ONS figures show surprise acceleration in UK economic growth

Figures from the Office for National Statistics (ONS) show that the UK economy grew by 0.6% in the second quarter of 2016 – significantly more than expected in the run-up to the EU referendum.

Many analysts expected growth to be slower due to the uncertainty surrounding Brexit, but the period between April and June saw the biggest jump in quarterly industrial output since 1999, with growth of 2.1%.

Construction output, however, fell by 0.4% – down from a 0.3% decline in the first quarter.

Overall, growth proved to be strongest in April.

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Chancellor Philip Hammond said that the Gross Domestic Product (GDP) figures ‘show that the fundamentals of the British economy are strong… so it is clear we enter our negotiations to leave the EU from a position of economic strength’.

He continued: ‘Those negotiations will signal the beginning of a period of adjustment, but I am confident we have the tools to manage the challenges ahead, and, along with the Bank of England, this Government will take whatever action is necessary to support our economy and maintain business and consumer confidence.’

The ONS stressed that the GDP figure was an initial estimate and is subject to revision.

In recent days, several indicators have suggested post-referendum difficulties for the economy. A flash survey of purchasing managers suggested economic growth had fallen at its fastest rate since the financial crisis, while a survey by the Confederation of British Industry (CBI) suggested that retail sales had fallen significantly in July.

However, pharmaceutical giant GlaxoSmithKline announced that it is to invest £275 million to expand its UK manufacturing sites, stating that the country remains ‘an attractive location’ despite Brexit.

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FSB sees opportunity to ‘double the number of small business exporters’

A report by the Federation of Small Businesses (FSB) claims that there is a ‘huge opportunity’ to substantially increase the number of small businesses that export goods and services to overseas markets.

The report provides a comprehensive review into how the UK’s small businesses interact with the global export market.

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It found that the proportion of small businesses exporting (21%) has remained static for many years, but that this number is now matched by those that would consider exporting (21%).

The FSB claims that this points to a potential to ‘double the number of small business exporters’, and it calls for the Government, the private sector, the finance industry and business associations to ‘focus on providing effective, targeted and tailored support’.

According to the report, the average annual turnover of an exporter (£935,921) was more than double that of a non-exporter (£390,028). However, the most common challenge facing small businesses in exporting is finding customers, followed by marketing their product to overseas customers – and one in five small firms that would consider exporting do not know where to go for support.

For existing exporters, the biggest challenge cited was foreign exchange rates.

Martin McTague, FSB National Policy Director, said: ‘Small businesses that export are more likely to survive, grow and innovate. But in addition to more traditional barriers, such as language and foreign exchange, businesses are having to deal with a rapidly-changing export landscape and the advantages and challenges brought about by e-commerce. Any support must be designed with this in mind and should be able to cater to a wide range of export needs, both for those currently exporting and for those considering doing so.

‘The Government clearly understands the need to promote exporting given the decision in late 2015 to refocus UKTI’s role and make exports a priority across Government departments. Small businesses are well-placed to make a significant contribution to the Government target to increase the value of exports to £1 trillion and support 100,000 new exporters by 2020. But the fact remains, many small businesses aren’t aware of the support available or how to access it.’

Mr McTague also called for ‘clarity on what the UK’s exit from the EU means for business, with particular emphasis on access to the single market and the free movement of people and trade’.

He added: ‘The majority of FSB members export to the single market which provides access to 500 million potential consumers, more than 26 million businesses and is worth around £9 trillion.’

Statutory Residence Test – know the rules…

Statutory Residence Test (SRT)

Since 6th April 2013 the tests that you need to ensure you meet with regards being non-resident for UK tax purposes became law, prior to this they had only been a guide.

The new rules do not have retrospective effect, but it could be the case that someone who has previously been considered to be non UK resident becomes UK resident from 6th April 2013.  There are a number of stages to the test and a variety of rules to apply in order to determine your status.

There are four main components to the Statutory Residence Test, which in summary are;

  1. Calculate the number of days you spend in the UK in the tax year, if this is more than 183 then you will be automatically UK resident.
  1. If you spend less than 183 days in the UK, you are non-UK resident for a tax year if you meet any of the automatic overseas tests.
  1. If you spend less than 183 days in the UK and you do meet any of the automatic UK residence tests you are UK resident.
  1. If none of the above tests have given a satisfactory answer then you need to look at the sufficient ties test.  This test essentially looks at whether you have ties which would deem you to be a resident in the UK.

The flowchart on the following page will help you to determine your residency status and go through each of the tests in more detail.

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Some key terms explained further:

Days Spent

An individual spends a day in the UK for SRT purposes if he is in the UK at the end of the day.  However, he is not treated as spending a day in the UK if the day is considered a transit day with no work or the individual is in the UK due to specified exceptional circumstances beyond his control for a maximum of 60 days. In certain circumstances an individual will be deemed to spend a day in the UK even though he is not in the UK at the end of the day.

Working full-time overseas (WFTO)

The individual must work sufficient hours overseas (average of 35 hours per week disregarding certain defined days) in the tax year with no significant breaks from overseas work and spend fewer than 91 days in the UK and work (in this instance for no more than three hours a day) in the UK for fewer than 31 days.

 All Homes are in the UK

An individual will be regarded as resident if the individual has a home in the UK for more than 90 days in which the individual is present on at least 30 separate days in the relevant tax year. In addition for 91 consecutive days, at least 30 of which are in the tax year, the individual must have no home overseas in which the individual is present on 30 separate days in the tax year. If the individual has more than one home in the UK, the test must be met in relation to at least one of those homes when considered separately from the other home(s).

Works Sufficient Hours in the UK (WSHUK)

The individual must work sufficient hours in the UK over a 365 day period (average of 35 hours per week disregarding certain defined days where all or part of the 365 day period is in the current tax year) with no significant breaks from UK work. More than 75% of the days in the period when the individual does more than three hours work per day must be worked in the UK and the individual must work for more than three hours in the UK on at least one day in the current tax year.

Workdays

A work day in the UK for the purposes of the SRT is a day on which more than three hours work is performed. Work includes incidental and non-incidental duties and most travel. There is a complicated test to determine whether an individual works sufficient hours in the UK or overseas for the WFTO or the WSHUK tests.

Although the distinction between incidental and substantive duties is not relevant for the purposes of the SRT the distinction remains important for the purposes of calculating the tax liability of employees. When the employee is regarded as being non UK resident, incidental duties will continue to be deemed to be performed offshore and only substantive UK duties are taxable.

 

 Sufficient Ties Test

When an individual does not meet any of the automatic overseas tests or any of the automatic UK tests, the individual’s residence will depend upon the number of UK ties (or connections) the individual has and the number of days spent in the UK.

UK resident family

A family tie exists if a person’s spouse, civil partner or minor child is resident in the UK in the relevant tax year. A person with whom the individual is living with as husband and wife or as if they were civil partners is also included. Where a minor child is UK resident because they are in full-time education in the UK, they will not be treated as UK resident for family tie purposes unless they spend more than 20 days in the UK outside of term time during the tax year.

Split years

Although an individual can only be regarded as resident for a complete tax year, special rules apply when an individual commences or ceases residence which are outside the scope of this flowchart. The tax year may be split in to an overseas part and a UK part for certain purposes.

Next Steps

 If you should have any queries please do not hesitate to contact our Tax Department who will be able to provide further assistance.

Contact us at  http://www.nhllp.com or call 01753 888211.

 

 

 

 

 

 

 

 

New Chancellor to open discussions with China over free trade deal

The new Chancellor, Philip Hammond, has revealed that the UK has begun discussions with China on a free trade deal. This could see a reduction in existing barriers to UK goods and service industries, such as banking and insurance, with China receiving greater access to UK-manufactured products and investment.
Such a deal could only come into effect after Britain has exited the European Union, and would be the first time the UK has embarked on such a significant project with China, which has the second largest economy in the world.

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Earlier in the month, Chinese state media reported that the Chinese Ministry of Commerce wanted to agree a free trade deal with the UK following the vote to leave the EU, and now Mr Hammond has confirmed that his Government is also interested.

Speaking in Chengdu, China, ahead of the G20 summit of finance ministers, he told the BBC: ‘We already have a strategic partnership with China. We have hugely increased our trade with China, investment both by British companies into China and by Chinese entities into the UK. That’s about as far as we can go while we are members of the EU.

‘But once we are out of the EU then I have no doubt on both sides we will want to cement that relationship into a firmer structure in a bilateral way that’s appropriate.’

Government officials are reportedly examining New Zealand’s free trade agreement with China as a potential model for a post-Brexit UK deal. That agreement took four years to negotiate and came into effect in 2008.

Mr Hammond also admitted that there had been ‘global disappointment’ about Britain’s decision to leave the EU, but insisted that other European leaders were not in ‘punishment mode’.

He added: ‘I have no doubt that everyone would want to see a very close relationship between the UK and the EU going forward because that will be good for the economies of the EU and the economy of the UK.’

Nunn Hayward: Our updated Key Guides series – July 2016

We are pleased to announce that our series of Key Guides has undergone a quarterly review and each one contains the most up-to-date and accurate information. These specialist publications provide you with expert content on topics ranging from starting and selling a business to strategies for a high tax environment.

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  • The taxation of investments: Take expert advice if you require more information or a greater insight into how to cut that tax bill.
  • Pensions freedom – drawing from your pension: A good way to understand the changes that took place in April 2015 is to look at the previous rules for drawing retirement benefits from defined contribution schemes.
  • Starting and selling a business: Rather than running the business alone, consider the benefits to having a partner or bringing in a co-shareholder.
  • Making the most of fringe benefits: Company car percentages are due to increase substantially over the coming years.
  • Working through personal service companies: If you have recently started working through a company and there is any chance whatsoever of IR35 applying, then ensure that your company’s year end is not going to result in timing issues.

For further information on any of the topics above and to view our full set of updated Key Guides, please visit our website http://www.nhllp.com. Or contact us to discuss any issues that may affect you on 01753 888211.

UK economy ‘deteriorating’ following Brexit vote, data reveals

The decision to leave the European Union has caused a ‘dramatic deterioration’ in the UK’s economy, research from financial data firm IHS Markit has suggested.

New data from the firm’s Purchasing Managers’ Index (PMI) indicates a fall to 47.7 in July – the lowest level in seven years. A PMI reading below 50 indicates contraction.

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The data was collected from a survey of over 650 services companies from a wide range of industries, including the transport, restaurant and computing sectors.

A decline in output and orders in the services and manufacturing sectors contributed to the low PMI reading.

Exports, however, picked up as the pound weakened.

Chris Williamson, chief economist at IHS Markit, said: ‘July saw a dramatic deterioration in the economy, with business activity slumping at the fastest rate since the height of the global financial crisis in early 2009.’

He added that the economy could contract even further during the third quarter of this year if the current economic slump continues.

Significant rise in self employment, ONS figures reveal

Self employment levels have risen considerably, according to new data from the Office for National Statistics (ONS).

Labour market figures show that, between March and May 2016, the number of self employed individuals increased by 300,000 to 4.79 million. The self employed now account for 15.1% of all people in work.

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Commenting on the data, Frances O’Grady, General Secretary of the Trades Union Congress (TUC), stated: ‘While it’s good to see more people in work, the huge increase in self employment raises questions about the nature of these jobs.

‘These newly self-employed workers are not all budding entrepreneurs.’

The data also revealed that unemployment reached its lowest level in more than a decade.

Between the months of March and May of this year, a total of 31.7 million people were in work – 176,000 more than for the three months to February 2016, and 624,000 more compared to a year earlier.

Furthermore, average weekly earnings, excluding bonuses, rose by 2.2%, in comparison to the previous year.