Client Update February 2025

The Chartered Institute of Taxation (CIOT) is calling on the Government to address unfair tax rules as interest rates on late payments rise.

The CIOT is urging the government to reintroduce rules which enable HMRC to waive interest on underpaid VAT when no actual tax loss to the Exchequer occurs.

This power was omitted from the new VAT interest regime which came into effect for VAT return periods starting on or after 1 January 2023.

The exposure to interest where there is no tax loss is due to the unique operation of the VAT regime.

The interest rate on late payment of tax is due to increase by a further 1.5% in April, with no equivalent increase in interest on overpaid tax.

Richard Wild, CIOT’s Head of Tax Technical, said:

‘It is possible for a taxpayer to under-declare an amount of VAT due to HMRC, in circumstances where that VAT is reclaimable by a third party, such as the taxpayer’s customer.

Under the previous interest regime the principle of commercial restitution could be applied, providing HMRC with discretion not to charge interest in these circumstances, because there had been no loss to the Exchequer.

Under the present system, HMRC no longer has statutory discretion to not charge interest in these circumstances. So, interest is now being charged in situations where there is no net loss of tax.

We do not understand this to be a deliberate decision on the previous government’s part, but it is vital that this unfairness is removed and commercial restitution reinstated.’

Internet link: CIOT website

The Government has commissioned an independent review of the Loan Charge.

The Exchequer Secretary to the Treasury made a Written Ministerial Statement announcing that Ray McCann, a former President of the Chartered Institute of Taxation, would lead the review.

The review will examine the barriers preventing those who are subject to the Loan Charge but have not already settled and paid their tax liabilities in full from reaching a resolution with HMRC. It will recommend ways in which they can be encouraged to settle with HMRC.

The reviewer will report and present their recommendations to the Exchequer Secretary to the Treasury by summer 2025.

However, the announcement drew criticism from campaigners.

Steve Packham, from the Loan Charge Action Group, said:

‘What the Government has announced today is not a review at all, as it actually astonishingly excludes reviewing the Loan Charge. It is a complete sham and a betrayal of the promise made by Rachel Reeves last year.

‘The terms of reference start by justifying the Loan Charge and the whole approach taken and instead of being any review of the issue and scandal, is just about how people can be persuaded to give in and pay the unfair and disputed demands. This will not only not get to the truth, it will not resolve the matter and cases will unfortunately drag on and on.’

Internet link: GOV.UK Loan Charge Action Group website

UK firms are expecting to reduce both output and hiring this quarter, according to a survey conducted by the Confederation of British Industry (CBI).

Activity has been flat or falling since the middle of 2022, reflecting a prolonged period of stagnation.

The survey suggested that sentiment among businesses dipped in the aftermath of the Government’s Autumn Budget.

Some businesses said that the tax rises had resulted in them reviewing their budgets at short notice and taking steps to mitigate higher costs.

Plans include raising prices to pass on additional costs to clients, trimming investment plans and cutting staff to reduce business expenses.

Alpesh Paleja, Interim Deputy Chief Economist at the CBI, said:

‘After a grim lead-up to Christmas, the New Year hasn’t brought any sense of renewal, with businesses still expecting a significant fall in activity. Alongside plans to cut staff and raise prices further, this risks an increasingly awkward trade-off for policymakers.

‘Anecdotes suggest that companies are being hit by lacklustre demand and caution among consumers, while also continuing to adjust to measures announced in the Budget.

‘There is an urgent need to get momentum back into the economy. The Government can help shift the UK’s economic narrative with more determined focus on measures that could drive growth.’

Internet link: CBI website

New rules will give more flexibility over how occupational defined benefit pension schemes are managed, according to the government.

The Government said this will remove blockages that are inhibiting its growth agenda.

Approximately 75% of schemes are currently in surplus, worth £160 billion, but restrictions have meant that businesses have struggled to invest them.

Where trustees agree to share a portion of scheme surplus with a sponsoring employer, the employer may choose to invest these funds in their core business, for example to purchase equipment or supplies, and/or provide additional benefits to members of the pension scheme.

Prime Minister, Keir Starmer said:

‘The number one mission of my government is to secure growth, drive higher living standards for everyone, and get more money into people’s pockets.

‘To achieve the change our country needs requires nothing short of rewiring the economy. It needs creative reform, the removal of hurdles, and unrelenting focus.

‘Whether it’s how public services are run, regulation or pension rules, my government will not accept the status quo. Today’s changes will unlock billions of investment, pushing forward in delivering my Plan for Change.’

Internet link: GOV.UK

The Government has introduced a package of support that it says will help the alcohol sector to grow.

From 1 February, draught relief has increased to knock 1p off duty on draught products whilst small producer relief – a measure to encourage craft brewers to innovate – is becoming more generous.

Together these tax cuts are worth £85 million and are tailored to support the alcohol sector to innovate and grow, according to HM Treasury.

The increase to draught relief, first announced at the Autumn Budget, will affect around three in five of all alcoholic drinks sold in pubs, and represents the first duty cut on a pint of beer in 10 years.

As announced in the Autumn Budget, alcohol duty was also increased in line with inflation. The Treasury says this helps secure public finances and helps to fund the investment needed to grow the economy and fund public services.

Exchequer Secretary to the Treasury, James Murray, said:

‘Our pubs and brewers are an essential part of the fabric of the UK and our brilliant high streets. Through draught relief, small producer relief, and expanding market access for smaller brewers, we will help boost sector growth and deliver our Plan for Change to put more money in working people’s pockets.’

Internet link: HM Treasury website

More than 11.5 million taxpayers beat the Self Assessment deadline to file their tax return for the 2023/24 tax year by 31 January and avoid a £100 late filing penalty, according to HMRC’s data.

Almost three quarters of a million taxpayers left it to the last minute to file with 732,498 submitting returns on deadline day.

The most common time to file on 31 January was 16:00 to 16:59 when 58,517 people submitted returns. And 31,442 taxpayers cut it as close as possible by filing between 23:00 and 23:59.

Late filing and late payment penalties are charged for failure to meet the deadline. HMRC is urging anyone who has missed the deadline to file their tax return now and pay any tax owed.

The tax authority says one of the quickest ways to pay is via the free and secure HMRC app. Time to Pay arrangements are available for those who cannot pay their tax bill in full, it adds.

Myrtle Lloyd, HMRC’s Director General for Customer Services, said:

‘Thank you to the millions of people and agents who filed their Self Assessment tax return and paid any tax owed by 31 January. I’m urging anyone who missed the deadline, to submit their return as soon as possible to avoid any further penalties. Search ‘Self Assessment’ on GOV.UK to find out more.’

Internet link: HMRC press release

On 6 February 2025, the Bank of England Monetary Policy Committee announced a reduction in the base rate from 4.75% to 4.5%.

As HMRC interest rates are directly linked to the Bank of England base rate, this means that interest rates on late payments and repayments will also decrease.

These changes will take effect on the following dates:

17 February 2025 – for quarterly instalment payments

25 February 2025 – for non-quarterly instalment payments

Further details on the updated HMRC interest rates for payments will be available soon. If you have any questions regarding how this may impact you, please feel free to contact us.