Client Update June 2023
In this month’s Enews we look at the latest analysis of inflation and a reminder from HMRC on tax refunds. We also update you on record numbers of early Self Assessment filers and the latest increase in HMRC’s interest rates for repayments. With details on an increase in higher rate taxpayers and the new advisory fuel rates, 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…
9th June 2023
UK rate of inflation fell sharply in April
The UK rate of inflation fell to 8.7% in April from 10.1% in March, according to the latest data from the Office of National Statistics (ONS).
The fall has been attributed to energy price rises slowing from their hikes in 2022.
The rate at which grocery prices rose slowed marginally in the year to April, but at 19.1% is close to record highs.
The ONS said that while food price inflation was still close to its recent peak, the prices of staples like bread, cereal, fish, milk and eggs were rising slightly less quickly.
Chancellor Jeremy Hunt said:
‘The IMF said yesterday we’ve acted decisively to tackle inflation but although it is positive that it is now in single digits, food prices are still rising too fast.
‘So, as well as helping families with around £3,000 of cost-of-living support this year and last, we must stick resolutely to the plan to get inflation down.’
Internet link: ONS website
Don't miss out on a tax refund for work expenses, HMRC urges
HMRC is reminding employed workers they can claim a refund on work-related expenses on the GOV.UK website.
More than 800,000 taxpayers claimed refunds for work expenses during the 2021/22 tax year.
Although the average claim was £125, over 70% of claimants missed out on getting the full amount they were due because they used an agent to make their claim instead of claiming directly with HMRC.
HMRC says that it is quick and easy to claim a tax refund directly on GOV.UK. This is the only way to guarantee receiving 100% of the repayment – with no small print and no middlemen taking a cut, it adds.
Jonathan Athow, HMRC’s Director General for Customer Strategy and Tax Design, said:
‘Every penny counts and we want to make sure employed workers are getting what they deserve – their hard-earned cash straight back into their pockets. To make a claim just search ’employee tax relief’ on GOV.UK. It is the quickest way of getting a tax refund on your work-related expenses and ensures you get 100% of the money back.’
Internet link: GOV.UK
Number of early Self Assessment filers doubles in five years
The number of Self Assessment taxpayers filing their tax return on the first day of the tax year has more than doubled since 2018, HMRC has revealed.
More than 77,500 customers submitted their tax return for the 2022/23 tax year on 6 April 2023, compared to almost 37,000 customers on 6 April 2018.
The deadline to file tax returns for the 2022/23 tax year is 31 January 2024 and customers have been able to submit theirs since the start of the new tax year.
HMRC says that by completing their Self Assessment return early, customers avoid the stress of last-minute filing – something which encouraged more than 860,000 customers to file their tax return for the 2021/22 tax year on 31 January 2023.
Myrtle Lloyd, HMRC’s Director General for Customer Services, said:
‘Filing your self assessment early means you can spend more time building your business or doing the things that you enjoy and less time worrying about completing your tax return.’
Internet link: GOV.UK
HMRC increases late payment interest rate to 7%
Following the Bank of England’s latest increase in the base rate, HMRC has increased both late paid tax and the rate paid on repayments of tax.
The Bank increased the base rate to 4.5% from 4.25% on 11 May, the twelfth consecutive rise.
The late payment and repayment interest rates follow this rise and are applied to the main taxes and duties that HMRC currently charges and pays interest.
The late payment interest rate will increase by 0.25% to 7% from 31 May. This is the highest rate since the start of the financial crisis in November 2008.
Late payment interest is payable on late tax bills covering Income Tax, National Insurance contributions, Capital Gains Tax, Corporation Tax pay and file, Stamp Duty Land Tax, Stamp Duty and Stamp Duty Reserve Tax. The Corporation Tax pay and file rate also increases to 7%.
Repayment interest will also be increased from the current 3.25% rate to 3.5%.
Corporation Tax Self Assessment interest rates relating to interest charged on underpaid quarterly instalment payments rose to 5.25% from 5% a week earlier on 22 May.
Internet link: GOV.UK
'Fresh thinking' needed in regard to MTD for ITSA
The Institute of Chartered Accountants in England and Wales (ICAEW) has written to HMRC regarding how Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) can be better shaped to suit the needs of small property businesses and the self-employed.
On 19 December 2022, HMRC announced the deferral of MTD for ITSA’s start date and an informal review into the initiative.
The ICAEW has written to HMRC to outline key points that it believes should be considered before the implementation of MTD for ITSA. These include rethinking the ‘disproportionate’ administrative burden associated with quarterly updates; decoupling the requirements to maintain digital records and to submit details of income from self-employment and property directly from software; and refocusing the MTD for ITSA initiative on digital record keeping and filing from software.
HMRC intends to make its final recommendations on MTD for ITSA to the Financial Secretary to the Treasury in June 2023.
Internet link: ICAEW website
One in five workers will be higher rate taxpayers by 2027, says IFS
The number of people paying Income Tax at 40% or above will reach 7.8 million by 2027/28, according to research published by the Institute for Fiscal Studies (IFS).
This represents one in five taxpayers and one in seven of the adult population – a near-quadrupling of the share of adults paying higher rates since the early 1990s, the IFS said.
It stated that the six-year freeze to Income Tax allowances and thresholds which started in April last year is set to become the single biggest tax-raising measure since Geoffrey Howe doubled VAT in 1979.
Isaac Delestre, Research Economist at the IFS, said:
‘For Income Tax, the story of the last 30 years has been one of higher-rate tax going from being something reserved for only the very richest to something that a much larger proportion of adults can expect to encounter.
‘The freeze to thresholds is supercharging that process, pulling an additional 2.5 million more people into paying rates of 40% or more by 2027/28. Whether or not the scope of these higher rates should be expanded is a political choice as much as an economic one, but achieving it with a freeze leaves the income tax system hostage to the vagaries of inflation – the higher inflation turns out to be, the bigger impact the freeze will have.’ Internet link: IFS website
Old Mill Commentary
If you have income in the higher rate tax band taking advice may lead to a substantial tax savings.
- Make the most of your allowances
Individuals should aim to utilise all available tax allowances and it may be advantageous for couples to look at the ownership of their assets and income received from them to ensure allowances and starting/basic rate tax bands are used fully.
- Making pension contributions
Higher rate taxpayers can receive tax relief on pension contributions of 40% within limits and there are several situations where different tax bands and other measures interact with each other to create a tax ‘cliff edge’ situation where tax relief can be even greater.
- Income above £100,000
For higher earners with income exceeding £100,000, the personal allowance starts to be taken away until £125,140 when you have no allowance. By reducing your taxable income through making pension contributions or Gift A donations you can reclaim the entitlement to the Personal Allowance which is worth over £5,000 per annum to a higher rate taxpayer. If you have young children, bringing your income under this £100,000 threshold also allows you to claim up to £2,000 in Tax-Free Childcare per child each year so the effective rate of tax relief can be even higher.
- High Income Child Benefit Charge (HICB)
For those with younger children and a salary above £50,000, if you or your partner are receiving Child Benefit, there is the High Income Child Benefit Charge (HICB) charge. For every £100 above £50,000 salary, this tax charge is 1% of the Child Benefit amount, which means that once your income reaches £60,000 the tax charge is the same as the Child Benefit received. Making personal pension contributions and/or charitable Gift Aid donations, it is possible to effectively reduce your income and reduce the charge.
If you want to know more speak to your usual Old Mill contact.
Energy suppliers urged to renegotiate fixed contracts for small businesses
The Federation of Small Businesses (FSB) has urged energy suppliers to renegotiate fixed contracts for small firms on market-peak tariffs.
Research carried out by the FSB revealed that many small businesses are trapped in contracts that mean that their latest bills are at last summer’s peak market rate for energy, despite wholesale prices having fallen since the winter of 2022.
13% of small firms polled fixed their energy contracts during market peak in 2022, the FSB found. It suggested that 93,000 small businesses could be forced to downsize, restructure or even close.
The business group has urged energy suppliers to give small businesses the option to ‘blend and extend’ their fixed energy contracts, allowing them to renegotiate or sign up for longer.
Tina McKenzie, Policy Chair at the FSB, commented:
‘Having come out from a tough winter, this spring is supposed to be the beginning of economic recovery, but tens of thousands are still very much in survival mode because they are tied-in to sky-high energy contracts.
‘Many small businesses agreed to lock in energy contracts last year to ensure they qualified for the maximum level of government support. Now, with that support largely disappearing, they are once again faced with massive energy bill hikes as rates go back to pre-Energy Bill Relief Scheme level.’
Internet link: FSB website
Advisory fuel rates for company cars
New company car advisory fuel rates have been published and took effect from 1 June 2023.
The guidance states: ‘you can use the previous rates for up to one month from the date the new rates apply’. The rates only apply to employees using a company car.
The advisory fuel rates for journeys undertaken on or after 1 June 2023 are:
Engine size Petrol 1400cc or less 13p 1401cc – 2000cc 15p Over 2000cc 23p Engine size LPG 1400cc or less 10p 1401cc – 2000cc 12p Over 2000cc 18p Engine size Diesel 1600cc or less 12p 1601cc – 2000cc 14p Over 2000cc 18p
HMRC guidance states that the rates only apply when you either:
- reimburse employees for business travel in their company cars
- require employees to repay the cost of fuel used for private travel.
You must not use these rates in any other circumstances.
The Advisory Electricity Rate for fully electric cars is 9p per mile. Electricity is not a fuel for car fuel benefit purposes.
If you would like to discuss your company car policy, please contact us.
Internet link: GOV.UK AFR
Beware of Suspicious Scams
Recently, there has been a surge in deceptive correspondence that closely resembles legitimate letters from HM Revenue and Customs (HMRC) and we have experienced a version sent to one of our clients in the last month. While these fraudulent letters may initially seem genuine, it is crucial to remain vigilant and identify warning signs that could indicate a scam.
To learn more on protecting yourself from fraudulent HMRC letters Click Here.