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Newsletter - February 2007In this edition:
Business leaders call for 'radical action' on tax Inheritance tax should be abolished, and capital gains tax should be radically simplified, according to a new research paper published by the Institute of Directors ( IoD ). The organisation said that its 'detailed and affordable' proposal to change the tax system would mean that it no longer deters saving. Inheritance tax (IHT) is affecting an increasing number of people, with the latest estimates suggesting that 40% of households can expect to be liable for the tax. The IoD described IHT as 'a tax on the thrift and financial independence of ordinary working people', and called for it to be scrapped, with some of the tax benefits offset by changes in capital gains tax (CGT). The group proposes the simplification of CGT by means of a merger of the tapers for business and non-business assets, and complete exemption for assets which have been owned for more than ten years. Miles Templeman , Director General of the IoD , said, 'There are overwhelming arguments for making radical changes now'. SMEs told to plan for the unexpected Small businesses are failing to take sufficient steps to protect themselves and their employees in the event of an emergency, according to new research commissioned by the British Insurance Brokers' Association (BIBA). The research reveals that millions of small and medium-sized businesses in the UK do not have a formal written business continuity plan, despite the fact that smaller firms can suffer serious disruption as a result of restricted trading. Furthermore, research suggests that 80% of those businesses that are affected by a major incident close down within 18 months. BIBA has launched a new campaign to encourage SMEs to put in place proper business continuity measures. Eric Galbraith, Chief Executive of BIBA, said, 'Every business needs to be properly prepared for a worst case scenario. Small businesses are vital to the UK economy and we simply cannot afford for them to be complacent'. Events such as the recent outbreak of bird flu in East Anglia , and the increased threat of acts of terrorism, have further highlighted the importance of business planning. Further information can be found on the BIBA website ( www.biba.org.uk ). Business calls on Government to close '£17bn transport gap' The British Chambers of Commerce (BCC) has called on the Government to increase investment in the UK's transport infrastructure, in order to tackle inadequacies in the system which it says are costing the economy £17bn a year. The business group was responding to a report from the Commons Transport Select Committee, which revealed that the Department for Transport is failing to meet its targets and lacks a clear strategy for action. Sally Low of the BCC said, 'This country urgently needs investment in road infrastructure, public transport and better incentives for companies to engage in more sustainable working practices. In the forthcoming spending review there needs to be an acknowledgement of Eddington and Barker, and yes that does cost money'. The call comes amid a growing debate concerning a proposed new national road pricing scheme, which resulted in over 1.7 million people signing an online petition opposing the introduction of such a system. Opponents of the scheme argue that current high levels of taxation on fuel already represent a form of road pricing, and that introducing a 'pay as you drive' system would be unfair on poor people and those who live apart from their families. The transport secretary pledged to listen to drivers' concerns regarding the scheme, but emphasised that the UK must take action to deal with the problem of congestion. The Government has announced the extension of a scheme aimed at helping small and medium-sized businesses to improve their cashflow. Under the Cash Accounting Scheme (CAS), eligible businesses can defer paying VAT until they have received payment from their customers, rather than accounting for and paying VAT when they issue and receive invoices. John Healey, Financial Secretary to the Treasury, has announced that with effect from 1 April 2007, the threshold for CAS will be raised from £660,000 to £1.35m. The annual turnover limit above which businesses must leave the scheme will also rise, from £825,000 to £1.6m. Mr Healey said, 'Doubling the threshold of the Cash Accounting Scheme will allow more than 50,000 businesses to significantly improve their cashflow. We know that small businesses are the engine for the UK 's economy, so it is only right that we look to improve the climate for them'. The news is expected to be welcomed by the UK 's small business sector, with recent studies suggesting that late payment is still a significant problem for many SMEs. Business rejects call for 'flexible working for all' The Confederation of British Industry (CBI) has rejected a call for all UK workers to be given the automatic right to request flexible working arrangements. Writing in a series of essays for the Institute for Public Policy Research, children's minister Beverley Hughes suggested that the existing flexible working rights should be extended to all 29 million workers, and that all jobs should be advertised as part-time, job-share or flexi-time unless except where there is a 'sound business case' not to do so. The right to request flexible working patterns currently applies to those parents who have a child under the age of six, or a disabled child under the age of 18. From 1 April 2007, this right will extend to include the carers of adults. The CBI has acknowledged the success of the current flexible working regulations, but warned that extending the scheme to any additional groups without proper consultation could cause significant problems for UK businesses. Susan Anderson of the CBI commented, 'Only by having a gradual and phased extension can we avoid firms being deluged under a sudden increase in requests. Firms must have the time they require to accommodate the varying needs of their staff and it would be foolish to put the continued success of the policy at risk'. Employers urged to 'take the skills pledge' The Government has called on UK employers to sign up to a 'Skills Pledge', to ensure that their employees reach a skills level equivalent to five good GCSEs. The Skills Pledge is designed to share responsibility for skills training between the State, employer and employees. The aim of the scheme is to stimulate demand for training services and support a new culture where gaining skills is seen as a 'matter of course'. The Chancellor of the Exchequer, Gordon Brown, said, 'In the future skills will be the only route to prosperity and jobs. Of 3.4 million unskilled jobs today, by 2020 we will need only 600,000. So if the UK is to continue to succeed in the new global economy we will need to be more ambitious with more people training and employers, employees and Government each meeting their responsibilities'. Under the Skills Pledge, employers will commit to a training plan building on the needs of their business. The plan will show timescales for training all staff to Level 2 (the vocational equivalent to five GCSEs grade A-C), as well as committing resources and setting priorities for training. The scheme will be fully launched in the summer, following initial trials by 'exemplar employers'. Business group issues warning over supermarket inquiry The Competition Commission has released an interim report, relating to its investigation into whether supermarkets have an unfair monopoly on business. Last year, the Commission launched a major inquiry into whether the UK 's biggest supermarkets were making it impossible for other businesses in the grocery sector to compete. The interim report suggests that so far, there do not appear to be widespread problems concerning the relationships between grocery retailers and their suppliers, although there are 'still concerns' in some areas. The Commission has announced that it will be focusing the next stage of its investigation on competition between retailers at the local level. The Federation of Small Businesses (FSB) has welcomed the Commission's announcement, but has warned that it has 'serious concerns' about reports of blatant abuses of the planning system by supermarkets. The FSB is urging the Commission to introduce tough measures if it is found that competition is unfair, or that planning laws are being broken. Clive Davenport of the FSB said, 'Unfair or illegal competition is not acceptable and it is essential that the Competition Commission does its job properly to stamp it out'. The interim report can be found on the Competition Commission website An increase in Air Passenger Duty has now come into force, doubling the amount of duty which passengers must pay when taking flights from the UK . Chancellor Gordon Brown announced the increase in the 2006 Pre-Budget Report, with the stated aim of reducing air travel and helping to protect the environment. Under the new rates, with effect from 1 February 2007 passengers flying to destinations within the European economic area and certain other European countries are required to pay Air Passenger Duty of £10 in the lowest class of travel, and £20 in all other classes. Meanwhile, those passengers flying to long-haul destinations are now required to pay duty of £40 and £80 respectively. The announcement has caused some controversy among airlines and passengers, particularly where tickets were purchased before the Pre-Budget announcement, for journeys planned on or after 1 February. However, a separate study has suggested that the increase is unlikely to have a significant effect on flying habits. The survey, conducted by Prudential, revealed that three quarters of people said the changes will not deter them from flying. Chancellor confirms plans to raise school-leaving age Chancellor Gordon Brown has confirmed the Government's intentions to raise the school leaving age in England from 16 to 18. Speaking in Scotland , Mr Brown suggested that both ‘carrot' and ‘stick' measures would be used to ensure young people stay in education or training. New financial incentives could be introduced, building on the existing e ducation maintenance allowances ( EMAs ), currently worth up to £30 per week. In addition, he proposed that the Government would consider introducing penalties for those who failed to take up education or training options. Mr Brown proposed adapting the existing "Train to Gain" scheme to provide work-based training for 16 to 18-year-olds, and reiterated plans to double the number of apprenticeships to 500,000. Some 267,000 16 and 17-year-olds are currently not in education or training, and in January the Department for Education and Skills announced plans to raise the school leaving age by 2013. Small business group issues insurance warning The Federation of Small Businesses (FSB) is warning that new Government reforms which allow the NHS to recoup treatment costs could lead to a rise in insurance premiums for small firms. The new scheme, which came into force on 29 January 2007, allows the NHS to recover the costs of treating patients who have been paid personal injury compensation. While the NHS has already been able to recover costs following road traffic accidents, there is concern that extending the scheme in this way could have a significant impact on employers' liability insurance premiums in the long-term. Mary Boughton of the FSB said, 'We're not here to defend businesses whose negligence causes accidents in the workplace. But the vast majority of small businesses are conscientious employers and don't deserve to be set back by higher insurance premiums'. The British Insurance Brokers' Association (BIBA) has advised that small business owners can help to ensure a representative premium by revisiting their Health and Safety procedures. Steve Foulsham, Technical Services Officer at BIBA said, 'We believe that there is an opportunity for businesses to work with their insurance brokers, to ensure that they have a robust Health and Safety policy in order to minimise the possibility of accidents at work. Insurers will reflect good risk management practices in the premium rates which they offer'. Lone parents benefits come under scrutiny Benefit rules have come under scrutiny as the Government seeks to encourage lone parents to return to work earlier. Currently, s ingle parents can claim Income Support without having to seek work until their youngest child is 16. However, Work Secretary John Hutton has now suggested that the Government will consider measures to cut that age to 12. With almost half of single parents on benefits, Britain has one of the lowest levels of such employment in Europe . Even in countries with substantial welfare systems such as Denmark and Sweden , up to 80% of lone parents are in work. The Office for National Statistics estimates there are 1.69m such parents with dependent children in the UK . Mr Hutton claimed that increasing lone parent employment is essential for tackling child poverty, saying: "If we are to eradicate child poverty, then I believe we will also need to go further in challenging existing assumptions about who - and at what point - someone should be in work. We also know the difference that helping lone parents into work can make." The suggestions were broadly welcomed by both opposition parties, but c harity One Parent Families warned that they could affect many parents caring for disabled children. Mr Hutton has already unveiled plans to get one million incapacity benefit claimants back into work over the next 10 years. New trade laws 'could damage UK business' The Confederation of British Industry (CBI) has issued a warning against new cross-border trade laws proposed by Brussels , which it says will damage smaller businesses and online firms, and undermine the financial services sector in the UK . Under the proposals, known as Rome I, a UK firm selling goods and services to consumers in the European Union will no longer be governed by UK law, but rather by the laws of the country in which the consumer lives, thus potentially exposing businesses to as many as 27 different legal systems. Any disputes arising would be resolved in the courts of the consumer's country, and in their native language. This means that a London firm selling products to a customer in Rome under British law would actually be liable under Italian law, should any problems arise. Meanwhile, firms providing financial and legal services would be particularly affected by changes to business-to-business contracts, which would mean that a company's right to specify which legal regime applies to a contract with another company could be overridden by a court, in favour of the country which is most closely connected to the contract. Under this system, the CBI warns, a UK bank lending money to a French construction firm to build a bridge in Nigeria could face the prospect of any dispute case being governed by Nigerian law. The CBI has expressed concerns that the measures will leave businesses in a 'legal quagmire', and could deter many companies from doing business within the EU. John Cridland, Deputy Director-General of the CBI, said, 'Businesses will have three choices: spend time and money getting to grips with the varied and conflicting legal regimes of each member state they trade with; chance their arm that their processes will meet the required standards; or, most worryingly, stop trading with some countries altogether'. Promotion prospects are top priority for employees The single most important factor for employees in making career choices is the prospect of promotion, according to a survey by Manpower. 28% of workers surveyed said that career advancement was the main reason for moving to a different company. Other key factors were more flexible working conditions – cited by 22% of respondents – and increased salary, which 17% gave as a reason for changing jobs. Meanwhile, Manpower also found that retaining staff was the number one human resources concern for employers, closely followed by adapting to new legislation. Manpower's managing director Mark Cahill said: "Holding onto the best people is very much an issue for employers this year, and in a tight labour market, it has never been more important for employers to pay close attention to their retention policies." Christmas provides welcome sales boost New figures released by the Office for National Statistics (ONS) have revealed that retail sales saw a strong increase in December, despite widespread fears that retailers would face a disappointing Christmas season. The ONS revealed the biggest monthly increase in sales since June 2005, with the total sales volume increasing by 1.1% between November and December. The largest monthly increase of 5.2% was for household goods stores. Meanwhile, a separate report from the industry body for online retailers, the Interactive Media in Retail Group (IMRG), has revealed that UK shoppers spent £7.66bn online in the 10-week run-up to Christmas, representing a 54% increase on the previous year. The total value of online spending for the year (including leisure travel) was £30.2bn. The news follows the Bank of England's recent surprise decision to raise interest rates to 5.25%, amid ongoing concerns over rising inflation and the continuing strength of the housing market. Self assessment figures 'hit new record' 150,000 online self assessment tax returns were received in the 24 hours running up to the 31 January deadline, according to HM Revenue & Customs (HMRC). Over nine million returns were issued in 2006/07, and of these nearly 2.9 million were filed online, representing a rise of 40%. At its peak, the HMRC website processed more than 6,000 returns an hour. However, the event was slightly overshadowed by concerns over possible delays to the processing of tax returns, following confirmation by the Public and Commercial Services union that its members would be implementing a campaign of industrial action to coincide with the 31 January deadline. For advice on a range of tax and financial issues, and assistance with all your tax planning needs, contact us.
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