News update: July 2024
In this month’s Enews, we look at what businesses want following the General Election and the latest on the UK economy. We also examine the tax gap and take a look at HMRC’s lack of enforcement on the enablers of offshore tax evasion. With warnings on the EU trade deal and the UK’s business investment, there is a lot to update you on.
- Business ready to work in partnership with Labour government
- Tax gap at record high
- HMRC has not fined a single enabler of offshore tax evasion
- UK economy grew by more than previously estimated during first quarter
- Average earnings just £16 a week higher than 2010
- EU trade deal not working for UK business, warns BCC
- UK’s investment rates worse than every other G7 country
- Savers dangerously underestimating minimum cost of retirement
- HMRC contacts pending ROR claimants
- House prices rise slightly again
- Only 13% of bounce back loans paid off
- Media sector faces scrutiny from HMRC
Business ready to work in partnership with Labour government
The UK’s business groups have pledged to work in partnership with the new Labour government to revitalise the nation’s economy.
Labour leader Sir Keir Starmer is the new Prime Minister after leading the party to a decisive win in the General Election.
Shevaun Haviland, Director General of the British Chambers of Commerce (BCC), said:
‘Congratulations to the Labour Party on their victory after a long and hard-fought campaign.
‘The public have delivered them a clear and decisive parliamentary majority – hopefully they will use this mandate to provide the stability and certainty businesses crave.
‘How we revitalise our economy was hotly debated throughout the past six weeks, and it is encouraging to see they have many policies which clearly align with our recommendations.
‘But after a gruelling election the really hard work starts now. We need to see action from day one on pulling together a coherent industrial strategy for the long-term, which places a strong emphasis on harnessing green innovation.
‘Closing the skills gap, growing exports, boosting productivity and harnessing the power of AI won’t happen overnight.’
The Confederation of British Industry (CBI) also congratulated Starmer and Labour on their victory.
Rain Newton-Smith, CBI Chief Executive, said:
‘Delivering sustainable growth should be the defining mission for the new government. Business stands ready to bring its innovation, ideas, and investment to make that shared mission a reality.
‘Building a partnership for prosperity between government and business holds the key to unlocking a revitalised pitch to global investors.
‘By working with business, the new government can deploy the capability and capacity of industry to deliver the connected transitions across net zero, the digital economy, and the future of work needed to put the economy on a pathway to sustainable growth.’
Internet link: BCC website CBI website
Tax gap at record high
The UK’s tax gap estimate rose to a record to £39.8 billion in 2022/23 as small businesses accounted for almost two thirds of unpaid tax, according to HMRC’s data.
The tax gap was 4.8%, which is the difference between the amount of tax that should be paid to HMRC and what is actually paid.
The tax gap estimate for corporation tax for small businesses rose to £10.9 billion, while the tax gap for total corporation tax was £13.7 billion.
John Barnett, Chair of the Chartered Institute of Taxation’s Technical Policy and Oversight Committee, said:
‘Critics of HMRC can point to a record amount – nearly £40 billion – not being collected, but HMRC can legitimately point out that they are bringing in a record share of the expected tax take.
‘That both these things can be true simultaneously tells us more about current tax levels than anything else.
‘These figures show there is plenty of work for HMRC to do in a range of areas to reduce the tax gap. However, we should not lose sight of the fact that their record, collecting more than 95% of tax due, compares well internationally.’
Internet links: GOV.UK Chartered Institute of Taxation website
HMRC has not fined a single enabler of offshore tax evasion
HMRC has not fined a single enabler of offshore tax evasion in five years, data released in response to a Freedom of Information (FOI) request has revealed.
This is despite HMRC having landmark powers, which were introduced in 2017, to impose hefty fines.
The data, which was released to the Bureau of Investigative Journalism (TBIJ), suggests that HMRC is failing to target the creators of offshore tax evasion schemes and instead pursues clients of such schemes.
According to the FOI request, HMRC has not fined a single partnership or company for enabling tax evasion since the change in the law in 2017.
Michelle Sloane, a tax disputes partner at law firm RPC, said:
‘Enablers were and still are a big focus for HMRC. But these figures show their rhetoric on tackling enablers … is clearly not being followed through with action.’
A spokesperson for HMRC said:
‘We have a strong track record in tackling offshore non-compliance. Since the launch of our No Safe Havens strategy in 2019, we have secured almost £700 million from offshore initiatives.’
Internet link: TBIJ website
UK economy grew by more than previously estimated during first quarter
The UK economy grew by more than initially estimated at the start of this year, according to figures from the Office for National Statistics (ONS).
The economy grew by 0.7% between January and March 2024, up from the previous figure of 0.6%. Growth in the UK services sector helped to push it even higher, the ONS said.
The positive news on growth followed the UK inflation rate falling to its lowest level in almost three years.
According to the ONS, the Consumer Prices Index (CPI) rose by 2% in the year to May 2024, down from 2.3% in April.
The data showed that whilst prices are still rising, they’re increasing at their slowest pace since July 2021.
David Bharier, Head of Research at the British Chambers of Commerce (BCC), said the data is ‘a further sign that the UK is exiting the inflation crisis which began in late 2020’.
He continued: ‘It provides additional weight for an interest rate cut in the coming months, something which will be welcomed by firms of all shapes and sizes.
‘Our research has shown that a steadily declining number of businesses are concerned about inflation, from a record peak of 84% in mid 2022. This is positive news, but prices are not falling, just rising more slowly, and the economic outlook remains challenging.’
Internet links: ONS website ONS website BCC website
Average earnings just £16 a week higher than 2010
Real average earnings are just £16 a week higher than they were 14 years ago, according to research conducted by the Resolution Foundation.
The think tank said that the UK’s labour market backdrop to the General Election is a prolonged pay squeeze that has left real average wages today just £16 a week higher than in 2010. It stated that this has been caused by three shocks to pay packets in little over a decade, including the financial crisis, the Brexit referendum and the cost-of-living crisis.
According to the Resolution Foundation, in the 14 years prior to the 2010 election, average real wages grew by £145 a week in total.
Hannah Slaughter, Senior Economist at the Resolution Foundation, said:
‘Britain’s prolonged pay depression has left average earnings just £16 a week higher than they were back in 2010, despite the welcome return of rising real wages in recent months.
‘Worryingly, Britain’s decade-long jobs boom during the 2010s has also gone bust, with the UK one of only a handful of countries where employment has yet to return to pre-pandemic levels.’
Internet link: Resolution Foundation website
EU trade deal not working for UK business, warns BCC
The UK government must stop ‘walking on eggshells’ around improving EU trade ties, the British Chambers of Commerce (BCC) has warned.
The new government must improve the current EU-UK trade and co-operation deal in order to boost economic growth, adds the BCC.
Businesses have criticised the additional red tape and increased costs that Brexit has placed on firms importing and exporting goods to and from the continent.
Importers of food and plants have been hit by charges associated with new Brexit border checks brought in at the end of April.
Other businesses have complained that the increasing divergence on standards, such as those around construction products, has made it more expensive for UK companies to get their products certified for sale on the continent.
Shevaun Haviland, Director General of the BCC said:
‘I’m not here to look backwards, I’m here to help build a better future for our business leaders and entrepreneurs. We must stop walking on eggshells and start saying it how it is. The current plan isn’t working for our members.
‘The EU is the UK’s largest market, accounting for 42% of all our exports. Leaving the EU has made it more expensive and bureaucratic to sell our goods and services across the Channel. But better trading terms are possible if the UK government and the EU reach agreement in areas of mutual benefit for business on both sides.
‘A better deal is best for everyone.’
Internet link: BCC website
UK’s investment rates worse than every other G7 country
The UK has the lowest rates of investment of any other country in the G7, according to analysis by the Institute for Public Policy Research (IPPR).
It found that, compared to the USA, Germany, France, Italy, Canada and Japan, the UK was in last place for business investment in 2022.
The IPPR also revealed that the UK has been bottom of the G7 league for investment in 24 out of the last 30 years. It said that the UK has the lowest rates of investment of any G7 economy, and that it ranks 28th out of 31 Organisation for Economic Co-operation and Development (OECD) countries for business investment.
According to the IPPR, countries such as Hungary, Slovenia and Latvia attract higher levels of private sector investment than the UK as a percentage of GDP.
Dr George Dibb, Associate Director for Economic Policy at the IPPR, said:
‘If the economy is an engine, then investment is its fuel. The UK’s dire productivity performance is the single biggest driver of our dire living standards. Without resources flowing into new investment, it’s hard to see how UK economic performance can improve.’
Internet link: IPPR website
Savers dangerously underestimating minimum cost of retirement
UK savers are dangerously underestimating the minimum amount needed to retire, according to research from pension provider PensionBee.
A survey of 1,000 working-age UK adults showed that 23% were unsure of the total pension pot size needed to achieve the retirement income they desire.
Pension Bee said that, according to the Pensions and Lifetime Savings Association’s (PLSA) Retirement Living Standards, a pension pot of £150,000 would only fund an individual’s minimum retirement standard for ten years. Pension Bee suggested that working-age adults could be underestimating the true cost of retirement.
49% of those polled estimated that they would require a pension pot of around £250,000 or more. However, Pension Bee found that there was a lack of clear consensus in regard to desired annual income in retirement.
Becky O’Connor, Director of Public Affairs at Pension Bee, said:
‘It’s hard to plan for retirement without an idea of how much you might need, yet most Brits seem to be unaware of – or worse, dangerously underestimate – the true cost of retirement.
‘A good pension pot is one that can provide enough money for the duration of retirement. As this exact amount will vary based on individual circumstances, pension calculators can be a helpful tool in setting financial goals and adjusting behaviours to achieve them.
‘However, one rule is broadly true: the earlier individuals start paying into a pension, the more likely they are to be able to afford their desired lifestyle, as their pension has longer to grow and the amount they’re required to save each month reduces.’
Internet link: PensionBee website
HMRC contacts pending ROR claimants
Provisional claimants are urged to make a valid claim by 31 January 2025.
HMRC is writing to taxpayers who made a provisional business asset roll-over relief (ROR) claim on asset sales in 2020/21 and haven’t replaced it with a valid claim. The deadline for making a valid claim is 31 January 2025. If a valid claim isn’t made by then, HMRC will withdraw the provisional claim, making the deferred capital gains tax (CGT) payable.
Taxpayers may claim ROR when selling a business asset if they buy a qualifying asset within a set period. This claim defers CGT on the sale. If taxpayers intend to buy a qualifying asset but haven’t done so when needing to claim ROR, they can make a provisional claim. They must replace this with a valid claim once they buy the asset.
HMRC advises taxpayers to respond if they have bought or will buy a qualifying asset by 31 January 2025 and notify HMRC by completing form HS290 for 2020/21. If unable to use the form, they should reply to HMRC’s letter with the requested information.
HMRC has also urged claimants to contact HMRC now if they haven’t bought a qualifying asset and don’t intend to by 31 January 2025. HMRC will withdraw the provisional claim and send an assessment for any owed tax and interest. Prompt action will reduce the interest payable.
HMRC may extend the period to acquire the qualifying asset, with conditions outlined in their letter. Claims made after 31 January 2025 will be considered on a case-by-case basis.
Later in the year, HMRC will write to taxpayers who haven’t replaced provisional claims for 2021/22. The deadline for valid claims for 2021/22 is 31 January 2026.
House prices rise slightly again
The average cost of a home now stands at £264,249, marking a 1.3% increase year-on-year.
The housing market is showing signs of resilience, with Nationwide reporting a 0.4% rise in house prices in May compared to April. The average cost of a home now stands at £264,249, marking a 1.3% increase year-on-year. According to Nationwide’s index, this rebound follows month-on-month price drops of -0.4% in April and -0.2% in March.
Other lenders have also observed modest falls in recent months, reflecting concerns over subdued demand due to higher mortgage rates. Despite these worries, the recent figures indicate a potential stabilisation in the market.
Inflation fell to 2.3% in April, the lowest level in nearly three years. However, this rate was higher than anticipated by economists and the Bank of England, leading analysts to suggest that an interest rate cut is now less likely in June or August.
Nationwide’s chief economist, Robert Gardner, said:
“The market appears to be showing signs of resilience in the face of ongoing affordability pressures following the recent rise in longer-term interest rates.
“Consumer confidence has improved noticeably over the last few months, supported by solid wage gains and lower inflation.”
Media sector faces scrutiny from HMRC
A survey by RSM revealed that 40% of media firms had filed an R&D claim in the past year, but only 24% of these were approved without dispute.
A recent crackdown on the abuse of the research and development (R&D) tax relief regime has significantly impacted the media sector, with HMRC questioning three out of four claims. A survey by RSM revealed that 40% of media firms had filed an R&D claim in the past year, but only 24% were approved without dispute.
One-third of these claims were eventually approved after an initial challenge by HMRC, while another third were outright refused in the last 12 months. This contrasts sharply with the overall statistic that only 20% of R&D claims are challenged by HMRC, compared to 55% in the media sector.
The media industry encompasses various sectors, including audio, music, film and TV companies, marketing, advertising and communications agencies, publishers, and gaming companies.
In the 2021/22 tax year, 90,315 R&D claims resulted in £7.6 billion in tax relief. However, less than 1,000 R&D claims came from the entire arts, recreation, and recreation sector, totalling approximately £100 million. In comparison, the manufacturing sector had around 21,000 claims and received over £1.5bn in tax relief.
Notably, 95% of media industry respondents reported making a claim for some form of tax relief.
Only 13% of bounce back loans paid off
£46.9 billion was lent during Covid under the scheme. While nearly three-quarters of borrowers are on track to repay, a significant £40.9bn remains outstanding.
The amount of bounce-back loans fully repaid is just 13% of the £46.9bn handed out to companies during the pandemic.
Despite £46.9bn being handed out in bounce back Loans during the pandemic, only 13% have been fully repaid. While nearly three-quarters of borrowers are on track to repay, a significant £40.9bn remains outstanding. Across all three Covid loan schemes, totalling £76.9bn, £21.5bn has been fully repaid.
The Government has banned 831 company directors for fraudulent Covid loan applications, an 80% increase from the previous year. Banks refused £2.2bn worth of loans due to concerns about repayment, preventing further potential losses.
While bounce back loans accounted for most of the loans, fraud was more prevalent in smaller business loans. Larger businesses utilising the Coronavirus Business Interruption Loan Scheme (CBILS) and the Coronavirus Large Business Interruptions Loan Scheme (CLBILS) saw less fraud. Of the £25.8bn lent through CBILS, 38% has been repaid, with 1.49% in arrears and 1.2% defaulted. CLBILS, with £4.5bn lent, saw no reported fraud.
Dean Beale, chief executive at the Insolvency Service, said:
“Tackling bounce back loan misconduct is a key priority for the Insolvency Service, and we are determined to use all our available powers to remove rogue company directors from the corporate arena.”
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