Client Update June 2024

The next government must take a direct hand in rebuilding trust between HMRC and the self-employed, according to the Association of Independent Professionals and the Self-Employed (IPSE).

The call is part of IPSE’s manifesto for the General Election on 4 July.

Under its proposals, a Cabinet minister would be charged with directly overseeing the tax office. Taxpayers would also be offered more recourse when the department has acted carelessly or unfairly.

The manifesto also calls for the prevention of ‘obscenely’ long payment terms and the scrapping of the off-payroll rules.

IPSE also wants to see an end to shortfalls in support for self-employed parents and better incentives for people to adopt side hustles.

Derek Cribb, IPSE’s CEO, said:

‘The self-employed vote is very much up for grabs at this election – more than at any election in living memory.

‘The sector is bursting with potential to get more people working, plug skills gaps and grow the economy. But this potential is being squandered by the devastating impact of late payments, careless tax enforcement, and a lack of proactive policymaking catered to the millions of people who work for themselves.

‘At this election, the party that fully embraces the self-employed stands to gain their support. The proposals in our manifesto offers the parties the chance to do just that.’

Internet link: IPSE website

Revitalising ‘Brand Britain’ in its first 100 days in office should be a priority for the party that wins the General Election, says the Confederation of British Industry (CBI).

In its Business Manifesto, the business group has mapped out the steps it says the next government can take to redefine the UK’s growth trajectory.

The CBI says the next government will need to improve the pitch for private investment with a plan for sustainable growth.

Its key recommendations include a cutting-edge trade and investment strategy and unlocking the power of the UK regions.

Rain Newton-Smith, CBI CEO, said:

‘A new government of whatever colour provides an opportunity to shift gear and prioritise the long-term decisions that can deliver a decade of sustainable growth.

‘Top of the in-tray should be sharpening the investor pitch for ‘Brand Britain’ – ensuring we are at the very top of the league table when it comes to investment. At the same time, a focus on building momentum behind the ‘big three’ enablers across tax, planning and the labour market within the first 100 days can give firms a clear flightpath for growth.

‘We want to see a new government deliver a bold pitch to investors across the globe, restore the UK’s competitiveness, and double down on our climate commitments and opportunities.’

Internet link: CBI website

An HMRC error could mean that some low-income, self-employed workers lose out on their entitlement to National Insurance-related benefits like the state pension, warns the Low Incomes Tax Reform Group (LITRG).

The issue centres around the payment of voluntary Class 2 National Insurance contributions (NICs) that can be made by self-employed taxpayers with profits under £6,725.

These voluntary contributions are usually paid by taxpayers as part of their Self Assessment return and must reach HMRC by 31 January following the end of the tax year.

HMRC then automatically transfers the NICs to the taxpayer’s National Insurance record to be counted towards their entitlement to benefits.

However, it appears that HMRC did not initiate the transfer until after the 31 January deadline for the 2022/23 tax year resulting in the voluntary contributions being rejected and automatically refunded to the taxpayer.

In the absence of any action, this could mean that taxpayers miss a qualifying year of NICs.

Antonia Stokes, LITRG Technical Officer, said:

‘The issue is unique to the year in question, and our advice to those who might be affected is to first check to see whether they have received a refund from HMRC.

‘We would also like to see HMRC acknowledge the error and proactively offer help to those taxpayers who have been affected, in line with HMRC’s own charter commitments. However, until they do so, there are practical steps that taxpayers can take to maintain their entitlement to National Insurance-related benefits.’

Internet link: LITRG

UK taxpayers spent the equivalent of 800 years on hold to HMRC in 2022/23, according to a report published by the National Audit Office (NAO).

The report found that funding pressures, job cuts and a push to reduce costs by encouraging people to manage their tax affairs online had all led to a poor call-handling performance by HMRC.

The average time spent waiting on the phone to speak to an adviser in the 11 months to February 2024 was almost 23 minutes – well above the five minutes recorded in 2018/19.

Altogether taxpayers spent 7 million hours, or 798 years, on hold to HMRC in 2022/23, according to the report.

Customer service is in a ‘declining spiral’ at HMRC, which had not met its goals for responding to taxpayer correspondence or telephone calls for several years, the NAO added.

The government has recently announced an extra £51 million in funding to help HMRC improve its telephone helplines.

Gareth Davies, Head of the NAO, said:

‘HMRC’s telephone and correspondence services have been below its target service levels for too long.

‘While many of its digital services work well, they have not made enough of a difference to customers, some of whom have been caught in a declining spiral of service pressures and cuts. HMRC has also not achieved planned efficiencies.

‘HMRC must allow more time for these services to bed in and understand the difference they make before adjusting staffing levels.’

Internet link: NAO website

UK adults face a significant shortfall in their pension savings at retirement compared to what they wanted to retire on, according to research from Standard Life.

Standard Life’s Retirement Voice Report found that, on average, retirees had hoped to build up a pension pot of £250,000. However, the average amount that they accumulated by retirement was £131,000 – leaving a £119,000 shortfall.

Based on current annuity rates, a pot of £250,000 could lead to an income of £1,007 monthly, or £12,091 a year, assuming a retirement age of 66.

A pot of £131,000 could result in a monthly income of £527 in retirement, or £6,332 yearly – £480 a month, or £5,759 a year less.

However, even the not insignificant £250,000 pot falls short of a ‘moderate’ standard’ of living in retirement, according to the Pensions and Lifetime Savings Association.

Old Mill commentary: Of course these are only averages and if you would like to speak to one of our retirement advisers (experts) to look at your individual circumstances, whether you’re planning for the future or approaching retirement, then speak to your usual Old Mill contact. 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

Almost 300,000 Self Assessment taxpayers filed their return in the first week of the new tax year, HMRC has revealed.

The early filers were almost 10 months ahead of the 31 January 2025 deadline.

Almost 70,000 people filed their return on the opening day of 6 April this year.

HMRC is encouraging people to file early and avoid the stress of last-minute filing.

The tax authority says early filing can also help with budgeting. A budget payment plan helps spread the cost of tax bills with weekly or monthly payments.

In addition, refunds of overpaid tax will be paid as soon as the return has been processed.

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

‘Filing your Self Assessment early means people can spend more time growing their business and doing the things they love, rather than worrying about their tax return.

‘You too can join the thousands of customers who have already done their tax return for the 2023-24 tax year by searching ‘Self Assessment’ on GOV.UK and get started today.’

Internet link: HMRC press release

The rate of UK inflation fell to 2.3% in the year to April, according to the Office for National Statistics (ONS).

Inflation is down from 3.2% in March and is the lowest level since September 2021.

However, it is still above the Bank of England’s 2% target. The drop was driven by falling gas and electricity prices after the energy price cap was lowered by Ofgem.

The drop in inflation followed news that the UK economy grew by 0.6% between January and March, according to the ONS.

It means that the country officially emerged from recession with growth led by the services sector.

Despite the improving outlook, the Bank of England held interest rates at 5.25% for the sixth month in a row.

The British Chambers of Commerce (BCC) said the fall in the rate of inflation was positive news that increased the likelihood of an interest rate cut in the coming months.

David Bharier, Head of Research at the BCC, added:

‘Uncertainty will persist with global conflicts and trade wars threatening supply chains. Real wage costs also continue to grow – our most recent business survey found almost half of firms expect their prices to rise over the next three months, with labour costs cited as the main driver.

‘While the outlook may have brightened, the skies aren’t yet fully clear. UK firms need to see a long-term vision for the UK economy from politicians, including action on making trade easier, especially with the EU.’

Internet link: ONS website ONS website Bank of England website BCC website

New company car advisory fuel rates have been published and took effect from 1 June 2024.

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 2024 are:

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 8p per mile.

If you would like to discuss your company car policy, please contact us.

Internet link: GOV.UK AFR

A company may have a higher tax bill where there are associated companies, and applying the rules can be challenging.  For accounting periods commencing before 1 April 2023, the £1.5 million, £10 million and £20 million thresholds were divided by the number of ‘related 51% group companies’. For accounting periods commencing on or after 1 April 2023, the thresholds are divided by the number of ‘associated companies’.

Senior Tax Manager, Clive Barron, has produced the following article and is available for further advice.