Client news update - March 2025

An increasingly complex tax system is costing UK businesses an estimated £15.4 billion a year in compliance, according to a report from the National Audit Office (NAO).

HMRC’s cost of collecting tax has risen by £563 million over the past five years due to added complexity in the system plus investments in staff and IT.

During this period, the government’s tax yield rose by £113 billion in real terms, said the NAO.

HMRC estimates that compliant UK businesses incur costs of £15.4 billion each year in meeting around 2,500 obligations across 27 policy areas. These include £6.6 billion of fees paid to agents, accountants and other intermediaries, £4.5 billion of acquisition costs, such as software, and £4.3 billion of internal costs.

The report warned that HMRC is underestimating these costs as it does not take into account all taxpayer obligations.

Frank Haskew, Head of Taxation, at the Institute of Chartered Accountants in England and Wales (ICAEW), said:

‘This report highlights how the UK’s increasingly complicated tax system is saddling businesses and HMRC with extra burdens and costs, which are growing in real terms. The report also substantiates our concern that the cost to businesses of complying with their tax obligations is likely to be understated.’

Internet link: NAO website ICAEW website

People plugging gaps in their National Insurance contributions (NICs) have added £35 million to their State Pensions since last April, according to figures from HMRC.

More than 37,000 online payments have been made through the online service, equating to 68,673 years of contributions.

The average online top-up payment is £1,835 and the largest weekly State Pension increase is £113.76. HMRC says that 65% of the years topped up by customers are from 2017 onwards.

HMRC and Department for Work and Pensions (DWP) are reminding customers they only have until 5 April to check their NICs record and fill any gaps from 6 April 2006 onwards.

From 6 April 2025, people will only be able to make voluntary National Insurance contributions for the previous six tax years, in line with normal time limits.

The Check your State Pension forecast service on GOV.UK is the quickest and easiest way to check if action is required, says HMRC. The HMRC app can also be used.

Angela MacDonald, HMRC’s Second Permanent Secretary and Deputy Chief Executive, said:

‘There are just two months left to check and fill any gaps in your NICs record from 2006 onwards to boost your State Pension entitlement. Don’t delay – it is quick and easy to check your NICs record on GOV.UK and it could help your finances in retirement.’

Internet link: HMRC press release

Businesses will get a ‘measure of relief’ after interest rates were cut by the Bank of England, says the British Chambers of Commerce (BCC).

The Bank cut the base rate from 4.75% to 4.5%, the lowest level since June 2023.

The Bank’s Monetary Policy Committee voted 7-2 in favour of the cut – those two members wanted a bigger cut, to 4.25.

The Bank also cut its growth forecast for the UK economy to 0.75% in 2025, down from a previous forecast of 1.5%.

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

‘Given the raft of cost pressures and global economic uncertainties businesses are facing, today’s interest rate cut provides a measure of relief for Small & Medium Enterprises (SMEs).

‘UK businesses are facing a range of challenges. Domestically, firms face increased tax bills and employment costs within weeks, with National Insurance and minimum wage hikes. Internationally, a looming trade war could hit many UK importers and exporters. This is likely to feed into heightened inflation throughout the year.

‘The government needs to pull all levers possible to ease the cost pressures on firms and unlock investment opportunities. That includes accelerating business rate reform, supporting infrastructure projects and boosting trade opportunities.’

Internet link: Bank of England website BCC website

HMRC will reduce late payment and repayment interest rates from 25 February following the cut in the base rate.

The Bank of England cut the base rate to 4.5% on 6 February, triggering a 0.25% cut in HMRC interest rates which are pegged to the base rate.

From 25 February, the late payment interest rate will be cut to 7.0% from 7.25%.

The repayment interest rate will be cut to 3.5% from 3.75% from 25 February.

HMRC late payment interest is set at base rate plus 2.5%. Repayment interest is set at base rate minus 1%, with a lower limit – or ‘minimum floor’ – of 0.5%.

Corporation Tax Self Assessment interest rates relating to interest charged on underpaid quarterly instalment payments dropped to 5.5% from 5.75% from 17 February, a week earlier than the main late payment rate change.

Internet link: GOV.UK

The higher-than-expected rise in the rate of inflation underlines the real challenges businesses face, according to the British Chambers of Commerce (BCC).

The Consumer Prices Index (CPI) measure of inflation rose to 3% in January, up from 2.5% in December, according to the Office for National Statistics (ONS).

Economists had expected inflation to rise to 2.8% in January.

The increase was driven by rises in the prices of air fares, food and non-alcoholic drinks and private school fees, added the ONS.

The data underlines the inflationary pressures in the economy right now and the ‘real challenges businesses are facing’, said Stuart Morrison, Research Manager at the British Chambers of Commerce.

He continued: ‘Firms are having to deal with significant cost burdens which threaten to fuel inflation further. Within weeks they’ll be facing the hikes in National Insurance contributions and the minimum wage.

‘The inflation landscape, coupled with ongoing global risks and the looming threat of US tariffs, is likely to give the Bank of England more food for thought, as it charts a cautionary path to further interest rate cuts.

‘Businesses are crying out for cost-pressures to be eased so that they can invest, recruit and trade – driving forward the economic growth we all want to see.’

Internet link: ONS website BCC website

The overwhelming majority of businesses say the rise in employers’ National Insurance Contributions (NICs) will force them to change their plans, according to research by the British Chambers of Commerce (BCC).

With under six weeks until the NICs rise comes in, 82% of firms say the tax hike will cause them to rethink. In addition, 58% of surveyed businesses say it will impact recruitment plans, and 54% that it will affect their prices.

Meanwhile, more than a third of firms suggest investment and day-to-day operations will be impacted.

Alex Veitch, Director of Policy at the British Chambers of Commerce said:

‘The clock is ticking down to the NICs rise, and firms are already telling us they are sitting on a powder keg of costs.

‘The government has pledged to retain the NICs tax position through the life of this parliament, but our new evidence should give pause for thought. We need the government to publish a wider tax roadmap for business, setting out the direction of travel for costs like NICs and business rates.

‘Business rate reform must be an urgent priority, creating a system that incentivise investment. Getting on with planning and skills reforms will also remove blockers to growth.’

Internet link: BCC website

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

• end of year reporting
• payrolling employees’ benefits and expenses
• get ready for changes to National Insurance
• new online iForm for PAYE employment expenses
• expanding the cash basis
• relevant motoring expenditure – National Insurance contributions.

Please contact us for help with tax matters.

Internet link: Employer Bulletin

New company car advisory fuel rates have been published and took effect from 1 March 2025.

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 March 2025 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 7p per mile.

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

Internet link: GOV.UK AFR