Client Update February 2024
In this month’s Enews, we look at the potential of tax cuts at the Spring Budget. We also update you on the tax implications of trading in cryptoassets and take a look at calls to raise the VAT threshold. With news on global trade and the advance of AI, there is a lot to update you on.
If you have any questions about any of the below please do get in touch with your Old Mill adviser in the first instance, or alternatively click here…
6th February 2024
Tax cuts may have to be scrapped due to 'economic bind', warns Institute of Fiscal Studies (IFS)
Tax cut promises may need to be scrapped as a result of the UK being in an ‘unfortunate economic and fiscal bind’, the Institute for Fiscal Studies (IFS) has warned.
The next government is likely to face some of the most difficult economic and fiscal choices the UK has faced outside of pandemics, conflicts and financial crises, according to an IFS report.
The IFS said that a combination of high debt interest payments and low expected growth is forecast to make it more difficult to reduce debt as a fraction of national income than in any parliament since at least the 1950s.
The think tank also warned that whilst tax rises and cuts for public services are built into current government plans, public services are ‘showing signs of strain‘ and are ‘performing less well than they were in 2010’.
IFS Director Paul Johnson said:
‘Now more than ever, as a country, we face some big decisions and trade-offs over what we want the state to do and how we’re going to pay for it. Those looking to form the next government should be honest about these trade-offs.
‘If they are promising tax cuts, let’s hear where the spending cuts will fall. If they are going to raise, or even protect, spending, they should tell us where taxes will rise. Or parties might think that further increases in government debt are justified: in which case they should make the argument for why debt should be rising.
‘If to govern is to choose, then to campaign should be to present clear choices and trade-offs to the electorate. If the parties don’t do that clearly and honestly over the next year, we at IFS will do what we can to plug that gap.’
Internet links: IFS website
HMRC sends warning to cryptoasset users
As the use of cryptoassets continues to grow HMRC is warning people to check if they need to complete a Self Assessment tax return for the 2022/23 tax year to avoid potential penalties.
Anyone with cryptoassets should declare any income or gains above the tax-free allowance on a tax return.
Tax may be due when a person:
- receives cryptoassets from employment, if they are held as part of a trade, or are involved in crypto-related activities that generate an income
- sells or exchanges cryptoassets, including:
- selling cryptoassets for money
- exchanging one type of cryptoasset for another
- using cryptoassets to make purchases
- gifting cryptoassets to another person
- donating cryptoassets to charity.
Myrtle Lloyd, HMRC’s Director General for Customer Services, said:
‘People sometimes forget that information about crypto-related income and gains need to be included in their tax return. Some people affected may not have had to do a tax return before, so it is important people check.’
Internet link: HMRC press release
Internet link: GOV.UK
Raise VAT threshold to £100,000, says Federation of Small Businesses (FSB)
The government should raise the turnover threshold for VAT from £85,000 to £100,000, according to the Federation of Small Businesses (FSB).
The business group said that this would give firms stepping into the VAT-paying ring crucial breathing space. It would also be an incentive to grow their turnover without fear of having to charge customers an extra 20% overnight, the FSB added.
The FSB also suggested bringing in a smoothing mechanism to ease the transition for small firms, owner-managed companies and some of the self-employed who go just over the threshold.
At the moment, thousands of small firms keep their turnover just below the £85,000 threshold, according to the Office for Budget Responsibility (OBR).
The OBR said that hundreds of millions of pounds of potential economic activity could be lost due to this ‘bunching’ just below the threshold.
Tina McKenzie, FSB’s Policy Chair, said:
‘VAT compliance flattens small firms by stifling their growth and emptying their coffers. It’s crying out for a modern makeover to match today’s economic landscape.
‘We can’t let it squash the ambitions of small businesses, strivers, and budding entrepreneurs.
‘The flaws in our current system are glaringly obvious. We are at a breaking point – a drastic overhaul of VAT is needed.
‘Raising the threshold to reflect inflation, introducing a buffer to soften the blow for those just over the limit and demystifying the rules to save small business owners from a VAT-induced headache could unlock hundreds of millions in extra economic activity.’
Internet link: FSB website
Clarity on new border checks is vital, says British Chambers of Commerce (BCC)
The government must clarify plans around new customs processes as firms remain in the dark about crucial aspects of their operation, says the British Chambers of Commerce (BCC).
The first phase of the UK’s Border Target Operating Model began on 31 January, with imports of plant and animal products now requiring export health certificates.
It is the first time for decades that EU firms will have to provide this documentation for goods they are sending to Great Britain. The BCC says it is unclear how prepared they are for the change.
The business group says there is more concern over a lack of clarity around physical checks of consignments, due to start in April.
Government figures show the UK imports just under 30% of all the food it consumes from the EU.
William Bain, Head of Trade Policy at the BCC, said:
‘The Government is finally implementing major changes to Great Britain’s inbound border controls and customs checks stemming from Brexit, but there are still unanswered questions around its plans.
‘Especially, as businesses are already facing a tough start to the year, with container shipping prices quadrupling as the Red Sea disruption continues.
‘The initial changes … should not cause many noticeable hold ups for inbound goods, although EU firms will be facing new charges to get export health certificates and will need to find vets to sign them.
‘The bigger issue is physical checks on a proportion of these imports, which are due to start in April.’
Internet link: BCC website
Artificial Intelligence will affect jobs and worsen inequality, says International Monetary Fund (IMF)
Artificial intelligence (AI) will affect almost 40% of all jobs around the world and deepen inequality, the International Monetary Fund (IMF) has warned.
In a new analysis, IMF researchers examined the potential impact of AI on the global labour market. It found that, in advanced economies, around 60% of jobs may be impacted by AI. In contrast, in emerging markets, exposure to AI is expected to affect 40% of jobs.
The IMF also suggested that AI could affect income and wealth inequality within countries. Workers able to make effective use of AI may see an increase in their wages and productivity, whilst those who cannot risk falling behind.
The IMF says policymakers should review the rise of AI in the workplace in order to prevent it from stoking social tensions. It has called for a careful balance of policies to tap into AI’s potential.
Kristalina Georgieva, Managing Director at the IMF, said:
‘In most scenarios, AI will likely worsen overall inequality, a troubling trend that policymakers must proactively address to prevent the technology from further stoking social tensions.
‘It is crucial for countries to establish comprehensive social safety nets and offer retaining programmes for vulnerable workers. In doing so, we can make the AI transition more inclusive, protecting livelihoods and curbing inequality.’
Internet links: IMF website
Over 50s bucking decline in freelance numbers
Tens of thousands more over 50s are now running their own businesses despite an overall decline in self-employment since 2020, according to the Association of Independent Professionals and the Self-Employed (IPSE).
IPSE’s research found that the number of self-employed business owners aged 50 and over increased to 1.1 million in 2023 – 89,000 more than in 2020.
In the same period the total solo self-employed population fell by 154,000.
Additionally, of those aged 50 and over in self-employment, as many as one in six launched their businesses within the past three years.
IPSE’s Director of Policy, Andy Chamberlain, said:
‘It’s clear that self-employment’s offer of independence and autonomy in work are particularly attractive to experienced professionals, especially if they have lost an employed role or have become disillusioned with the nine-to-five.
‘Many harbour dreams of starting their own business, whether it’s to pursue a lifelong dream, increase their income or find a better work-life balance.
‘But the over 50s, now in the prime of their careers and with decades of experience under their belt, likely have even more confidence in their ability to make a success of it.’
Internet link: IPSE website
Mandatory payrolling of benefits in kind (BiK) coming in 2026
The UK government has announced that starting from April 2026, employers will be required to report and pay Income Tax and Class 1A National Insurance contributions on benefits in kind through payroll software. This move is aimed at streamlining the taxation process and ensuring greater transparency.
We will keep clients informed about the developments in this mandate and advise how to prepare for the transition in April 2026.