Welcome to the October 2014 Newsletter from Easterbrook Eaton Limited
The referendum on Scottish independence may have resulted in a 'No' vote, but with all the major political parties promising legislation on greater devolution, a constitutional debate affecting all parts of the UK is only just beginning. Here's our round-up of the latest tax and business developments…
Business reacts to Scottish 'No' vote and promise of devolution
The immediate reaction of the British business community to last week's rejection of Scottish independence was 'a collective sigh of relief', according to CBI Director-General John Cridland, who claimed that 'business has always believed that the Union is best for creating jobs, raising growth and improving living standards.'
The CBI's president, meanwhile, went further, suggesting that the two-year national debate in Scotland had delayed investment and 'damaged the image' of British business abroad. Sir Mike Rake, who lobbied for a No vote during the referendum campaign, said: 'There's no doubt that whilst investment north of the border has continued, some has been slowed or delayed… But this is the first positive step towards sanity being restored, towards thinking that the UK is open for business once more'.
The immediate aftermath of the No result saw the pound sterling hit a two-year high against the Euro, after several weeks in which it had fallen amidst fears that Scotland would vote to exit the Union. The FTSE 100 share index also rose, while banking group RBS confirmed that the outcome meant that it would not be moving its registered head office to England.
Pro-independence group Business for Scotland said that it was 'disappointed that the opportunity to improve Scotland through independence has been lost' but that it would 'do what we can to improve things as much as possible'.
Attention now turns to the prospect of further devolution for Scotland and the implications for the rest of the UK, particularly in regards to the ability of the Scottish Parliament to set its own tax rates. Existing agreements between Holyrood and Westminster mean from next year the Scottish government will be able to borrow up to £2.2 billion for capital spending and will be given control over stamp duty land tax, while from April 2016 it will have more powers to set income tax.
Experts have warned that divergence between tax rates within different parts of the UK will lead to tax and jobs 'arbitrage', as businesses could move between regions depending on such factors as local rates of corporation tax or minimum wage levels.
High net worth individuals would also be keeping a close eye on income tax rates. There are estimated to be some 18,000 higher rate taxpayers based in Scotland, compared with around 200,000 in London and the South East. Scottish high earners could easily move south of the border if taxes were significantly raised, while lowering taxes to be attractive to wealthy individuals could have the opposite effect.
Scott Corfe, head of macroeconomics at the Centre for Economics and Business Research, took a positive view of the possibility, saying: 'There would be competition to attract talent and entrepreneurs into the different regions. Some regions might want to copy what's been done in Ireland where you've got a low rate of corporation tax to attract companies. In the long term, there could be some real benefits from having that'.
RTI relaxation extended
HMRC has announced that it will exempt employers with fewer than 50 staff from Real Time Information (RTI) late filing penalties until 6 March 2015. Until that date, they will be allowed to submit PAYE information monthly.
RTI requires employers to provide information about tax and National Insurance deductions every time they pay an employee rather than annually. The original deadline for implementation by small firms was in 6 October this year.
The relaxation for small firms is the latest in a series of deadline moves since RTI was rolled out in October 2013.
HMRC's Ruth Owen said: 'We know that those who have had most difficulty adjusting to real-time reporting have been small businesses, so this staged approach means they have a little more time to comply with the new arrangements before facing a penalty'.
Employers with 50 staff or more will still be fined if they file PAYE returns late after the 6 October deadline.
Further information is available on our website.