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Optimism in manufacturing eclipses that in services


Manufacturers’ growth prospects for the rest of 2014 strengthened in April as confidence within the sector rose to a new all-time high, eclipsing optimism levels among services firms, according to the latest Business Trends report by accountants and business advisers BDO LLP in the South East.


In a sign that the economy is rebalancing away from its reliance on the services sector, BDO’s Manufacturing Optimism sub-Index jumped to 120.8, up from 119.4 last month, as growth in the eurozone helped boost export orders.


The stellar performance among manufacturers has driven the overall Optimism Index up to 104.3, the highest rating ever in the index’s 22 year history. This points towards continued strong business performance in both sectors over the next six months.


Further signs that accelerating growth is being driven by manufacturing are shown by BDO’s Output Index, which predicts short-run growth expectations. It rose by 0.1 to 113.0, driven solely by a lift in the BDO Manufacturing Output sub-Index, which jumped from 112.8 to 113.5 - far above its long-term average of 100.


Warning over use of dividend waivers


Buckinghamshire-based accountancy firm Whitley Stimpson is warning company owners over the use of dividend waivers, given a recent decision in a tax tribunal case.


Many shareholder-directors who have their spouses as shareholders currently use dividend waivers in order to give their spouses larger dividends. This results in considerable tax savings for the couple as often the spouses’ dividends are taxed at lower rates.


However, a recent case heard at the first-tier tribunal has found in favour of HMRC’s view that such arrangements are artificial. In the case, two shareholder-directors waived their right to dividends from their company so that their wives could receive cash at lower rates of tax.


The tribunal decided that there was no commercial reason for the waivers; they did not take place at arm’s length; and the intention for them appeared to be solely for the avoidance of income tax.


Jonathan Walton, partner at Whitley Stimpson, said: “This decision should not be taken lightly by those who continue to use dividend


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In comparison, the services sector index, which accounts for over two-thirds of the UK economy, has remained flat since the beginning of the year, albeit at a level which indicates strong growth expectations.


This positive outlook is also translating into jobs growth, as businesses’ hiring intentions showed another large rise in April.


On a more cautionary note, BDO’s Inflation Index moved a point higher over April to reach 98.1, indicating that businesses are preparing themselves for upward pressure on prices. If businesses are correct and inflation does begin to rise, real wage growth could veer back into negative territory from already low levels, dealing a blow to consumer spending ahead of next year’s General Election.


Commenting on the latest findings, David Eagle, partner at BDO LLP in the South East, said: “High growth expectations among manufacturers is a key highlight of this phase of the recovery, with a stronger manufacturing sector set to benefit the region in the long term by rebalancing our economy away from London and the City.


“However, manufacturing is still some way off its pre-crisis peak and confidence in the sector has proved to be volatile in the recent past, impacting negatively on investment and hiring decisions. One current issue is the exchange rate, and the Bank of England has stated that further appreciation in the value of sterling would be unwelcome. It will be interesting to see what the Bank can do to prevent this, although the large current account deficit may prove to be a drag on the pound as we go through the year.


“Another negative for our economy would be an acceleration of the revival of protectionist sentiment. Policymakers’ restrictions on immigration have not helped the labour market. It would be disappointing if there was an equivalent move in industrial policy to protect companies in so-called ’strategic’ sectors. Open trade creates higher wealth and income and the UK’s tradition in this respect is a fine one.“


Details: www.bdo.co.uk


St Modwen to develop 25-acre site


West Berkshire Council has selected St Modwen as development partner on the redevelopment of the 25-acre London Road Industrial Estate site in Newbury.


St Modwen will work alongside the council on the project, which will retain freehold ownership of the commercial and industrial area, to create a mixed-use development comprising business, retail and residential.


Jonathan Walton


waivers. It is clear that HMRC is increasingly of the opinion that this is aggressive tax avoidance and this decision will be a boost to their chances of successfully challenging such transactions.


“There remain a multitude of ways which business owners can mitigate their tax liabilities without resorting to waiving dividends. Remuneration planning is an area full of opportunities but also fraught with risk, and professional advice should be sought by anyone making decisions on extracting value from their businesses.”


Details: www.whitleystimpson.co.uk


The plan includes 300-400 new homes, a food store and a range of office and business accommodation – extending to 80,000 sq ft, as well as a new road, which will be accessed via the A339.


Brian Raggett, partner at Strutt & Parker which is advising West Berkshire Council, said: “Following a competitive pitch process, West Berkshire Council has chosen St Modwen to be its trusted partner to bring forward this significant new project on a site which is integral to the revitalisation of Newbury as a whole. St Modwen has an impressive track record in successfully delivering substantial mixed-use developments of this size and stature and it’s fantastic to have them on board.”


Tim Seddon, St Modwen’s regional director for London and the South East, said the company was looking forward to realising the potential of the site.


THE BUSINESS MAGAZINE – THAMES VALLEY – JUNE 2014


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