News Roundup Monday 7th October 2019
News Roundup Monday 7th October 2019
Netflix tax rebate questioned
Critics have questioned why streaming service Netflix was handed a €57,000 (£51,000) tax rebate last year despite the Government’s plan to make US tech giants pay more to the Exchequer. The rebate is the third UK tax credit Netflix, which funnels most of its UK turnover through the low-tax Netherlands, has been granted since launching a UK business in 2014. Netflix, which has more than 8m British subscribers, posted revenue of €48m at its UK arm for 2018, while analysis by research firm Ampere Analysis suggests that the firm generated about £500m from UK subscribers over the year. Prem Sikka, a professor of accounting at the University of Essex, said Netflix’s accounts which are published in the UK, “though legally compliant, are actually opaque.” He added: “You can’t see what they have done to get to a position where no profit is taxable or they’re declaring very low profits.” The issue, Prof Sikka suggests, “is just another reminder that the global system for taxing corporations is broken and needs urgent reform.” Shadow Chancellor John McDonnell has called for a crackdown to ensure Netflix pays its “fair share”, adding: “People will find it incredible that a company operating on this scale pays so little tax and rece ives a rebate.” The Telegraph notes that while the Government’s digital services tax plans will look to increase the tax take from large US tech firms such as Amazon, Google and Facebook, it is unlikely to target streaming companies such as Netflix and Spotify.
Think-tank: Tax cuts could offset Brexit disruption
Think-tank Open Europe has suggested leaving the EU with no deal in place would cause “short-term disruption” not widespread disorder and economic chaos. In its analysis of the impact of a no-deal Brexit, the body suggests income tax and corporation tax should be cut to help offset any economic disruption.
The Sun, Page: 8
IFS calls for fuel tax rethink
The Institute for Fiscal Studies has suggested that fuel duty should be scrapped and replaced by road pricing as revenues from the fuel tax will all but disappear if a 2050 target of most cars being electric or zero-emission is met.
The Guardian, Page: 41 Daily Mail, Page: 22 The Daily Telegraph, Page: 9 City AM, Page: 12
Stamp duty take down by £745m since 2017/18
HMRC figures show that stamp duty receipts for residential housing transactions fell by £745m between 2017/18 and 2018/19, slipping from £9.07bn to £8.32bn in the first year-on-year drop seen since 2008/09. Meanwhile, the FT suggests Boris Johnson “clearly has stamp duty in his sights,” with the Prime Minister reportedly considering scrapping it for certain price brackets.
IHT ‘here to stay’
The Telegraph’s Lauren Davidson suggests that when Chancellor Sajid Javid this week hinted that scrapping inheritance tax was “on his mind”, he was “merely taking his place in a long line of political panderers playing the ace.” She says despite a number of pledges over the years, the IHT threshold remains unchanged since 2009. Ms Davidson suggests that IHT is “a fruitful political bargaining chip” for politicians as it is “Britain’s most detested levy” She suggests that the tax is “a veritable fossil” and, although she hopes Mr Javid will “consign it once and for all to history,” she would not bet on it happening. Elsewhere, Richard and Judy in the Express believe scrapping the tax could be a vote winner, saying: “Passing the death sentence on the death tax would secure victory at a stroke.”
The Daily Telegraph, Money, Page: 2 Daily Express, Page: 20
Ministers urged to rethink tax relief rules
Campaigners are calling on ministers to offer greater support to people in part-time and low-paid jobs who are losing out on pension savings, with rules leaving 1.7m low earners without tax relief on their savings. Those affected earn between £10,000 to £12,500, enough to qualify for automatic pension enrolment, but not enough to pay income tax. As they have no tax deductions, they get no tax relief on their pension contributions – meaning their contributions cost 25% more than those on a slightly higher wage. Analysis shows that around two-thirds of the workers affected are women. Urging a rethink on the rules, signatories including former Pensions Minister Sir Steve Webb, the TUC and the Low Incomes Tax Reform Group have written to ministers, MPs and the Department for Work and Pensions.
The Sunday Times, Business and Money, Page: 5
Tax change ‘could get Britons moving’
Matt Kilcoyne, deputy director of the Adam Smith Institute, looks at fiscal policy that Boris Johnson’s government could consider, pointing to taxation as a starting point, with the tax burden at a 50-year high. He suggests a stamp duty rethink could be an option, saying the Prime Minister “could get Britons moving with a popular, positive and powerful tax cut.” On business tax he calls for reform related to investment, noting that firms buying paper and pens count that as a loss and it comes off the corporation tax bill immediately, but when they buy factory machinery or invest in future technologies, it doesn’t – saying firms are “effectively punished for showing foresight and attempting to improve productivity”. Mr Kilcoyne notes that reform in this area in the US saw investment climb by 17.5%.
Sugar on tax
In an interview with the Sunday Times, Lord Sugar says that while he admires firms like Apple, Amazon, Starbucks and Google for the way they have grown, “I would go and assess their profits and make them pay a tax on that assessment rather than what they declare, because they are dodging.” On his own tax affairs, Lord Sugar says: “I have no problem paying 40%-odd tax on income above a certain level. I posted a picture of a cheque for £50m for capital gains on Twitter to show people I pay tax.”
795k seek tax extensions
Analysis of HMRC data by UHY Hacker Young shows that 795,000 businesses and individuals asked for extensions on their tax payments as of June this year, with these accounting for £2.3bn which is owed to the taxman. UHY Hacker Young partner Clive Gawthorpe said: “With the economy putting both small businesses and personal taxpayers under so much pressure it’s no surprise that people are struggling with their tax bills.” He added concern that time to pay arrangements are difficult to broker and often inadequate in length. HMRC commented: “We work with these customers on a case-by-case basis to help them pay any outstanding debt back in an affordable way,” adding that more than 90% are completed successfully.
City AM, Page: 11
Housing Secretary: IHT is unpopular and unfair
Housing Secretary Robert Jenrick has described inheritance tax as “unfair” as it means people are taxed twice, suggesting that it is “particularly unpopular” because people want to be able to pass on more to their families. His comments come after Chancellor Sajid Javid last week suggested that he was considering scrapping IHT, saying that he understood the arguments against the charge. Mr Jenrick told Sky News that people “can see the fundamental unfairness of paying tax twice,” adding: “I can see why the Chancellor is interested in this one.” HMRC figures show 28,100 estates paid the tax in 2016/17 – a 15% rise on 2015/16 – while the tax is forecast to raise £5.3bn for the Treasury this financial year, accounting for 0.7% of all receipts the Government brings in.
The Times, Page: 14 The Daily Telegraph, Page: 2 Daily Mail, Page: 4 The Sun, Page: 2
Chancellor urged to focus on tax
Mark Littlewood, director-general of the Institute of Economic Affairs, says that while taxation is the “blankest part of the Tories’ canvas”, Chancellor Sajid Javid “does seem to have a greater desire to reduce and simplify Britain’s tax system than his immediate predecessors.” In a piece for the Times, Mr Littlewood says that the Chancellor must, ahead of his Budget, be guided by three principles on taxation: that any meaningful tax reductions cannot benefit all sections of society equally; making the tax code less complex will involve rescinding exemptions and loopholes typically exploited by the better off; and that the Treasury should make more of revenue-maximising arguments. Elsewhere, Roger Bootle, chairman of Capital Economics, says tax reform and tax cuts “should be an essential part” of the Government’s agenda, saying there “wasn’t enough t alk about tax” at last week’s Conservative Party conference. Writing in the Telegraph, he argues that low rates of both corporate and individual tax are required to “galvanise the economy and incentivise effort”. He calls on the Chancellor not only to reduce the average level of tax, but to also seek to reform the tax system.
Thomas Cook stores missed out on rate relief
The Telegraph’s Oliver Gill reports that EU rules prevented hundreds of Thomas Cook shops from accessing a tax break ahead of the firm’s collapse. More than 400 stores were liable for business rates relief as part of a £900m stimulus introduced by former Chancellor Philip Hammond. However, while the reduction applies to smaller high street premises, EU state aid rules make such reforms almost useless for larger companies, capping the amount they can save at €200,000 per company over a three-year period. Consultant Altus Group estimated 446 Thomas Cook shops had been excluded from cuts. John Webber, head of business rates at Colliers International, said: “Businesses like Thomas Cook are missing out,” adding that EU state aid provisions “make it very difficult for companies to claim the reliefs they need to keep their businesses moving forward.” Mr Gill says the cap on Brit ish business rates relief is likely to continue for the foreseeable future, whether a deal to leave the EU is agreed or not.
Thomas Cook paid advisers £20m as collapse neared
Thomas Cook sought help from more than 30 advisers as it sought to secure a rescue deal, including the Big Four accounting firms, 20 law firms and restructuring advisers. With the firm, which collapsed last month, spending more than £20m on the advisors, Shadow Chancellor John McDonnell said Thomas Cook staff and customers “will look on aghast at the feeding feast that has taken place at this company by accountants and advisers,” while MP Rachel Reeves, who chairs the business select committee, said the issue “raised serious questions about the role of auditors, consultants and advisers”.
Financial Times, Page: 1 The Sun, Page: 6
Airbnb pays £400k tax on £300m sales
Airbnb, which channels most of its profits through its Irish European headquarters, paid less than £400,000 in UK tax last year despite enjoying sales of more than £300m in Britain. Combined sales at Airbnb UK and Airbnb Payments UK – its two subsidiaries in Britain – grew by £80m last year, and it made pre-tax profits of £1.4m, marking a 5% increase. The firm paid £390,000 in tax, lower than in 2017 because of a deferred charge. Looking at taxation of online entities, the Sunday Times notes that the Treasury is introducing a 2% digital sales tax on large tech firms, with this set to be introduced next April in a bid to address concerns that such firms are failing to pay their fair share.
The Sunday Times, Business and Money, Page: 3
HoF faces closures
Most House of Fraser stores could be set to close, with papers from administrators EY showing that owner Sports Direct is either not paying rent or is about to end the leases for the vast majority of the department store chain’s remaining sites. Sports Direct paid administrators £90m for House of Fraser after it collapsed last year, taking control of 64 sites including 59 stores. The Sunday Telegraph’s Laura Onita notes that Sports Direct is seeking an auditor after Grant Thornton formally quit last month. If it fails to find one, she says, the retailer’s future as a listed company could be at risk.
The Sunday Telegraph, Business and Money, Page: 1
Tesco Bank lines up Kingman
Sir John Kingman is being lined up to be chairman of Tesco Bank, a move that would rule him out of the running to become governor of the Bank of England. Sir John last year led a review of the Financial Reporting Council prompted by a series of audit scandals, recommending that the regulator be replaced by an entity with greater powers.
The Sunday Times, Business and Money, Page: 1
Opinion: Thomas Cook right to seek advice
Anne Diamond in the Sunday Express questions Shadow Chancellor John McDonnell’s criticism of Thomas Cook after it was revealed that the travel firm spent millions of pounds on advisers as it sought to prevent its collapse. Mr McDonnell said it was a “disgrace that the accountants and lawyers were paid for their advice”, but Ms Diamond suggests that seeking as much expert advice as possible was the right call.
Sunday Express, Page: 31
1 in 4 small firms yet to review Brexit impact
Research from insolvency trade body R3 shows that almost a quarter of firms with fewer than 50 employees are yet to review the potential impact of Brexit on their suppliers or customers, compared to fewer than 1 in 20 companies with more than 250 workers. The poll of 1,200 senior decision-makers found that across firms of all sizes, one in six had not reviewed their trading partners. On Brexit planning, Mike Cherry, chair of the Federation of Small Businesses, said small firms are being made to wait for an update to the Government’s revised UK tariff schedule that would apply if no Brexit deal is agreed, saying this “must be published as a matter of urgency.” “The continued uncertainty is harming small firms’ ability to plan,” he added.
PERSONAL FINANCE NEWS
A quarter of adults spend half of wage on payday
Analysis by KPMG suggests that half of adults in the UK are forced to turn to credit cards, overdrafts or their partner to see them through to payday, with a quarter spending half of their income the day it’s paid into their bank. A look at payday outgoings places housing costs, utility bills and credit card or debt repayments as the most common.
Daily Mirror, Page: 51
Can I let my mother pay for our children’s school fees?
Paris Drew, a private client solicitor at accountants Kreston Reeves, offers an FT reader advice over lasting power of attorney.
FINANCIAL SERVICES NEWS
Car loan concern
The Sunday Telegraph reports that it may be the end of the road for cheap and easy car loans. Research by the paper suggests a “gathering storm” that comes as the Financial Conduct Authority prepares a clampdown on the market; industry experts flag mis-selling concerns; and Rachel Reeves, chair of the business, energy and industrial strategy committee, demands “far more transparency and greater scrutiny” of lending. Graham Hill, former director of the National Association of Commercial Finance Brokers, suggests claims managers are turning their attention to the motor industry as they look for the next PPI-type scandal. Justin Benson, head of automotive at KPMG, says more people buying more desirable cars with easy debt is a “kind of virtuous circle”.
Pace of housebuilding slows
Housebuilding across England has fallen to the slowest quarterly rate for three years, according to official figures from the Ministry of Housing, Communities and Local Government. Between April and June, there were around 37,220 new homes starting to be constructed across England, a drop of 8% year-on-year and 24% lower than at their peak in March 2007. The number of houses completed rose to the highest level in 11 years, by 8% over the year to 173,660. However, analysts warned the annual 1% decline in new housing starts was a leading indicator for a future downturn in completions.
Daily Mail, Page: 81 The Guardian
Withdrawal a symptom of uncertainty
Analysis shows an increase in the number of properties being taken off the market this summer, with withdrawals hitting a three-year high in June. The report, by software platform Reapit, looked at data from estate agencies Knight Frank, Countrywide, Savills and Marsh & Parsons and found that withdrawals in June were up 60% compared with June 2016, while August’s figure was 40% higher than three years ago and 20% up on last year. Gary Barker, the chief executive of Reapit, says Brexit uncertainty has played a part, adding: “With a new Prime Minister who has promised to help the property market, we’d hope to see more homes being listed.”
The Times, Page: 63
In the midst of a correction
The FT looks at the property market, citing a KMPG report suggesting UK house prices are likely to drop by around 6% in the event of a no-deal Brexit.
Chappell denies cheating the taxman
Former BHS owner Dominic Chappell has denied avoiding paying half a billion pounds in tax, having faced three tax evasion charges at a court hearing yesterday. It is alleged that he failed to register Swiss Rock, his bankrupt finance company, for taxes from the correct date, gave false information to HMRC, did not declare profits and failed to submit VAT returns. Mr Chappell is also accused of failing to pay corporation tax and personal income tax from dividends he received from Swiss Rock. He will go on trial in the High Court next year.
The Daily Telegraph, Business, Page: 35 The Sun, Page: 18 The I, Page: 65 Yorkshire Post, Page: 8
Pound would see Brexit deal boost
A Reuters survey of economists suggests that the pound will experience a post-Brexit bounce if the UK leaves the EU with a deal, but will see further losses against the dollar if no deal is secured. The forecast suggests that sterling, which was yesterday trading at around $1.23, would rally if the UK and EU agree a deal and trade between $1.27 and $1.34, but could dip to between $1.10 and $1.19 in a no-deal scenario. Shaun Osborne at Scotiabank said: “A lot of bad news is priced into the pound so we would expect a relief rally to some extent, if a deal is reached.”
Minister notes retail support
With BDO’s High Street Sales Tracker showing that high street shops saw their worst September for eight years as in-store sales fell of 3.1%, High Streets Minister Jake Berry has noted efforts to support retailers, saying: “Rapidly changing shopping habits are a challenge for high streets across the country. To support local retailers we’ve slashed business rates by one-third, bringing the total amount of business rate support to over £13bn since 2016.”
The Independent, Page: 35
Over-50s unaware of costs faced by younger people
Over-50s are being encouraged to boost financial support for younger relatives, with a new study saying people in the age bracket underestimate the cost of living faced by younger people. The study, by charity the Intergenerational Foundation and Yorkshire Building Society, shows that many over-50s are unaware that under-35s spend £203 – nearly two-thirds of their weekly budgets – on basics such as housing, utility bills and transport, with just 13% aware of the financial pressures faced by younger generations. Looking at support that could be offered, more than 70% of over-50s were unaware they could pass on £3,000 a year in tax-free cash as an exempted gift under inheritance tax laws. The Intergenerational Foundation has called for the annual limit to be raised to £11,900.
The Mail on Sunday, Page: 99
Uncertainty sees 11% drop in investment
Analysis by the National Bureau of Economic Research (NBER) suggests that Brexit uncertainty has seen business investment dip, with a decline of around 11% in the three years following the referendum. This, the report says, is equivalent to a £20bn hit to the economy. The NBER analysis also suggests Brexit-related issues have seen a 5% dip in productivity. Using data from Bank of England’s Decision Maker Panel (DMP) covering almost 6,000 firms employing 3.7m staff, the research found a 3.8% a year impact on business and suggests this results in an 11% cumulative hit to the economy. The paper says Brexit is “unusual, in that it generated persistent uncertainty,” with there still a lack of clarity on the eventual outcome.
The Daily Telegraph, Business, Page: 7
Contact Paul Southward.