In the news: August 2024

 

In the news: August 2024

In the news this month, we look at the difficult decisions taken by the Chancellor as she set the date for the Autumn Budget. We also update you on the latest on the National Wealth Fund and the Growth Guarantee Scheme. With news on a new online VAT tool and Simple Assessment for pensioners, there is a lot to update you on.

• Chancellor takes difficult decisions as Budget date set
• King’s Speech pledges to secure economic growth
• HMRC launches VAT Registration Estimator
• UK announces National Wealth Fund
• British Business Bank launches Growth Guarantee Scheme
• HMRC to send Simple Assessment tax statements to pensioners
• UK’s economic recovery putting down roots
• Latest guidance for employers
• HMRC inheritance tax recovery soars
• London ranked 8th most expensive global city
• Council tax debt crisis escalates

Chancellor takes difficult decisions as Budget date set

Chancellor of the Exchequer Rachel Reeves said she was taking difficult decisions after a Treasury spending audit revealed £22 billion of unfunded pledges.

Ms Reeves confirmed that the Autumn Budget will take place on 30 October.

In a statement to Parliament, the Chancellor made a number of announcements but said there would be more to come on tax and spending plans at the Budget.

The Chancellor said that she has inherited a £22 billion hole in the public finances and said urgent work is required to reduce the pressure on finances by £5.5 billion this year and over £8 billion next year.

Ms Reeves announced that the government will cut Winter Fuel Payments to those not in receipt of pension credits or other benefits.

The Chancellor announced a number of immediate savings, including:

• £800 million this year and £1.4 billion next year from scrapping the Rwanda migration partnership and scrapping retrospection of the Illegal Migration Act.
• £70 million this year by cancelling the Investment Opportunity Fund and other small projects.
• £185 million next year from cancelling the Advanced British Standard.
• £785 million next year from stopping unaffordable road and railway schemes.

Ms Reeves also outlined the next steps in delivering tax commitments from Labour’s election manifesto.

This includes ending the VAT tax breaks for private schools from 1 January 2025 to help recruit 6,500 new teachers, as well as replacing the non-domicile regime with a new internationally competitive residence-based regime.

The Chancellor said:

‘This is not the statement I wanted to give today, and these are not the decisions I wanted to make. But they are the right decisions in difficult circumstances.’

Internet link: HM Treasury press release

King’s Speech pledges to secure economic growth

The first King’s Speech since Labour’s victory in the General Election saw the new government pledge that securing economic growth would be its fundamental mission.

King Charles III delivered the 2024 King’s Speech at the State Opening of Parliament and announced plans to accelerate housebuilding and high-quality infrastructure through planning reform.

In the Speech, the government also pledged to:

• Reform the Apprenticeship Levy.
• Establish publicly owned Great British Energy.
• Bring train operators into public ownership.
• Remove the VAT exemption for private school fees.

Shevaun Haviland, Director General of the British Chambers of Commerce (BCC), said:

‘The government’s clear intention to speed up the planning system for large scale infrastructure can feed that business confidence, if it can be delivered. Measures to increase business resilience, reform of the apprenticeship levy and legislation to support sustainable aviation fuel could also boost the economy.

‘There are still big issues that need to be addressed. Improving our trade relationship with the EU will not be straightforward, and there will need to be detailed consultation with business on the Plan to Make Work Pay.

‘But there is much in today’s speech which shows the voice of business has been heard and that government is introducing measures that benefit firms and help unlock investment. 

‘We want to work in partnership with the government to make this happen and shift the economy out of first gear to get it motoring again.’

Internet links: GOV.UK BCC website

HMRC launches VAT Registration Estimator

HMRC has launched a digital tool to help businesses estimate what registering for VAT may mean for them.

The VAT Registration Estimator helps to show businesses when their turnover could require them to register for VAT and its effect on profits.

A business must register for VAT if:

• Total VAT taxable turnover for the previous 12 months is more than £90,000.
• Turnover is expected to go over the £90,000 VAT threshold in the next 30 days.
• They are an overseas business not based in the UK and supply goods or services to the UK (or expect to in the next 30 days) – regardless of VAT taxable turnover.

A VAT-registered business must charge VAT on eligible sales and can usually reclaim it on eligible purchases.

Jonathan Athow, HMRC Director General for Customer Strategy and Tax Design, said:

‘We know that the majority of our customers want to get their tax right. We have listened to what businesses have said and the new tool is designed to help them understand VAT registration, including when they might be required to register.’

Internet link: GOV.UK

UK announces National Wealth Fund

The UK government is planning a National Wealth Fund to stimulate private sector investment backed by £7.3 billion in funding through the UK Infrastructure Bank (UKIB).

Chancellor Rachel Reeves and Business Secretary Jonathan Reynolds have instructed officials to immediately begin work to create the new National Wealth Fund by bringing together the work of the UK Infrastructure Bank and the British Business Bank to unlock private sector investment to drive growth.

Under the plans, the National Wealth Fund will bring together key institutions and will target investors in a bid to ‘mobilise billions more in private investment and generate a return for taxpayers’.

An additional £7.3 billion of funding will be allocated through the UKIB so investments can start being made immediately focusing on priority sectors, including green and growth industries, and catalysing private investment. This funding is in addition to existing UKIB funding.

The Chancellor said:

‘This new government is getting on with the job of delivering economic growth. I have been clear that there is no time to waste.

‘I have previously committed to establishing a National Wealth Fund. I am now going further by bringing together key institutions.

‘We need to go further and faster if we are to fix the foundations of our economy to rebuild Britain and make every part of our country better off.

‘That is why in less than a week we are establishing a new National Wealth Fund and bringing together the key institutions that will help unlock investment in new and growing industries.

‘Britain is open for business – and the work of change has begun.’

Internet link: GOV.UK

British Business Bank launches Growth Guarantee Scheme

The British Business Bank has launched the Growth Guarantee Scheme to help smaller businesses access finance.

The Growth Guarantee Scheme is the successor to the Recovery Loan Scheme and is expected to support around 11,000 smaller businesses.

The British Business Bank has so far accredited 41 lenders for the scheme which will run until March 2026.

The scheme supports term loans, overdrafts, asset finance, invoice finance and asset-based lending facilities. Not all lenders will be able to offer all products.

Minimum facility sizes start at £1,000 for asset finance, invoice finance and asset-based lending and £25,001 for term loans and overdrafts. The maximum facility sizes are up to £2 million per business.

Martin McTague, National Chair of the Federation of Small Businesses (FSB) said:

‘We are delighted that the British Business Bank has officially launched the Growth Guarantee Scheme, to get much-needed finance to start-ups and scale-ups, so they can grow.

‘The new scheme will help small firms get the funding they require to be able to achieve their dreams.

‘The Growth Guarantee Scheme will be an important part of the funding landscape for small firms, whose growth will be an indispensable ingredient in overall economic recovery in the UK.’

Internet link: British Business Bank website FSB website

HMRC to send Simple Assessment tax statements to pensioners

HMRC will send Simple Assessment tax statements to pensioners in the next few weeks.

The combination of frozen tax thresholds and a substantial increase to the state pension has led to many more pensioners being dragged into paying income tax for the first time.

The last government froze the personal allowance at £12,570 until 2028.

The full new state pension saw a 10% increase in April 2023 to over £10,600 annually, followed by another 8.5% rise in April 2024, taking it to more than £11,500 per year.

HMRC says that pensioners will receive a Simple Assessment where there is an underpayment of income tax for a tax year that cannot be collected automatically via PAYE and they are not subject to income tax self assessment.

An underpayment of income tax can result from:

• pensioners who receive income from the State Pension, occupational pensions, employment pensions, and most taxable state benefits
• pensioners with up to £10,000 of untaxed income (for example, from savings or investments).

HMRC will use the information it already holds and information supplied from banks and building societies about people’s income and tax situation.

The tax authority will calculate any tax owed or refund due and the Simple Assessment tax statement will show the calculation.

HMRC says taxpayers will need to check that their Simple Assessment statements are correct before paying any tax due.

Please contact us for advice on Simple Assessment matters.

Internet links: GOV.UK

UK’s economic recovery putting down roots

The UK’s economic recovery is finally putting ‘down roots’ after GDP grew faster than expected in May, says the Confederation of British Industry (CBI).

The UK economy expanded by 0.4% in May, rebounding from zero growth in April, according to the Office for National Statistics (ONS).

The growth figures were helped by a strong performance from retailers and the construction industry, added the ONS.

Ben Jones, CBI Lead Economist, said:

‘The latest data shows that the UK’s economic recovery is starting to put down roots. While growth in May was driven by a rebound in sectors such as retail and construction, which were hit by poor weather earlier in the spring, recent months have seen activity creeping up across a wide range of sectors.

‘The new Labour government will benefit from some economic tailwinds going forward, with consumer confidence rising as lower inflation and strong wage gains support household incomes. However, many firms remain cautious about the near-term outlook.

‘While the outcome of the election will help dispel some of the recent uncertainty, it could take a turning of the interest rate cycle for the recovery to really bed in.

‘The new government’s focus on making growth a priority is welcome. However, to put the economy on a pathway to long-term, sustainable growth, we need to see concrete actions to deliver that vision within the next 100 days.’

Internet links: ONS website CBI website

Latest guidance for employers

HMRC has published the latest issue of the Employer Bulletin. The July issue has information on various topics, including:

• PAYE Settlement Agreement calculations 2023 to 2024
• paying Class 1A National Insurance contributions
• improving the Self-Serve Time to Pay service for PAYE and VAT customers
• self assessment threshold change
• Spotlight 64 – warning for employment agencies using umbrella companies
• employment-related securities — end of year return deadline for employee share schemes.

Please contact us for help with tax matters.

Internet link: Employer Bulletin

HMRC inheritance tax recovery soars

Targeted efforts yield high returns from unpaid IHT as HMRC recovers £285 million from 3,028 investigations.

The amount of tax collected from unpaid inheritance tax (IHT) investigations is soaring, but HMRC could recover even more. Over the past five years, HMRC has conducted thousands of investigations into estates suspected of owing IHT, collecting £1.39 billion in unpaid taxes.

In 2023/24, HMRC recovered £285m from 3,028 investigations. However, the number of enquiries has nearly halved since 2019, according to figures from NFU Mutual. In 2019/20, there were 5,658 investigations, recovering £273m. By 2023/24, investigations had dropped by over 2,000 to 3,028, a 49% decrease.

In 2020/21, investigations fell to 3,574 due to reduced activity during the COVID-19 pandemic, yet HMRC still raised £254m. This trend indicates that the number of investigations does not necessarily correlate with the amount of IHT collected.

The 2021-22 tax year saw HMRC recover the highest amount in the past five years, with £326m collected from 4,258 investigations. Despite the decrease in investigations, the amount of money recovered has remained relatively stable, except for the notable increase in 2021/22.

The data indicates that despite decreasing investigations, HMRC’s effectiveness in recovering unpaid IHT remains robust. The lower number of investigations suggests that these efforts are becoming more targeted and forensic in nature. To maximise returns, industry experts have recommended that HMRC continues to prioritise identifying and targeting cases with substantial unpaid taxes.

London ranked 8th most expensive global city

Soaring rents and inflation have driven the price surge as London now ranks eighth in the global cost-of-living index, one spot higher than last year.

Soaring rents, inflation, and the cost-of-living crisis have pushed London up the rankings as one of the most expensive cities to live and work in. London now ranks eighth in the global cost-of-living index, one spot higher than last year, just behind New York.

Hong Kong remains the most expensive city for expats and global workers, followed by Singapore in second place. Switzerland holds the next three positions, with Zurich, Geneva, and Basel occupying the third, fourth, and fifth spots. Copenhagen is the only other European city in the top 20, while Paris and Berlin are ranked 29th and 31st, respectively.

UK cities outside of London fare much better. Edinburgh has dropped to 53rd from last year’s 33rd position, Glasgow is at 68th, Birmingham at 78th, and Aberdeen has fallen to 82nd from 37th.

The cost of housing significantly impacts the cost-of-living rankings. Between 2023 and 2024, there was notable volatility in housing rental prices worldwide, with significant variations between cities.

A key factor driving the cost of housing is the supply shortage relative to demand. This mismatch is pushing prices up, particularly for international assignments.

The index revealed that average rents in London increased by 4%, New York by 7%, and Dubai by 21%. These rising costs are putting additional pressure on businesses, which must consider these expenses when relocating staff.

Council tax debt crisis escalates

Debt charity StepChange reports a 50% rise in the average debt among its clients, from £1,146 in 2019 to £1,726 in 2023.

As councils nationwide face financial constraints, council tax debt has surged by 9% in the past year. This represents a 71% increase since pre-pandemic levels, when the debt stood at £3.5bn, as more residents struggle with council tax bills.

StepChange has reported a 50% rise in the average debt among its clients. With most councils increasing taxes by the maximum 5%, some surpassing this due to bankruptcy, this trend will likely persist.

For the 2024/25 tax year, council tax increased by an average of 5%, with notable hikes in Woking (10%), Birmingham (9.94%), Slough (8.51%), Bolsover (8.32%), and Thurrock (7.98%). To collect overdue payments, councils often take stringent measures, including demanding the full amount in one payment and involving bailiffs. In extreme cases, this can lead to a three-month prison sentence.

StepChange’s research shows that 69% of people support banning the use of bailiffs for collecting council tax debt, especially for those in financial difficulty. Additionally, 84% advocate for a regulator to ensure bailiffs treat people fairly.

Moreover, 69% of respondents believe council tax rates should be reduced for those with the lowest incomes. Current regulations allow councils to demand full annual payments if a household misses one month’s payment, a practice opposed by 82% of people.