On 6 April 2017, a new set of IR35 rules came into force for public bodies. Essentially, HMRC was no longer going to allow the public sector to take contractors operating through Limited Companies at their word that they were playing fair with employment status law. Bradley Post, Managing Director at Rift Tax Refunds explains for Finance Monthly.
Under the new rules, it's either the public body itself that has to make the IR35 decision, or the agency involved if there is one. If a public body decides that IR35 applies, then the body itself starts taking tax and National Insurance payments out of the contractor's pay, as they would for any employee.
HMRC created a called Check Employment Status for Tax (CEST) to help with making these assessments simple and accurate. However, a year later we’re seeing complaints from contractors that they’ve been wrongly classified and so are being over taxed.
Recent figures obtained under FOI show 54% of CEST results say IR35 doesn't apply, meaning that that under the terms of the working relationship the contractor should be classified as an employee. Hirers, though, simply aren't trusting CEST's judgements. Worse still, a lot of them aren't even trying to use it, instead making blanket decisions to class everyone as an employee, with many public bodies saying they felt they hadn't had enough preparation time or support to take on their new legal responsibilities.
TfL, for instance, reacted by banning off-payroll payments to Personal Service Companies altogether. Worse still, there's plenty of evidence of blanket judgements being made. Essentially, public bodies are simply assuming IR35 applies in all cases, hence the thousands of contractors being overtaxed. Many contractors are raising their rates to cover the extra tax they're paying. Others have simply refused to take on public sector work, leading to project delays or outright cancellations.
Crucially, only about half of assessments have gone through any compliance tests at all. In fact, CEST was a factor in just 24% of assessments made - partly because of blanket decisions and partly because the tool wasn't ready when the assessments took place. In an environment that relies on voluntary compliance, what's developing is a shocking lack of trust.
In reaction to this a number of contractor websites are now sharing information on “how to pass the IR35 check” using the CEST tool, but “contriving a pass” is a dangerous route to go down and won’t protect an individual from a status challenges if HMRC believes an individual deliberately answered questions incorrectly.
Honestly, from HMRC's point of view, the CEST roll-out has been pretty much a success. Of course, the only way they seem to measure that is in how much additional revenue it pulls in. The thing is, the raw numbers don't tell the full story here. Since wrongly overtaxing contractors has the same effect, it's thin evidence at best that actual compliance is being boosted.
While tax revenue has risen, the door's been opened on a whole new kind of non-compliance – this time on the part of hirers. Meanwhile, HMRC's upbeat outlook has a lot of people more worried than ever about a private sector roll-out – perhaps as soon as 2019. If that did happen, it could mean some upheaval for contracts and projects already in progress. Judging from the continuing turmoil in the public sector, it's going to take careful consideration and planning to avoid falling down the same rabbit-hole. At the same time, private organisations will face the same legal threats and consequences as public bodies.
If the new system hits the private sector as many expect, it'll take effective guidance and comprehensive support from advisers to defuse the ticking IR35 timebomb.
In light of Donald Trump’s dramatic withdrawal from the Iran Nuclear Deal, Katina Hristova examines how the pullout can affect the global economy.
As with anything that he isn’t fond of, US President Donald Trump hasn’t been hiding his feelings towards the Joint Comprehensive Plan of Action between Iran and the five permanent members of The United Nations Security Council plus Germany. Pulling the US out of the agreement on the nuclear programme of Iran, which was signed during Obama's time in office, is something that Trump has been threatening to do since his 2016 election campaign. And he’s only gone and done it. Earlier this month, he announced America’s immediate withdrawal, saying that the US will reimpose sweeping sanctions on Iran’s oil sector and that “Any nation that helps Iran in its quest for nuclear weapons could also be strongly sanctioned by the United States”. And as if this isn’t alarming enough, President Trump has also said that the US will require companies to ‘wind down’ existing contracts with Iran, which currently ranks second in the world in natural gas reserves and fourth in proven crude oil reserve, in either 90 days or 180 days. This would hinder new contracts with Iran, as well as any business operations in the country.
Since Washington’s announcement, signatories of the Iran Nuclear Deal, still committed to the agreement, have embarked on a diplomatic marathon to keep the deal alive. On 25 May, Iran, France, Britain, Germany, China and Russia met in Vienna in a bid to save the agreement.
So how will this hurt the global economy?
Deals worth billions of dollars signed by international companies with Iran are currently hanging by a thread. The main concern on a global scale is that the US’ decision threatens to cut off a proportion of the world’s crude oil supply, which has already resulted in an increase in oil prices, with crude topping $70 a barrel for the first time in four years.
Additionally, European companies like Airbus, Total, Renault and Siemens could face fines if they continue doing business with Iran. Royal Dutch Shell, who is investing in the Iranian energy sector, is potentially one of the biggest companies to be affected by Trump’s withdrawal which could put billions of dollars’ worth of trade in jeopardy. As The Guardian points out: “In December 2016, Royal Dutch Shell signed a provisional agreement to develop the Iranian oil and gas fields in South Azadegan, Yadavaran and Kish. While drilling is still a long way off, sanctions are likely to put any preparations already being made on ice.”
French company Total, who’s involved in developing the South Pars field, the world’s largest gas field in Iran, is in a similar situation.
Airbus and Boeing, two of the key players in the international aviation industry, have signed contracts worth $39 billion to sell aircraft to Iran. As The Guardian reports, the most significant deal is an agreement by IranAir to buy 100 aircraft from Airbus.
A spokesman from Airbus said that jobs would not be affected. “Our [order] backlog stands at more than 7,100 aircraft, this translates into some nine years of production at current rates. We’re carefully analysing the announcement and will be evaluating next steps consistent with our internal policies and in full compliance with sanctions and export control regulations. This will take some time”. Rolls Royce is also expected to be indirectly affected if Airbus loses its IranAir order, as the company is the key engines provider to many of those aircraft models.
Another European company that will be hurt by the sanctions announcement is French Renault and PSA, who owns Peugeot, Citroën and Vauxhall. When sanctions were lifted back in 2016, Renault signed a joint venture agreement with the Industrial Development & Renovation Organization of Iran (IDRO) and local vehicle importer Parto Negin Naseh, worth $778 million, to make up to 150,000 cars in Iran every year. This is one of the largest non-oil deals in Iran since sanctions on the country were lifted. Last year, local firm Iran Khodro also signed a deal with the trucks division of Mercedes-Benz, with car production scheduled for this year.
Iranian firm HiWEB has been working alongside Vodafone to modernise the country’s internet infrastructure, but it looks like the partnership will have to be reconsidered.
The consequences
The White House and President Trump appear aware of the danger that a rise in oil prices on an international level pose to the economic growth of the Trump era, however, they also seem ready to embrace the economic and geopolitical challenges that are to follow. Although the consequences of US’ Iran Deal pullout are not perfectly clear in the short term, they will undoubtedly become more visible as sanctions take effect. The deal has its flaws, however, completely withdrawing from it and threatening the US’ closest allies can only compound those issues and create new ones. It is hard to predict what will unfold from here and where Trump’s strategy will take us. The one thing that is certain though is that the world doesn’t need more hostility.
Ordering a product recall can give even the hardiest CEO cold sweats, yet if the latest BMW recalls tells us anything it’s that a lengthy delay can cause even more problems. How should businesses approach a recall and what are the best ways of preventing a quality failure? Vincent Desmond, CEO of the Chartered Quality Institute (CQI), discusses with Finance Monthly.
For CEOs and other senior management life is complex in the current climate. There is a confluence of consumers and customers expecting rapid innovation and change in products and services, while at the same time any mistakes are increasingly likely to be held up to public scrutiny. This is all taking place in a globalised backdrop where information can be spread quickly and effectively online.
The questions for any CEO and senior management team confronted by a potential recall, therefore, are; how far are we willing to gamble with trust? What does our response say about us as an organisation and how will that impact our long-term sustainability? What systems can we put in place to prevent similar issues recurring?
With any product or service issue understanding what the fault is, how many people could be affected and what the risk is will be established in the first instance. On a moral level it’s cut and dried. Doing things that aren’t in the interests of your customers or wider society, particularly those that lead to loss of life is morally indefensible. From a societal and business perspective, however, there are mixed messages.
In the case of BMW, the decision was made in 2011 that they would recall vehicles due to an electrical fault that could lead to complete loss of power in some models in the US and other markets, but not the UK. The death of former British soldier, Narayan Gurung brought this decision to light after he swerved to avoid a BMW suffering an electrical failure. Subsequent media attention led to an initial recall of 36,000 vehicles in 2017 and a BBC Watchdog investigation led to the carmaker recalling a further 312,000 in May this year.
“In essence, BMW appears to have taken a short-term view to avoid the costs of a major UK recall. This will have been informed in part by conditions in the UK where the cost of litigation tends to be a lot cheaper and Government issued compulsory recalls are uncommon. One of the questions that remains unanswered, however, is what will be the longer-term impact on the BMW brand, as a result of this decision and the way it has been handled?
Whereas in the business to business market reputational issues have led to swift punitive actions, such as in the case of Bell Pottinger and Cambridge Analytica, the behaviour of consumers has proved much more difficult to judge. Despite controversy around the Volkswagen emissions scandal for example, the company sold a record 2.7 million cars in the first three months of 2018.
A decision-making process that focuses exclusively on the short-term concerns of the existing executive and financial stakeholder only, however, will inevitably impact long-term sustainability. For any leadership team this is the point at which you need to go back and establish what are our values and are they informing our decision-making process? More so than ever before, businesses, need to consider their impact on customers, wider society and the environment not just short-term returns.
For organisations such as BMW and Volkswagen, who trade on their German engineering heritage, taking a new approach to commercial realities is essential. With shorter development times and product cycles, the focus needs to be on prevention rather than cure. This is where extra emphasis at the quality planning stage, identifying and avoiding risks before they occur will pay dividends.
Potential product recalls cannot be judged in isolation. It’s in the long-term interests of organisations that CEOs and senior management take a systemic view of how to deliver for all stakeholders upfront, to avoid having to remedy issues at a later stage.
The arrival of the GDPR (General Data Protection Regulation) is less than a week away. However, many businesses are still not prepared for the legislation shake-up that could see huge sanctions imposed for non-compliance. Experts at UK based IT support solutions company, TSG, explain for Finance Monthly what the key considerations are when it comes to the finance sector.
If your business is unprepared for GDPR, you are not alone. A Populus survey conducted only this year revealed that 60% of UK businesses do not consider themselves “GDPR ready”. It’s definitely not too late to put measures in place to ensure compliance with the regulation. Following the introduction of GDPR on 25th May, complying with GDPR will be a continuous journey.
What are the key areas you should be considering in light of the looming GDPR deadline?
Cyber-security tops the list
In this digital world, we produce, store and disseminate huge amounts of data. And a significant portion of that will be Personally Identifiable Information (PII); this is the data that matters under GDPR.
Even if, as a business, you don’t store customers’ sensitive data, you’ll still store the data of your employees. Therefore, all businesses must put measures in place to safeguard that digitally-stored data.
Encrypt everything
Arguably the most valuable cyber-security tool at your disposal is encryption. Not only is it a robust way to keep your data inaccessible to cyber criminals, it’s the only method that’s explicitly mentioned multiple times in the GDPR. Should any PII data you hold fall into the wrong hands – whether deliberately or accidentally – encryption will render it unintelligible. Encryption can operate at a file, folder, device or even server level, offering the level of protection most suited to your business needs.
Review your policies and processes
The GDPR requires you to implement policies that detail how you intend to process personal data and how you will safeguard that data. It also states that data controllers – that’s your business – must “adopt internal policies and implement measures which meet in particular the principles of data protection by design and data protection by default.” All new policies, whether specifically related to GDPR or not, must be compiled with a ‘privacy by design’ model. Existing policies, including your data protection policy, privacy policy and training policy should also be reviewed in light of GDPR.
Don’t forget subject access requests
Much of the coverage of GDPR has focused on two areas: data breaches and the potentially eye-watering fines. An area that’s arguably been overlooked is complying with subject access requests. Individuals can request access to the data you hold on them, verify that you’re processing it legally and, in some cases,, request erasure of their data – also known as the ‘right to be forgotten’. Under GDPR you’ll have only a month to respond to these requests, otherwise you’ll be at risk of non-compliance. More guidance on this can be found on the Information Commissioner’s Office (ICO) GDPR guide.
Don’t forget your reporting obligations either
Another element that’s received significantly less coverage is your reporting requirements. In the event of a data breach, businesses must report it to the Information Commissioner’s Office (ICO) within 72 hours of discovery. It’s especially important to note this, as failing to meet this obligation could be considered a bigger breach of the GDPR than the data leak itself. Both Uber and Equifax have come under fire in the past year for covering up breaches, reporting them late and keeping the extent of the breaches under wraps.
A good example to follow is Twitter. Following the discovery of a bug that stored users’ passwords in plain text – which is a bigger deal than it sounds – Twitter not only reported on the breach, but immediately informed its users of the bug, what caused it and the potential repercussions, and advised customers on how to keep their data safe. The second element of this is critical to GDPR too – if the breach poses a risk to individuals’ “rights and freedoms”, the victims of the breach must be informed too.
The key takeaway
The GDPR wasn’t created to punish businesses or to catch them out, but rather to empower individuals and consumers. Whilst there has been a lot of confusion around exactly what has been required for businesses, it’s clear that cyber-security is imperative, as is clueing up on your reporting and response obligations. It’s important to note that simply experiencing a cyber-attack or data breach won’t automatically result in financial punishment; the GDPR clearly states that, should you prove you put in place measures to protect your PII data, you won’t be hit with the most severe fines.
The long-awaited General Data Protection Regulation (GDPR) becomes legislation in a week, on 25 May 2018. Below Narrinder Taggar, Partner and defendant personal injury insurance litigation specialist at Shakespeare Martineau, sheds light on the extended implications of the regulation on the insurance sector.
With GDPR coming into play, organisations across a wide variety of sectors and industries, including insurance companies, will be forced to adjust and assess their data protection strategies or face fines of up to €20 million or 4% of annual turnover, whichever is greater.
The GDPR contains rules protecting individuals when their personal data is processed. This also includes further rights around how this personal data is handled and shared with other parties.
The sensitive nature of personal information used in many insurance claims could cause a serious headache for the industry and is set to cause significant disruption to how all parties involved in the insurance claims process store, manage and process personal data. The risk created when information is shared between claimants/their advisors, brokers; insurers and other parties, such as medical professionals, all of which would be classed as “data controllers”, is great.
A data controller determines the purposes, conditions and means of the processing of personal data. The data processor is the entity that processes data on behalf of the data controller.
But what about accident investigators, who are instructed to process data on behalf of the data controller? They may well be data controllers for the purposes of obtaining and drafting witness statements which would be subject to legal professional privilege until such time the statements are disclosed to any third parties. Of course, it should be noted that a claimant does not have a right to access any data which is subject to legal professional privilege.
With the GDPR placing a greater emphasis on transparency and accountability, the insurance industry will have to be even more careful with the storage of sensitive data. With personal data being intrinsically linked to the claims process and regularly being shared with third parties, the need to be prepared is particularly urgent and parties must rethink exactly how this information is shared during the process.
Hard copy documents such as instructions to barristers may have previously been sent in the post. However, under the new GDPR it remains to be seen whether this way of sharing sensitive documents will still be deemed to be a compliant activity. Instead, encrypting files containing sensitive personal data is set to become the norm.
Under the GDPR all data controllers will be responsible to ensure not only that the receiver, or processor, is GDPR-compliant, but also to find how they intend to store and use data and delete the data once it is no longer required. This can be achieved through the arrangement of a data sharing agreement. This might include a description of the data processing, an assessment of any possible risks and how those risks will be mitigated. Because of the need to ensure compliance throughout all stages of the process, those involved in insurance claims, for example insurers and their solicitors, should set up data sharing agreements with their contacts and suppliers; including other data controllers.
However, duty of compliance also continues after the claims have been settled. The 'right to be forgotten' places a responsibility on the controller to delete any personal data if requested by the subject and not to keep data any longer ‘than is necessary for the purposes for which the personal data is processed’. Yet, there are a number of grounds in which data controllers may keep personal data, including if it needs to be retained in case of any further legal proceedings for example appeals. Therefore, organisations may need to set their own retention periods for data depending on the information in question and how it may be used in future. It is worth remembering in this case that any data deemed relevant must be recorded and held securely offline.
Under the new requirements, data controllers will be obliged to report breaches to the relevant authority within the first 72 hours. Should a breach occur under the new legislation, the fault will lie not only with the data controller but could also lie with the data processor who shared the information, making it vital for all parties to be accountable for the information they process.
The GDPR has undoubtedly changed the goal posts for the insurance industry and many questions still remain around the identification of sensitive information and how the usual correspondence between parties will be affected after the new legislation is introduced. With such large penalties coming into play, the worry of doing something wrong has never been greater.
The industry currently awaits further guidance from the UK Information Commissioner on what the legislation will really mean in practice. However, with the deadline fast approaching, doing nothing is no longer an option. The industry must prioritise collaboration and transparency, in order to ensure they are fully prepared for the changes ahead.
Following the Bank of England’s (BoE) decision not to raise interest rates last week, Finance Monthly has heard from a few sources who have provided expert commentary.
Richard Haymes, Head of Financial Difficulties at TDX Group:
The decision is good news for those living in debt or teetering on the edge of financial difficulty. We expect the level of monthly Individual Voluntary Arrangements (IVAs) and Trust Deeds to grow by around 17% this year; a rise in interest rates would have a significant impact on the ability of these individuals to meet repayments and ultimately stay within the strict requirements of these debt solutions.
Figures from Creditfix, the largest provider of personal insolvencies in the UK show that 20.2% of its customer base holds a mortgage. It’s likely, due to their credit position, that most of these customers will have a variable mortgage that would have left them particularly vulnerable to an interest rate rise. A 0.25% hike would have left holders of £250,000 mortgages with a monthly repayment increase of £31*. This may appear a modest rise but for people trying to manage debts through IVAs or Debt Management Plans it could have a detrimental impact, rendering debt solutions unviable or in need of renegotiation.
While a continuation of the low interest environment is bad news for people holding pensions, investments and living on savings – reducing their earning potential compared to periods of ‘normal’ monetary policy, a static interest rate provides relief and stability for those in financial difficulty or on the brink of difficulties.
Stuart Law, CEO, Assetz Capital:
This change in thinking for the Bank of England following an expected rate rise is hardly surprising given the economic uncertainty and poor GDP growth figures. We expect that any increases that do happen over the next year would simply be a short-term measure ahead of Brexit, in case there is a need to drop rates again next year.
Even if interest rates do rise slightly later this year, it’s likely to only be by a small amount. Despite the predicted drop in inflation, this announcement is likely to receive a less than warm reception from high-street savers, who are seeing the value of their hard-earned money decreasing each day through inflation – and of course, many banks will not pass all or any of this rise on to savers.
Angus Dent, CEO, ArchOver:
With Britain’s GDP growth at just 0.1%, it’s no surprise that the Bank of England has kept interest rates stagnating at 0.5%.
Just last month a rate rise seemed a foregone conclusion. Today’s decision is yet another result of the uncertainty surrounding the UK’s financial health. And keeping rates so low means savers lose out once again.
Savers leaving their cash languishing in savings accounts in the vain hope of a rate rise will be sorely disappointed. With the economy in the doldrums, it’s time for a serious rethink – crossing your fingers and hoping for the best does not equal a productive savings strategy.
The news that the majority of banks didn’t pass November’s rate rise on to their customers adds more fuel to the fire, showing that even an historic rise didn’t have the desired effect on savers’ pockets.
Savings accounts are no longer a safe bet for decent ROI. Consider alternative financing options that can offer higher yield without compromising on security. Optimism is all well and good – but we all need a healthy dose of realism if we’re going to make our money work harder.
2018 is expected to be the year for high street collapses, and it’s already looking like a grim year for retail survival, never mind growth. In the UK 2017 saw even more shops go bankrupt, and the last decade has only been exemplary of a slow decay for British shopping, from Woolworths, BHS and JJB Sports, to Blockbuster, Virgin Megastores and Phones 4U.
Above is Finance Monthlys list of five top UK retailers that are the most likely to be closing down in 2018.
A rapid ramp-up of European banks' bail-in buffers is critical because the authorities' ability to support failing banks is now heavily constrained, S&P Global Ratings said in a new report, "The Resolution Story For Europe's Banks: The Clock Is Ticking."
"The UK, Switzerland, and Germany aside, European banking systems today typically lack the sizable buffers of subordinated bail-in instruments that could avoid bailing-in senior unsecured instruments if a systemically important bank fails," said S&P Global Ratings credit analyst Giles Edwards.
Three years since bank resolution regimes were created in most European countries, banks in the region continue their long march from bail-out to bail-in—and many will still be on this road for years to come. After all, making large, complex banks truly resolvable is no mean feat, particularly for those that start with minimal bail-in buffers.
Furthermore, the EU's resolution authorities have a tougher task than most--whereas the U.S. and Swiss authorities are acting on only the most systemic banks, their EU counterparts must set MREL (minimum requirement for own funds and eligible liabilities, which is the regulatory bail-in buffer) for all banks and lay the complex groundwork to enable a bail-in resolution for even midsize banks.
In S&P Global Ratings' view, the EU has achieved much in a short time by strengthening its crisis management framework for the financial sector. And the framework has had a positive impact on our ratings on European banks. Under regulatory requirements, European banks that are not global systemically important banks still have plenty of time to build their buffers, though these may start to look less comfortable as we progress through 2019.
Resolvability cannot be achieved overnight, and we do not underestimate the scale and complexity of the task in the European banking union in particular.
"Yet looking back at 2017, we saw more limited progress in some areas than we had expected, notably in the setting of banks' MREL," Mr. Edwards said.
Bail-in buffers aside, we also note that bank resolution actions could still be undermined if solvent banks cannot access sufficient liquidity in resolution--a topic that has become an imperative to address.
(Source: S&P Global)
Penningtons Manches recently revealed that British companies are enjoying an unprecedented period of investment from West Coast-based US firms, with 74 deals contributing to a total value of £1.08 billion in 2017 – the first time Silicon Valley investment into the UK has broken the billion-pound mark.
The new report from Penningtons Manches, Golden Gate to Golden Triangle, finds that software companies take the lion’s share of this investment, benefiting from £2.2 billion in funds since 2011. The number of deals from Silicon Valley into UK firms has increased by 252 per cent over that period.
Many of these companies are based in the UK’s Golden Triangle - between 2011 and 2017, 79% of all US investment into UK firms went to those based in the area that includes London, Oxford and Cambridge.
Life science firms were the second most invested in, taking £472 million from West Coast investors since 2011, with hardware companies and medical tech following with £207 million and £58 million respectively.
West Coast investors may have been involved in more deals, but the research found that East Coast investors have provided more capital. They invested £1.31 billion into UK companies in 2017. Between 2011 and 2017, the total number of deals by East Coast investors into UK companies rose by 48% from 29 to 56.
The investment reflects a wider trend of inward investment into UK companies which is seeing a rise across the board. Despite concerns about Brexit, the report unveils a 62% increase in foreign investment into UK firms in 2017, a third of which were by North American investors and a quarter by those in the United States. Investors from outside of the UK were involved in £5.9 billion worth of deals, a 187% rise on the previous year and eight times the amount in 2011.
James Klein, Partner at Penningtons Manches, comments: “We are delighted that the findings from the report reveal such appetite from West Coast investors to nurture Britain’s most innovative, high potential firms. Penningtons Manches has a long history of working with technology firms, their innovators and their investors, and we launched our San Francisco office to better support our growing client base in the Bay area and to develop meaningful connections between our US clients and the fast-growth tech businesses in the UK that we represent. We look forward to supporting this continued interest from US investors into the future.”
The report also sheds light on the reasons that UK firms seek US investment. From a survey of British firms considering US investment, the top reasons for looking West are:
- Greater access to US markets – 83% of non US-backed firms cited access to markets as a reason to take US investment;
- Existing relationship with investor – 48% of UK companies who have already done deals with US-based firms said that their primary driver for taking more US investment was their existing relationship with their investor;
- Technical expertise of investor – 46% of non US-backed firms firms cited this as a reason for seeking US investment;
- Favourable investment climate – 44% of non US-backed firms cited this as a reason to take US investment.
The report also finds that Brexit has had a mixed impact on US investment into UK firms. Despite the fact that devaluation of the pound has reportedly created a surge of British exports since Brexit, the research finds that companies that have raised smaller amounts are more likely to believe it has had a beneficial impact: 100% of British companies surveyed who have raised between £100,000 and £500,000 believe currency fluctuations have been beneficial, but only 42% of those raising £1 million - £5 million felt the same.
(Source: Penningtons Manches)
With over 15 years’ experience assisting US individuals to navigate the complexities of the US and UK tax legislation, James Murray is currently a Director at Frank Hirth. James has a focus on those international US citizens and Green-card holders who have an interest in a non-US structure including those in the asset management sector.
Frank Hirth has over 140 tax professionals across London, New York and Wellington providing US and UK tax compliance and advisory services to individuals, partnerships, trusts and companies. Most technical staff are fully qualified to ‘dual handle’ both regimes, to provide global tax efficiency. Established over 40 years ago Frank Hirth is recognised as the leading tax accounting practice for assisting with international US tax matters outside of the US.
What are the headlines from recent US tax reform?
The main headline of President Trump’s Tax Cuts tellgamestop Jobs Act 2017 (‘tax reform’) signed into law in December 2017 was very much in the corporate arena with a reduction of the Federal tax rate from an eye watering 35% to a more globally competitive 21%; as well as a move to a territorial system of taxation for US companies.
Individual US citizens, greencard holders and residents continue to be subject to US Federal tax on their worldwide income, irrespective of where they physically reside. The top Federal tax rate has been reduced to 37%, however, they have also withdrawn a number of favourable deductions that were previously available – resulting in only a marginal change in the effective tax rate in many cases.
Unfortunately, some of the changes targeted at US corporations have had what may have been unintended, and certainly unexpected, results for our international US clients who have business interests overseas.
In what way has it impacted Americans doing business outside the US?
These changes can result in certain income within non-US companies being attributed to the US shareholders on an arising basis for US personal tax purposes, as opposed to upon receipt of funds by way of dividend. As a consequence the US and UK tax points and character may not align and therefore can result in double taxation.
We are already seeing that this will require those US individuals with a certain level of interest in a UK company needing to reconsider how to best structure their business and the best strategy for extracting funds tax efficiently.
Has there been a change in the number of Americans living in the UK as the result of the reform? Why is this?
It is too early to tell or measure, particularly given the general uncertainty in the UK with Brexit. Over the last few years there has been a general increase in the number of US citizens choosing to relinquish their US citizenship although again this may be down to several factors. For instance, the implementation of FATCA has been instrumental in identifying those US individuals living overseas who may not have appreciated the tax implications of holding such a status.
Do you have any advice for American taxpayers residing in the UK?
Yes. The key is to ensure that high quality, joined up advice is sought as soon as possible. Navigating two very complicated tax regimes is a challenge and mitigating double taxation is vital. There are a number of anti-avoidance and anti-deferral measures within both the US and the UK legislation which, without the appropriate guidance, can lead to mismatches and other issues. This is even more apparent for long term UK residents following the changes to the UK deemed domicile rules that became effective 6 April 2017 as they can no longer access the UK’s remittance basis.
Managing the US and UK tax systems requires a deep understanding not only of each jurisdiction’s legislation, but most importantly how they interact with one another, including the use of tax treaties. There are many myths out there that can often be dispelled following discussion with an expert. We find that more than ever having tax advisors working closely and collaborating with wealth managers and lawyers often results in the client obtaining rounded, and not siloed, guidance as to how best manage their affairs.
Are there any substantial changes you anticipate in the future, good or bad?
Many of the US tax reform changes are due to sunset in 2026 and so are not permanent. It will be interesting to see what, if any changes occur, especially if the US administration changes. At present there has been no indication that any amendments will be passed to correct errors. There will however be increasing pressure to do so.
With the ongoing spat between the United States and China, which seems to be only getting uglier, Katina Hristova explores the history of trade wars and the lessons that they teach us.
Trade wars date back to, well, the beginning or international trade. From British King William of Orange putting steep tariffs on French wine in 1689 to encourage the British to drink their own alcohol, through to the Boston Tea Party protest when the Sons of Liberty organisation protested the Tea Act of May 10 1773, which allowed the British East India company to sell tea from China in American colonies without paying any taxes – 17th and 18th century saw their fair share of trade related arguments on an international level.
Boston Tea Party/Credit:Wikimedia Commons
Trade wars were by no means rare in the late 19th century. One of the most infamous examples of a trade conflict that closely relates to Donald Trump’s sense of self-defeating protectionism is the Smoot-Hawley Tariff Act (formally United States Tariff Act of 1930) which raised the US already high tariffs and along with similar measures around the globe helped torpedo world trade and, as economists argue, exacerbated the Great Depression. As a response to US’ protectionism, nations across the globe began striking each other with an-eye-for-an-eye tariffs – countries in Europe put taxes on American goods, which, understandably, slowed trade between the US and Europe. As we all know, the Depression had an impact on virtually every country in the world – resulting in drastic declines in output, widespread unemployment and acute deflation. Even though most countries began to recover between 1932 and 1933, the world was hit by World War II shortly after that. In 1947, once the war was over, the World Trade Organisation (WTO) was established - in an attempt to regulate international trade, strengthen economic development and hopefully, avoid a second global trade war after the one from the 1930s.
Schoolchildren line up for free issue of soup and a slice of bread in the Depression/Credit:Flickr
Another more recent analogy from the past that could be applied to the current conflict between two of world’s leading economies, is the so-called ‘Chicken War’ of 1963. The duel between the US and the Common Market began when European countries, feeling endangered by US’ new methods of factory farming, imposed tariffs on US chicken imports. For American poultry farmers, the Common Market tariffs virtually meant that they will lose their rich export market in West Germany and other European regions. Their retaliation? Tariffs targeting European potato farmers, Volkswagen campers and French cognac. 55 years later, as the Financial Times reports, the ‘chicken tax’ on light trucks is still in place, predominantly paid by Asian manufacturers, and has resulted in enduring distortions.
President Trump may claim that ‘trade wars are good’ and that ‘winning them is easy’, but history seems to indicate otherwise. In fact, a closer look at previous examples of trade conflicts seems to suggest that there are very few winners in this kind of fight.
For now, all we can do is wait and see if Trump’s extreme protectionism and China’s responses to it will destroy the post-World War II trading system and result in a global trade war; hoping that it won’t.
Within every business, there will be those who suffer in silence to the point that control is lost and the very act of getting out of bed becomes utterly overwhelming. Statistics show that employees in the finance sector suffer more than most when it comes to mental health.
Employees are still reluctant to share mental health information with their managers or bosses, seemingly for good reason. The stigma associated with mental health, being treated unfairly, becoming the subject of office gossip or compromising their employment terms are all legitimate fears.
To tackle this global workforce issue, Instant Offices encourage businesses to support their teams to speak about and prioritise mental health, promote a healthy work-life balance, reduce the stigma attached to mental health issues and introduce initiatives to support and encourage staff who choose to speak up.
Mental Health and Work in the UK
Studies from Manpower Group suggest that millennials display the highest levels of anxiety, depression and thoughts of suicide of any generation, considering they are also simultaneously on the cusp of becoming the largest global workforce by 2020.
According to Deloitte, the average person spends 90,000 hours of their life working, and poor employee mental health can be due to factors internal or external to the workplace. Without effective management, this can have a serious impact on physical health, productivity and more.
In the modern workplace, smart employers are placing workplace wellness at the core of their business by recognising the importance of their staff. They are going beyond protocol, processes and profits to ensure individuals feel valued and supported. Wellness and workplace health initiatives are varied but include everything from serious interventions and counselling services to mindfulness training, flexible working and even options like yoga, time off and massages at work.
That said, an alarming number of companies are still avoiding the topic of mental health in the workplace. A report by the Centre for Mental Health revealed that absence due to mental health cost the UK economy £34.9 billion last year. Additionally, the economy lost:
- £21.2 billion in reduced productivity
- £10.6 billion in sick leave
- £3.1 billion in staff turnover
It’s Time to Prioritise Wellbeing at Work
Of the 5 million people being signed off from work every year, data from NHS showed an alarming 31% are taking time out due to mental health, with a shocking 14% rise in doctor’s notes relating to anxiety and stress in one year. This is why the NHS has called on businesses to wake up to the reality of mental health and its dire effects on the wellbeing of its employees and on overall workplace success.
Here’s what employers can do:
- Minimise the stigma: A study from Business in the Community shows, only 53% of employees feel comfortable talking about mental health issues like depression and anxiety at work. Instead of making employees feel like liabilities or burdens, employers need to take active steps to encourage conversations around these issues. Taking a mental health day or asking for support around mental health issues should not impact an employee’s reputation and how they are treated at work.
- Pay attention: Around 91% of managers agree that their actions affect their staff’s wellbeing, however, only 24% of managers have received any training in mental health. This lack of training and sensitivity only works to perpetuate the culture of silence around mental health and wellbeing at work. Companies should be working to combat this by monitoring employee stress, encouraging communication and taking active steps to increase knowledge around the issue.
- Be more flexible: There are several ways to boost employee engagement and happiness in the modern workplace. Around 70% of employees want a say in when and how they work, and a growth in flexible working shows more businesses are responding. Introducing a flexible working option is one of the ways businesses can prioritise their employees’ personal needs while benefitting from their productivity boost, too. Data from LSBF shows nearly half of employees advocate for flexible working hours as a way to reduce workplace stress and anxiety, increase productivity, and to improve morale and engagement.
- Introduce mental health initiatives: It is crucial to increase employee awareness of mental health at work, support employees at risk and take steps to support those suffering from mental health problems. Education is key, and strategies need to be tailor-made to suit each business and its needs. Aside from increasing workplace happiness with perks, time off and better communication, businesses need to look at long-term policies which advocate for better treatment for at-risk employees from every tier of the organisation.
- Manage via a coaching approach: Historically, tyrannical managers focused on ‘the numbers’ or ‘getting the job done’ have been the norm, but fortunately, the modern workplace has changed. Today, the manager who adopts a more holistic approach by focusing on the growth and development of their team, personally and professionally, will see greater results and engagement. Investing in a coaching approach has shown clear improvements across all areas and improved trust between managers and employees. Getting this balance right enables employees to speak about their levels of stress, their worries about their role and more.
Placing health and wellbeing at the heart of business can help employers attract and retain talent, improve productivity and happiness, and positively impact the bottom line.
Educating the workforce on the availability of such programmes where they can find support in a confidential and respectful manner, will help to address personal challenges before they become overwhelming.
