Client Update July 2024

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

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 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

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

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

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

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

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

Old Mill comment: Everyone is different but if you’re planning for the future or approaching retirement and would like to speak to one of our retirement experts to look at your individual circumstances, then speak to your usual Old Mill contact. For more information we have written about income in retirement along with some tips to help you which you can read here How much income do you need in retirement? – Old Mill

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

• Self Assessment threshold change – For the 2023 to 2024 tax year, the Self Assessment threshold for customers taxed through PAYE only, will change from £100,000 to £150,000
• 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
• 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