: The Daily Telegraph, 12/06/19)

Hospitality

One in ten go cashless – The latest UK Payment Markets report from UK Finance shows that one in 10 adults are living a largely cashless life, with this climbing to 17% among those aged 25 to 34. Last year, four in 10 payments in the UK were made by debit card, reflecting the popularity of contactless cards. It was also found that almost half of UK adults used mobile banking in 2018, up from 41% the previous year. At the same time, the number of bank payments made using online or mobile banking in 2018 grew to 2bn, up from 1.6bn in 2017. Additionally, an estimated 8.5m people were registered to buy goods and services using mobile payment services such as Google Pay, Apple Pay and Samsung Pay. A total of 39bn transactions were made in the UK last year by businesses and individuals, the report said, with 34.9bn by consumers and 29.7bn of these spontaneous, rather than scheduled payments. You can read more about this in our article about what the shift to cashless payments means for retail businesses.(Source: BBC News, 07/06/19)

Healthy restaurants to be served tax cuts – Government plans to combat obesity could see restaurants offering healthier options benefit from tax cuts. Ministers have backed measures which will see discounts on business rates for restaurants and cafes serving healthy food. Public Health Minister Seema Kennedy has backed five council-led programmes which will be rolled out nationally if they succeed. (Source: The Daily Telegraph, 25/06/19)

Poor weather hits UK sales – The Office for National Statistics has revealed that retail sales fell by 0.5% in May from a month earlier, after an unseasonably cold May prompted a sharp decline in summer clothing sales. In the three months to May, retail sales expanded 1.6% compared with the previous three-month period, the smallest annual rise since October. The downturn was led by a slide in Department stores sales, with sales falling by 0.9% in the three months to May, while clothing and footwear sales fell by 4.5%, the biggest drop since July 2015. Rhian Murphy head of retail sales at the ONS, said: “Retail sales continued to grow in the latest three months despite two consecutive monthly falls, with clothing sales declining considerably in May, due to unseasonably cold weather.” (Source: Financial Times, 21/06/19)

River Island calls for business rates reform – Clive Lewis, the chairman of River Island, has urged the government to reform the discredited business rates system, claiming it is “completely out of sync” with reality. Although business rates are meant to be based on the market rents that retailers pay on their premises, they have not fallen in tandem with decreasing rents because properties are normally only revalued once every five years. The latest revaluation happened in 2015. Mr Lewis claimed a so-called “transitional relief” scheme, which is supposed to protect retailers by smoothing out big changes in their rates bills, does not work quickly enough. Mr Lewis added: “In many places rents are 30 to 40% off their peak. Rates should reflect that and they should reflect that quickly.” (Source: Daily Mail 03/06/19)

Charity

Charity audit fees up £10m in four years – The UK’s largest charities paid audit fees of £72.3m in 2017-18, a rise of £10.2m in just four years, according to a report produced by Charity Financials. The Charity Audit Spotlight 2019 report showed that 33% of the UK’s top 5,000 charity organisations were hit by an increase in fees while 44% saw no change in fees and 19% saw a decrease. The latest data also revealed that 43% of charities have not changed auditor within the last decade. (Source: Accountancy Daily, 18/06/19)

Gift Aid hits record high of £1.35bn – The total tax relief claimed by charities in the year to the end of March went up to £3.79bn, an increase of £100m, according to new figures from the government. Gift Aid claimed by charities reached a record high of £1.35bn – a near £900m increase on 2017/18. The rise follows a campaign to raise awareness about how the system works following a warning from HMRC that charities were missing out on an estimated £560m of Gift Aid each year. (Source: Third Sector, 29/06/19)

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