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

Posted by
Rouse Partners
01.10.2019

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

Johnson looks to tax reforms to boost post-Brexit investment – Boris Johnson is expected to outline how the UK will “roll out the red carpet” for US businesses after Brexit by offering “the most competitive tax rates and the best skilled workforce in the hemisphere”. Speaking in New York, the PM will say: “As we come out of the EU, we are going up a gear. We are going to take advantage of all the freedoms that Brexit can give, whether that is new tax allowances for investment or speeding up public procurement contracts, or creating free ports and new enterprise zones, or devising better regulation for the sectors in which the UK leads the world.” Mr Johnson on Monday pointed to examples where the UK could diverge from EU regulations in the future, such as financial services or biotechnology. (Source: Financial Times, 24/09/19)

Pound climbs on hopes of a deal – The pound has hit its highest level against the dollar since July amid hopes a no-deal Brexit can be avoided. Sterling jumped more than 1% on Friday to over $1.24 against the dollar, its highest level in seven weeks. The pound was boosted after a report in the Times said the DUP, Northern Ireland’s largest political party, was prepared to abide by some European rules after Brexit. However, the DUP swiftly denied the claim. Despite this, sterling held on to its gains, and against the euro it was up 0.7% at over €1.12. (Source: The Times, 14/09/19)

FSB: Small businesses unprepared for no-deal Brexit – A UK-wide survey of small businesses by the Federation of Small Businesses (FSB) has found that almost 40% of small companies would be negatively affected by a no-deal departure – and of those only one in five has planned or prepared for disruption. Nearly two-thirds said they felt unable to plan because they were unsure about what to plan for. The FSB’s Mike Cherry said: “Ongoing uncertainty is to blame for preparations hitting the skids with the picture still not clear as to how the UK will leave the EU.” (Source: Financial Times, 27/09/19)

FCA launches no-deal helpline – The Financial Conduct Authority has set up a helpline for UK financial services firms to help them prepare for a no-deal Brexit. Nausicaa Delfas, an executive director at the FCA, said: “We expect firms to ensure they are ready if there is a no deal. If firms haven’t finalised their preparations, there is a risk they could be impacted.” (Source: The Times, 12/09/19)

Brexit: EU audit and accounting rules retained – A motion to approve draft legislation retaining EU accounting and audit law after the UK leaves the EU has been passed in the Lords. The statutory instrument (Statutory Auditors, Third Country Auditors and International Accounts Standards (Amendment) (EU Exit) Regulations 2019) also completes the process of extending powers to the UK’s competent authority, the Financial Reporting Council. It extends the FRC’s ability to regulate third-country auditors to include EEA and Gibraltarian auditors. It also puts beyond doubt that those EEA auditors who have already registered in the UK as statutory auditors will retain that status after exit. (Source: Hansard, 27/09/19)

Business services firms in pre-Brexit hiring spree – Accountancy and law firms have been on a hiring spree fighting for talent that can help them advise clients on the implications of Brexit. A survey by Manpower found that six out of nine industrial sectors and eight out of 12 UK regions had reported a rise in hiring plans for the upcoming fourth quarter, which includes the October 31 Brexit deadline. The recruitment firm’s poll also found the outlook for the finance and business services sector is up three points to 6%, its highest level in more than a year. (Source: The Sun, 10/09/19)

Banks only move 1,000 jobs despite Brexit exodus fears – Analysis by EY shows that large investment banks have so far relocated fewer than 1,000 jobs out of Britain despite fears that Brexit would see an exodus from the City. The reports says firms “still have significant work to do” before the scheduled Brexit date, with it suggested that around 7,000 jobs could shift from London to Europe “in the near future”. Previous long-term projections for job losses in financial services pointed to a worst-case scenario where up to 75,000 UK jobs were lost. Of 222 companies monitored by EY’s Brexit tracker, 92 have at some point suggested they were considering moving or had already moved operations or staff. Dublin is the most popular destination, followed by Luxembourg and Frankfurt. (Source: Financial Times, 20/09/19)

Duty-free shopping will return with no-deal – Holidaymakers travelling to countries in the European Union will pay no excise duty on cigarettes and alcohol in the event of a no-deal Brexit, the Treasury announced. (Source: The Times, 10/09/19)

Eurozone suffers biggest monthly fall in confidence ten years – Overall economic confidence in the eurozone fell to its lowest level in four years this month. Business confidence in Germany and Italy tumbled to a six-year low amid worries over shrinking order books, according to the European Commission. The fall in confidence was the steepest in ten years. (Source: The Daily Telegraph, 28/09/19)

Individuals

HMRC bonus glitch hits personal allowance – A quirk of the tax code system means that those earning around £70,000 to £80,000 and taking home a bonus risk being taxed at the same rate as someone with a salary of £100,000 or more. The issue stems from a glitch in HMRC’s system which means one-off payments are treated as the first of an increased salary, affecting the personal allowance a person can earn each year without paying income tax. The allowance is tapered and reduces as earnings increase beyond £100,000 and is removed entirely at £125,000. Sir Steve Webb of pension firm Royal London says: “HMRC has a habit of taxing first and asking questions later, and this is yet another example.” (Source: The Sunday Telegraph, 08/09/19)

Thousands more hit by tax penalties for breaching annual pension allowance – Several papers pick up on news that the number of pension savers landed with tax bills for annual allowance breaches has jumped by more than 40%. The Treasury has netted an extra £325m in tax after 26,550 people breached the annual pension savings limit in the 2017-18 tax year. An additional 4,550 pension savers breached the lifetime allowance of £1m, raking in £510m for the taxman. Tom Selby, a senior analyst at investment platform AJ Bell, says: “As we approach an inevitable general election, political parties need to reflect on the anti-savings message being given to the British public by these measures.” Separately, Ann Ashworth says in the Times that the over-complex pensions system is in itself becoming a disincentive to save. (Source: The Times, 28/09/19)

HMRC sees record £5.4bn IHT take – HMRC pulled in a record £5.4bn in inheritance tax (IHT) in 2018/19, marking a £166m – or 3% – increase on the previous year. Rising property prices and an unchanged tax-free allowance has meant more people are paying IHT than ever before. More than 28,000 estates were subject to the death duty in 2016/17 – a 15% increase on the year before – according to the latest HMRC figures. While 4.2% of UK deaths resulted in an inheritance tax bill in 2015/16, 4.6% did in 2016/17, with the Revenue noting that this falls short of the historic high of 5.9% in 2006/07. Estates valued at £1m or more accounted for 72% of the total inheritance tax paid in 2016/17 and represented 3% of estates requiring probate while estates valued at less than £1m accounted for £1.4bn of inheritance tax and around 97% of all estates requiring probate. Experts have said the inheritance tax boom is likely to continue, despite new protections that allow families to pass on more of their property wealth without incurring tax. (Source: The Daily Telegraph, 20/09/19)

Tax warning for contractors – Contractors and freelancers have been advised to review their paycheques after three television presenters who worked for the BBC “off payroll” through a personal service company were ordered to pay bills linked to tax avoidance. HMRC has seen a number of similar cases go to court, with the Revenue claiming that freelance workers have breached IR35 tax avoidance legislation aimed at contractors working for a single company, who are employees in all but name. Julia Kermode, the chief executive of the Freelancer and Contractor Services Association, says the cases “may deter businesses from engaging people who work for themselves and may deprive companies of the vital skills they need.” (Source: The Times, 21/09/19)

HMRC warns universities over tax scams aimed at students – HMRC has warned that students could be the target of tax scams and has written to universities advising them to warn new students about scams designed to steal money and personal details. HMRC received reports of more than 620,000 tax-related email scams last year, an increase of 20,000 on the previous year. The Revenue warned that thousands of these targeted students, with methods including fake tax refund emails sent from seemingly legitimate university email addresses. (Source: The I, 21/09/19)

Knowing the financial calendar can save you hundreds of pounds a year – The Telegraph discusses how consumers can save hundreds of pounds a year on savings, mortgages, insurance and banking by picking the right time of the year to shop round. According to the paper, the best rates for residential and buy-to-let mortgages tend to come out in the final four months of the year while the best current account cash switching deals come out towards the end of the year or the beginning of the new one. The optimum time to shop around for Isas is during the run-up to the end of the tax year on April 5 and the best rates for regular savings accounts come out in the Autumn. Finally, according to Moneysupermarket, last year the best month to buy insurance was February and the most expensive was December. (Source: The Daily Telegraph, 12/09/19)

British citizen in UK court challenge to US tax evasion regime – A US-born British citizen has brought a legal challenge against HMRC over the passing of personal data to its counterpart in the US, claiming the move breaches her rights under GDPR. (Source: Financial Times, 13/09/19)

Businesses

HMRC issues warning letters over missed MTD deadline – The taxman has issued over 100,000 TV licence-style warnings to self-employed people who failed to submit their tax returns online using specialist software. In total, 1.2m businesses will be forced to comply with the new Making Tax Digital (MTD) regime. About 490,000 should have completed their first return by August but 120,000 have yet to register. An HMRC spokesperson said: “We want businesses to join MTD without fear of getting it wrong – HMRC are not penalising those transitioning. Our letters are the latest in a series of communications to encourage those remaining businesses to join the 1.1m who already have signed up and ensure they know how to access support to do so if they need it.” (Source: The Daily Telegraph, 12/09/19)

Business saw drop in activity in Q3 – The CBI’s latest growth indicator shows that a balance of 6% of companies across services and manufacturing reported a drop in sales or output volumes in the three months to September. For the three months to December, a balance of 16% expect falling volumes. “Decision-makers in boardrooms across the country have been watching politics this week with a heavy heart,” said Rain Newton-Smith, the business lobby’s chief economist. “Despite all the noise, what must not be forgotten is the importance of getting the UK economy back on track.” (Source: The Sunday Times, 29/09/19)

VAT crackdown on SMEs nets £4.4bn – HMRC collected an extra £4.4bn from SMEs following investigations into the underpayment of VAT last year, up 18% from £3.8bn collected in 2017/18, according to tax investigation insurance firm PFP. The firm said the growth in the “VAT gap”, which reached a record high in 2017/18 of £12.5bn, up 13% from £11.1bn the previous year, has resulted in HMRC becoming increasingly aggressive in pursuing underpaid VAT. (Source: City AM, 09/09/19)

FSB warns of ‘business crime crisis’ – The Federation of Small Businesses (FSB) has urged the Government to boost police funding, saying more officers are needed to combat a “business crime crisis”. This comes after a poll of members found that half have been victims of crime in the past two years. The survey revealed that traditional crimes – which exclude more modern threats such as cyber-attacks – had cost small businesses an average of £14,000 over two years. FSB chairman Mike Cherry commented: “Over the next five years, we want to see progress towards around an additional 85,600 police officers hired, which can be used to tackle some of the criminal acts that are costing businesses billions every year.” Mr Cherry said that Prime Minister Boris Johnson’s pledge to increase the total of officers by 20,000 over three years at a cost of £1.1bn is “a step in the right direction”. (Source: The Daily Telegraph, 04/09/19)

Construction/property

Construction industry output drops to a decade low – The UK’s construction industry suffered its sharpest decline in new work in more than a decade last month, with clients delaying projects as they await clarity over Brexit. The IHS Markit/CIPS UK construction Purchasing Managers’ Index (PMI) fell to 45, from 45.3 in July, below forecasts for 45.9, and below the 50-mark separating expansion from contraction. The measure of new orders declined from 44.6 to 40, the lowest since March 2009. (Source: The Times, 04/09/19)

…but house prices and mortgage approvals up – Figures from Halifax show that average UK house prices rose by 0.3% in August compared with July, hitting £233,541, with prices 1.8% up year-on-year. Over the three-month period covering June through August, prices rose 0.1% compared with the three months before. August’s average sale price falls £654 short of the £234,195 peak reached in February. Meanwhile, HMRC figures show that there were 86,630 home sales in July, a 12% dip on the number recorded in July 2018, while Bank of England data reveals that mortgage approvals have grown slightly, climbing to 67,306 approvals in July – a 1.2% increase on last year’s figures. (Source: City AM, 07/09/19)

While some buyers hold back hoping for stamp-duty reform – The Sunday Times talks to estate agents about the current housing market paralysis. This is not just to do with Brexit, they say, but because of the possibility of imminent stamp-duty reform. One agent says a buyer wants to delay completion until November 1, “just in case stamp duty is changed in October”. Transaction figures released by HMRC for July show residential deals are down 11% on last year. With a general election now also on the cards, the uncertainty looks set to continue for a while. (Source: The Sunday Times, 01/09/19)

High LTV mortgages return to 2008 levels – The number of high loan-to-value (LTV) mortgages has hit the highest level since the financial crisis, according to new figures from the Bank of England. Mark Gordon, director of mortgages at Comparethemarket.com, said: “For many, these may be their only route onto the property ladder.” But some analysts fear if house prices fall people could quickly find themselves in negative equity. (Source: Daily Express, 11/09/19)

Buy to let

Landlords urged to sell BTL properties before tax changes – Landlords have been told to consider selling their buy-to-let properties now before new rules due to come into effect in April 2020 hit their incomes. Tax advisers say the scrapping of tax reliefs will mean landlords face higher charges when they eventually sell so it may be wise to sell up now while the relief remains in place. After April, capital gains tax protections will be reduced, with reforms to include a change that will see private residence relief halved. (Source: The Sunday Telegraph, 22/09/19)

But holiday-home businesses on the rise – An increased number of people are shifting towards holiday-home businesses and away from buy-to-let due to a reduction in tax benefits. Holiday-let home-owners, however, are still able to offset expenses from insurance and water rates to crockery, linen and cutlery, as long as their property is available to rent as a furnished holiday home for 30 weeks in the tax year and is actually rented out for at least 15 weeks. (Source: Daily Express, 27/09/19)

Taxing time for accidental landlords – The Times explores the impact upcoming changes to capital gains tax (CGT) will have, highlighting that homeowners who rent out a property they used to live in face bigger tax bills when they sell up. Rules that come into force in April 2020 that bring changes to private residence relief will mean separating couples, people who have bought a second home before selling their first one and accidental landlords could face unexpected tax bills. Analysis shows that an accidental landlord who owns a property that gained in value by £350,000 over nine years will pay £20,000 more if they sell after the changes, while a couple with a property that that gone up by £2m over 10 years will pay £76,000 more. Lettings relief is also set for reform, and will be now limited to people who rent out a room in their home, which is a very small fraction of the market. (Source: The Times, 21/09/19)

Taxman target tenants to help settle their landlords’ tax bills – HMRC has been writing to tenants of properties owned by overseas landlords informing them that they may have to help pay for their landlords’ tax bills by withholding rent. Letters sent to tenants demand personal information and details about how long they have been at the property and how much rent they pay. The letters give no indication of whether tax is actually overdue or not. An HMRC spokesman said: “These letters form part of targeted compliance activity to ensure that offshore owners of UK property are aware of and comply with their UK tax obligations.” (Source: The Daily Telegraph, 14/09/19)

A tip for married landlords – The Times discusses how many married couples are unaware that, if they buy property to let, they should do so as tenants in common with the person liable for the least tax owning the larger share. This can substantially increase the profit they make from rent. However, couples should be aware that HMRC will assume they share income from the property on a 50-50 basis unless they provide a declaration of interests and income (income tax form 17). (Source: The Times, 28/09/19)

Manufacturing

Car-making up for first time in a year – Car production increased by 3.3% last month, the first rise in more than a year. Some 92,158 vehicles were built in August, said the Society of Motor Manufacturers and Traders. However, Mike Hawes, chief executive of the SMMT, said: “Today’s figures mask the underlying downward trend.” (Source: The Times, 26/09/19)

But manufacturers predict decline over next three months – UK factories are continuing to struggle, according to the latest monthly CBI Industrial Trends Survey, weighed down by Brexit and the global manufacturing slowdown. The survey found that output expectations this month are at their lowest level since April 2009. Order books weakened and stockpiling reached the highest level since the downturn. Anna Leach, deputy chief economist at the CBI, said: “UK manufacturers have become noticeably gloomier in September.” (Source: The Times, 25/09/19)

Recruitment

Tech boom to create millions of new jobs – A boom in the science, technology and healthcare industries will create millions of new jobs for Britain’s post-Brexit economy and generate billions in output, according to analysis by BNP Paribas and the Centre for Economics and Business Research (CEBR). Manchester and the East of England will see a flood of investment over the next two decades and 2.7m jobs will be added to the economy by 2038. (Source: The Daily Telegraph, 09/09/19)

Earnings growth hits decade-high – UK unemployment was just 3.8% for the period between May and July, according to the Office for National Statistics (ONS), a 45-year low. Despite the slowdown in the UK economy, lower unemployment helped boost wages when bonuses are included by 4% – the highest since 2009. The increase means that real total pay, including inflation, rose at 2.1% in the period. However, the number of job vacancies fell to 812,000, the lowest level since the end of 2017 and the fastest fall for more than eight years. (Source: Daily Telegraph, 11/09/19)

One in 20 workers get no holiday pay – Research by the Resolution Foundation think-tank suggests that more than a million workers in Britain do not receive any of the holiday pay they are guaranteed by law. The report says as many as one in 20 workers did not receive any holiday pay despite being entitled to at least 28 days a year. It was also found that some workers are unable to calculate whether they are receiving the right level of pay as almost one in 10 do not receive a payslip. HMRC figures show it has identified 200,000 cases of workers not receiving the minimum wage. (Source: The Times, 16/09/19)

Technology

Tech firms ready for no-deal, suggests survey – A survey by techUK suggest that nearly all of Britain’s largest technology companies are now prepared for a no deal Brexit. Research involving the industry group’s members, which include Google, Facebook and Amazon, as well as British companies such as Sage and ARM, found that 87% of large firms are now either fairly or very prepared for a no-deal Brexit at the end of next month. Smaller businesses are less ready, however, with more than half of those with fewer than 50 employees yet to put anything in place in readiness. A third of medium-sized businesses have taken no active steps for a no-deal. The survey also found that around 70% of techUK members believe a no-deal scenario will be harmful to their business. (Source: The Daily Telegraph, 14/09/19)

AI investment reaches record figures in the UK – Figures compiled by Tech Nation show UK artificial intelligence companies secured a record $1bn (£803m) of investment in the first six months of the year, pushing the UK into third place globally behind the US and China. Funding during the first half of this year has already surpassed the whole of 2018 and has risen six-fold since 2014. UK start-ups have raised almost double the amount achieved by their competitors in France, Germany and the rest of Europe last year. (Source: The Daily Telegraph, 10/09/19)

Sage acquires AutoEntry – Following a two-year partnership with Sage, Dublin-based AutoEntry has been bought by the enterprise software company. AutoEntry automates data entry for accountants, bookkeepers and businesses. The automation solution is currently used by more than 3,000 accounting and bookkeeping practices, and it services in excess of 150,000 businesses. According to Sage, AutoEntry will be offered to its customers worldwide in the coming months. (Source: Silicon Republic, 28/09/19)

Hospitality

Bailiff figures prompt business rates call – The Chancellor is being urged to ease the burden of business rates after research by real estate adviser Altus Group has found that local councils sent bailiffs to more than 78,000 companies that have struggled to pay business rates across England in the year to the end of March. This equates to 310 incidents a day. Altus said around one in 16 of all business premises faced having goods seized by bailiffs last year, when stripping out those which receive small business rates relief. Altus calculates that business rates could increase by £536m for 2020/21 if the headline rate of inflation of 1.7% remains unchanged in September. Robert Hayton, head of UK business rates at Altus, said: “It’s not the mechanics of the rating system that is of primary concern of business but the level of the actual bills.” He noted that commercial property is “already making a significant contribution to tax revenues”, adding : “With the highest property taxes across the EU, the Chancellor should recognise this in his upcoming autumn Budget by removing the automatic inflationary increase.” (Source: The Guardian, 23/09/19)

While retailers also hit by rate refund delays – The Times says retailers face a £115m hit to their cash flows because the business rates process is delaying overdue refunds. The government introduced a system for companies to “check and challenge” their rates bill two years ago, but this has delivered a huge backlog of appeals, with statistics showing that the number of outstanding appeals has risen six-fold. Analysis by property group Colliers International shows that the valuation tribunal cleared just 13 appeals between April and June this year, with 123 claims outstanding. Experts forecast up to 40,000 appeals against the 2017 valuation. John Webber, head of business rates at Colliers, claims that the Valuation Office Agency is now focusing on values for the forthcoming 2021 revaluation, with case workers being reassigned from appeal work to deal with this. (Source: The Times, 23/09/19)

Cash concern for small retailers – The Mail on Sunday looks at the impact changes to payments and a move away from cash are having on small retailers, saying it is not only consumers facing the “significant effect” of an increasing shift toward card and electronic payments. They highlight how some banks have increased fees for handling cash takings and note that with more than 6,000 branch closures over the past decade, retailers are finding it harder to find somewhere to bank cash. Matt Dickinson, of the Federation of Small Businesses, comments: “Communities should have a right to choose how they pay for goods.” (Source: The Mail on Sunday, 08/09/19)

Restaurant insolvencies climb – Analysis shows that the number of restaurants collapsing into insolvency has risen by 25% in the last year. Figures show that around 1,410 restaurants went insolvent in the year to the end of June. Previous research found that the UK’s top 100 restaurants made an £82m loss in the last year, down from a pre-tax profit of £102m in the 12 months before. (Source: City AM, 16/09/19)

Retail sales continue to slide – Retail sales fell for the fifth consecutive month in September, down 16% according to the latest CBI Distributive Trades Survey, which also indicates that even internet sales growth eased in the year to September. (Source: The Times, 26/09/19)

Art worth £60m goes to UK museums and galleries in lieu of tax – This year’s report from Arts Council England (ACE) reveals that objects and collections with a total value of £60m have been given to the nation under the Government’s Cultural Gifts Scheme, which allows donors to receive a tax reduction in exchange for their donations. They include portraits by Rubens and Hogarth, a Damien Hirst sculpture, Chippendale furniture and the archives of Clement Attlee and Tony Benn. However, Edward Harley, who chairs the government’s acceptance in lieu panel, said that large companies were not participating in the cultural gifts scheme and could do more to contribute to protecting the UK’s cultural heritage. (Source: The Guardian, 12/09/19)

Charity

People gift more to small charities following scandals – Since a string of scandals at the top of international charities people have been giving more of their money to smaller organisations, new figures show. Some 10,428 charities were named in wills in 2018, with people “beginning to question more who they are giving their money to,” according to Rob Cope, a director of Remember a Charity. He added that since 2012, if a person leaves 10% of their estate to a charity, inheritance tax is 36% rather than 40%. “It costs less to give more,” said Mr Cope. (Source: The Daily Telegraph, 09/09/19)

Time for charities to comply with the rules – The Yorkshire Post criticises charity trustees for failing to ensure their organisations’ books are properly examined. The Charity Commission has found “significant failings” in the accounts of a sample of charitable organisations. The paper says that with public confidence in the charity sector at a low ebb “it is vital that trustees use their positions of strength to ensure staff not only adhere to charity law but more than comply with its obligations.” (Source: Yorkshire Post, 28/09/19)

Gift Aid donations hit record – Data from the Office for National Statistics shows that taxpayers made record-breaking gift-aided donations of more than £5.4bn to charity last year, to which HMRC added £1.35bn. (Source: The Times, 21/09/19)

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