Client Update September 2023
In this month’s Enews we look at the latest data on UK inflation and warnings for this winter’s energy bills. We also update you on the Government’s new Business Climate Hub and the increase in savers being caught in the tax net. With guidance for employers and the latest 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…
5th September 2023
Inflation falls to 6.8% in July 2023
The UK’s annual inflation rate fell to 6.8% in July, down from 7.9% in June, according to the latest data from the Office of National Statistics (ONS).
It is the smallest increase in the cost of living since February 2022.
A fall in gas and electricity, as well as a slowing down in the increase of food prices, are the major drivers behind the inflation rate decrease, according to the ONS.
However, core inflation, which strips out volatile items such as fuel and food remained unchanged at 6.9% in July while service sector inflation rose from 7.2% to 7.4%.
Martin McTague, National Chair of the Federation of Small Businesses (FSB) said:
‘While a drop in inflation provides some comfort, the figures show less of a drop in inflation than hoped for and will renew fears of a wage-price spiral, and of yet more base rate hikes in future.
‘The worry now is that rising wages ignite a fresh wave of inflation in September, which will threaten the momentum from June’s GDP growth.
‘The cost of doing business crisis still has a grip on the small business community, as prices for many key inputs, from energy to components and raw materials, remain far above where they were a year ago.
‘Any reduction in inflation is good news, but the huge toll that spiralling prices have inflicted is still being keenly felt by small firms.’
UK set for five years of lost economic growth, warns Think Tank
The UK is set for five years of lost economic growth, according to research from Think Tank the National Institute for Economic and Social Research (NIESR).
The NIESR said the series of shocks from Brexit, Covid and Russia’s invasion of Ukraine had badly affected the economy. It added that the spending power of workers in many parts of the UK will remain below pre-pandemic levels until the end of 2024.
Despite pay increases, high inflation has forced up prices and the rising cost of living has left households throughout the UK feeling squeezed.
The NIESR forecasts that inflation, the rate at which prices rise, will remain continually above the Bank of England’s 2% target until early 2025, meaning the cost of living will also continue to rise.
Jagjit Chadha, Director at the NIESR, said:
‘The problem we face is that rarely has there been more urgent need, arguably never since the late 1970s, to address this country’s economic problems. But at the same time rarely have they been so entrenched that it is hard to think of any quick fixes that will materially improve living standards across the income distribution within a single Parliament.
‘The economy seems constrained by its pre-Covid peak in activity and is being held back by a sharp normalisation in policy rates, a sequence of persistent negative shocks to supply capacity and a marked slowing in world growth.
‘Brexit has done a great service by revealing even more clearly the underlying problems in the British economy but has not yet located solutions. In truth, shock therapy has tended not to work in any country and, so far, neither has Brexit.’
Internet link: NIESR website
Over a third of households across England will pay higher energy bills this winter
More than a third of English households will see higher energy bills this winter than they did last winter, according to research published by the Resolution Foundation.
Almost half of those hit by the higher bills will be in the poorest tenth of households, the report said.
Ofgem is expected to announce a reduction in the energy price cap from October 2023, with typical annual energy bills falling from £2,100 last winter to around £1,923 this winter.
This fall is largely driven by falling wholesale gas prices.
Although the price per unit of energy is falling, this will be offset by a rise in the daily standing charge, and the fact that last winter’s universal £400 energy support is not being repeated.
As a result, the biggest falls in bills will be seen by households who use the most energy – while households who consume relatively little energy will face higher energy bills this winter.
Jonny Marshall, Senior Economist at the Resolution Foundation, said:
‘The cost of living squeeze is far from over. And, although government schemes have improved their targeting of support throughout the crisis to those most in need, significant gaps remain which should be urgently addressed to help the most vulnerable get through the challenging months ahead.
‘In the longer term, the Government needs to reduce the UK’s dependency on gas and improve the state of our home insulation to prevent the winter energy crisis from becoming an annual occurrence.’
Internet link: Resolution Foundation website
HMRC should increase rewards for whistleblowers, says law firm
HMRC should increase the rewards it pays out to whistleblowers in line with the US system, according to law firm RPC.
The tax authority paid out over £509,000 to individuals providing evidence about tax fraud over the past year, RPC’s research found.
That figure is up from £495,000 in 2021/22 and a 75% increase from the £290,000 paid five years ago, the law firm added.
However, it is just 1.7% of the sum paid to informants by the US Internal Revenue Service (IRS).
The IRS pays whistleblowers 15-30% of the additional tax collected through investigations instigated as a consequence of information received. In 2022, $37.8 million was paid by the IRS to 132 whistleblowers – 58 times the amount paid to UK whistleblowers.
Adam Craggs, Partner and Head of RPC’s Tax, Financial Crime and Regulatory team, said:
‘More individuals, with evidence of serious tax fraud, would come forward if they knew they could be in line for a life-changing amount of money.
‘Paying a proportionate amount for high quality information that helps secure criminal convictions and the recovery of substantial amounts for the Exchequer would be a sensible step. HMRC has been making payments for information on an ad hoc basis for many years and would benefit from improving the system and placing it on a more formal basis.’
Internet link: RPC website
Another million savers to be hit with tax on interest
The frozen Savings Allowance combined with rising interest rates will push over one million taxpayers into paying tax on their savings this tax year, according to research by investment platform AJ Bell.
In the 2023/24 tax year it is estimated that over 2.7 million individuals will pay tax on interest, up by a million in a year.
This year’s predicted total includes nearly 1.4 million basic rate taxpayers, a figure which has quadrupled in just four years, AJ Bell’s research found.
Individuals pay tax on interest they earn on savings that exceeds the personal Savings Allowance, which currently stands at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate taxpayers get no exemption and pay tax on all interest they receive.
Stuart Coombe, Chartered Financial Planner at Old Mill, said:
‘In the last ten or fifteen years, you’d have to have very high balances to earn more than £1,000 of interest as rates were so modest. Now some 1 year fixed rates are offering 6.2% gross interest, so in theory you only need to have around £17,000 or thereabouts to get to that sum. As tax is not deducted it is important to declare this in your tax return or to advise HMRC if you don’t currently complete a tax return. Interest from ISAs (Individual Savings Accounts) or Premium Bonds are not included, so it may be worth reviewing your savings and considering your own position.’
Government launches Business Climate Hub
The Government has launched the UK Business Climate Hub to offer firms advice and support on reducing their energy bills and cutting their carbon emissions.
The Hub includes a free carbon calculator and a suite of new tools to help businesses measure, track and report on their emissions.
It also offers detailed advice on topics, including sourcing products from green suppliers and reducing emissions from freight and logistics, as well as the most cost-effective ways of installing solar panels and electric vehicle (EV) charging points.
The Hub is aimed at SMEs, which the government says are often keen to tackle climate change but find it difficult to know how to reduce their carbon footprint.
Minister of State for Energy Security and Net Zero, Graham Stuart, said:
‘The UK has cut its emissions more than any other major economy in the world. More and more businesses are recognising the business benefits of reaching net zero and we’re determined to empower them to do so.
‘The new UK Business Climate Hub is a one-stop-shop for businesses to find practical advice to reduce their carbon footprint and save on their energy bills.
‘Whether it’s fitting a low-carbon heat pump, generating energy with solar panels, or reducing the emissions from shipping goods, the new support will ensure businesses can drive towards net zero.’
Internet link: Business Climate Hub
Latest guidance for employers
HMRC has published the latest issue of the Employer Bulletin. The August issue has information on various topics, including:
- tax relief on employee contributions to registered pension schemes
- ceasing your PAYE scheme
- the National Minimum Wage
- helping customers steer clear of tax avoidance schemes
- Income Tax Self Assessment – preparing for the new tax year basis
- helping your new employees get paid correctly
- tackling non-compliance in the umbrella company market.
Please contact us for help with tax matters.
Internet link: Employer Bulletin
Advisory fuel rates for company cars
New company car advisory fuel rates have been published and took effect from 1 September 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 September 2023 are:
Engine size Petrol 1400cc or less 13p 1401cc – 2000cc 16p Over 2000cc 25p Engine size LPG 1400cc or less 10p 1401cc – 2000cc 12p Over 2000cc 19p Engine size Diesel 1600cc or less 12p 1601cc – 2000cc 14p Over 2000cc 19p
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 10p 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