Interest rate hits 1% as Bank tries to curb inflation
The Bank of England has raised the interest rate by 0.25% to 1%, marking the highest rate for 13 years
The rate has gone up by 0.25% from the current 0.75%, and is likely to continue to rise over the next 12 months. The Bank expects the base rate to increase to 2.5% by mid 2023, falling to 2% at the end of 2024.
The current 7% rate of inflation is creating an intensifying cost of living crisis with soaring electricity and gas prices. CPI inflation is expected to rise further over the remainder of the year, to just over 9% in 2022 Q2 and averaging slightly over 10% at its peak in 2022 Q4. However, the Bank then expects inflation to drop back to 2% in 2024.
‘Global inflationary pressures have intensified sharply following Russia’s invasion of Ukraine. This has led to a material deterioration in the outlook for world and UK growth,’ the Bank said.
These developments have exacerbated the combination of adverse supply shocks that the UK and other countries continue to face. Concerns about further supply chain disruption have also risen, both due to Russia’s invasion of Ukraine and to Covid-19 developments in China.
Martin Beck, chief economic adviser, EY Item Club said: ‘There is a bit of difference of view in our forecast and what banks are expecting. We do not think there will be a further rise this year, but banks expect 2% rate. What is currently an inflationary problem may prove to be deflationary in time.
‘There are plenty of examples of central banks tightening too fast in the past. We think they will take a more cautionary approach. The Bank can vary the interest rate but could also print money – quantitative easing. But when interest rate reaches 1% the Bank said it would start selling bonds back to the market, but quantitative tightening is not something the Bank has done before so they will want to take a cautious approach.’
Alpesh Paleja, CBI lead economist, said: ‘Another rise in interest rates is warranted, given the persistence of high inflation. However, the Monetary Policy Committee are walking an increasingly fine line.
‘Further action to curb price pressures needs to be weighed against the increasing need to protect growth, particularly in light of a historic cost-of-living crunch. Households are feeling it and so are businesses, with cost pressures across the board.
‘While monetary policy is the appropriate first line of defence in tackling inflation, government needs to take further action to shore up the broader resilience of the UK economy. In the near-term, higher inflation will hit poorer households hardest, so support measures for this group will need to be kept under review. Over the longer-term, securing greener energy supply and a relentless focus on raising potential growth will bolster our ability to withstand shocks and further price pressures.’
Paul Clifford, regional CEO at Azets, said: ‘This is the first time in 13 years that the UK base rate has been at 1% – many businesses and the 1m-plus householders on variable mortgage rates aren’t used to seeing a continuous rise in borrowing costs and the impact that has on budgets.
‘This is also the fourth rise in half a year, from 0.25% in December.
‘The interest rate rise, whilst still historically low, will now place additional repayment burdens on borrowers and have a knock-on impact on businesses as spending is reined in, with SMEs likely to be hit hardest.’
- Published in Interest Rates, Uncategorized
Treasury to raise extra £3bn from stamp duty
Over 1.2m homes have moved above the basic stamp duty threshold which will bring the Exchequer at least an extra £3bn a year
According to Zoopla’s latest house price index, 1.2m properties in the UK have moved above the initial £125,000 stamp duty threshold as house prices have risen around £29,000, or 13%, since March 2020 with an 8.3% rise in the last year alone.
As buyers pay 2% of stamp duty between £125,000 to £250,000, the Treasury looks set to see a minimum increase of at least £3bn if those 1.2m houses are sold at the entry rate of £125,001.
Since the average house price in the UK sits at a record level of £292,000, according to the Office for National Statistics (ONS) in January 2022, the Treasury will almost certainly see that extra £3bn in its coffers.
The latest HMRC stamp duty data revealed that in the first quarter of 2022, residential property transactions were 13% lower than they were in Q4 2021, and of the 244,200 residential homes bought, only 43,700 received first time buyer relief, while 27,300 were below the tax threshold altogether.
According to HMRC, 70% of residential transactions were liable for stamp duty land tax, compared to just 36% in Q1 2021 due to covid exemptions, with the average stamp duty bill for residential property in Q1 being £15,000, according to analysis from Coventry Building Society.
The data also showed that the 2% surcharge on the purchase of residential properties by non-residents up to the end of Q1 2022 raked in £111m for government coffers on just 10,400 transactions.
Last week’s tax receipts data from HMRC showed that the Treasury gained more than £14bn in stamp duty, including non-residential property in 2021-22 and comes despite the stamp duty holiday, which ended in September. Of that, £9.9bn of stamp duty receipts last year came from residential properties.
The overall receipts for stamp duty land tax, and annual tax on enveloped dwellings, for 2021-22 sat at £18.6bn, which is £6.1bn higher that the same period last year.
The Office for Budget Responsibility (OBR) predicts that stamp land tax duty alone will net the Treasury £17.1bn in the year to March 2023, a figure that is set to surge even higher to £20.8bn by 2027.
Tom Bill, head of UK residential research, Knight Frank, said: ‘Stamp duty has always been a pretty imperfect tax and can have a distorting effect on the market.
‘Reforming it could be problematic for the government, which may not have much bandwidth to do it before the next election.
‘With the social care crisis, however, you could see the rationale for offering stamp duty relief to people who want to downsize rather than wholesale changes, because having to pay that large bill can deter people from moving.’
There has been a lot of attention on the levels of stamp duty collected by the Treasury over the last two years due to rapidly rising prices however, Karen Noye, a mortgage expert at wealth management company Quilter said that rising house prices could possibly be a ‘thing of the past’.
Noye said: ‘Across the whole market, there has been a fall in transactions in the last three quarters and total SDLT receipts in Q1 2022 were 19% lower than in Q4 2021.
‘The heat is finally coming out of the UK property market, and this may have an impact on house prices. With interest rates likely to go up and lots of other factors squeezing people’s finances a gradual drop in house prices is highly likely’.
- Published in Stamp Duty
Treasury to tackle £5.5bn ‘wasteful spending’
The Treasury has announced an efficiency drive to cut £5.5bn of ‘wasteful spending’ across government departments
The crackdown, which was requested by Prime Minister Boris Johnson, has seen a new ‘Efficiency and Value for Money Committee’ set up, which will be chaired by Chancellor Rishi Sunak and will aim to ensure that the 5% efficiency target set last year is met across the government and will also examine strategies to prevent fraud and error.
The announcement stated that the £5.5bn saved from this measure will be put straight back into public services such as the NHS. As part of the plan, the annual NHS efficiency target will be doubled to 2.2% which the Chancellor stated would free up around £4.75bn to fund the NHS over the next three years.
The crackdown will also see a review of government arm’s length bodies and quangos which will be expected to save at least £800m from their budgets.
The efficiency target will also aim to ensure that the funding settlement of £188.9bn a year by 2024-25 for the Department for Health and Social Care will also ‘deliver the best possible value for money’.
The increased efficiency target will also aim to ensure that the record funding settlement of £188.9bn a year is delivering the best possible value for money for the taxpayer and the money saved will be used to fund frontline NHS priorities.
The Treasury said that the savings will be made through a range of programmes which include the digitisation of diagnostic and frontline services, which has been shown to reduce cost per admission by up to 13%, better use of property, reduced reliance on consultants, and greater use of shared services.
The Treasury will also launch an innovation challenge to crowdsource ideas from civil servants on how government can reduce waste and improve public services, with winners selected this summer and the best ideas becoming government policy.
A similar challenge was run in 2015, which received 22,000 responses, of which 16 measures were implemented.
Chancellor Rishi Sunak said: ‘During these challenging times it’s vital that every single penny of taxpayers hard-earned cash is being spent well.
‘The current level of waste across government is simply not acceptable, which is why we’re doubling down on wasteful spending and launching an efficiency drive to make £5.5bn worth of savings. That money will then be pumped directly into the world class public services that the British people deserve.’
Last month, minister for Brexit opportunities and government efficiency Jacob Rees-Mogg MP outlined to The Times his plans to shrink the civil service by cutting more than 65,000 jobs, around one in seven civil servants by 2023-24.
In an interview, Mogg stated that he wanted to get the headcount ‘under control’ and asked whether the current civil service headcount was ‘providing value’ for the taxpayer.
Mogg then pledged to deliver former Cabinet Office minister Francis Maude’s legacy of reforming and cutting the size of the civil service. Under Lord Maude, the civil service shrank from around 470,000 full-time officials in 2010 to about 384,000 just before the 2016 EU referendum. The 2012 Civil Service Reform Plan aimed to reduce the headcount to 380,000.
However, this cut has almost been reversed with the civil service having around 472,700 full-time equivalent staff as of September last year, according to the Institute for Government’s most recent Whitehall Monitor report, which is mainly due to Brexit and the Covid-19 pandemic.
- Published in Uncategorized
HMRC changes 64-8 authorisation form for tax agents
HMRC has confirmed that from 31 March 2022, new clients will need to use a revised version of form 64-8 to give authorisation for accountants or tax agents to deal directly with the tax authority
It is important to note that existing clients do not need to re-authorise their current relationship.
‘The new version of the agent authorisation form is designed to give our customers a better experience and improve data protection,’ HMRC said.
‘It allows customers to state which tax regime they want you to access. The form also includes new guidance for customers on how to fill in the form correctly and what data they are agreeing to share with you as their agent.’
A 64-8 form gives accountants and agents client permission to deal directly with HMRC on tax related issues, although correspondence is still sent to client companies. There will be a six-month transition period until the old form is withdrawn.
The Association of Taxation Technicians (ATT) advised businesses to start using the new form once it is available. ‘HMRC are also providing a generous transition period until the autumn during which time both the old and new form will be processed, but obviously a shift by agents to the newer form sooner rather than later in this period would be welcome. Once the final date has been determined, any old-style forms submitted after that date will be rejected,’ ATT said.
The form has been updated by HMRC to ensure it has more information necessary to be compliant with data protection rules under GDPR. Agents who prepare payrolls will also note that more information is now requested on the PAYE/CIS sections which, if completed, will give authorisation for online access to payroll or CIS records without the need for a separate FBI2 form.
HMRC plans to phase out the current 64-8 form from autumn 2022. After this date, HMR said: ‘We’ll only accept the new version of the 64-8 agent authorisation form and reject any authorisation requests sent using older versions of the form.’
The new agent authorisation form will be available online from 31 March 2022. Go to gov.uk and search ‘Tax agents and advisers: authorising your agent (64-8)’.
- Published in Uncategorized
Hospitality VAT rate set to return to 20%
The reduced rate VAT for hospitality venues is to end tomorrow with the VAT rate increasing from 12.5% back to the original 20%
The VAT reduction, which was introduced for businesses trading in the hospitality sector in June 2020, ends on 1 April with the VAT rate going back up to its original rate of 20%.
The reduction in VAT was given to VAT-registered businesses from the hospitality, hotel and holiday accommodation sectors to financially support them during the initial lockdown of the Covid-19 pandemic. VAT originally dropped to 5% in July 2020 with the rate increasing to 12.5% in October 2021.
The Federation of Small Businesses (FSB) stated that the increased VAT is just another hit to businesses still struggling to recover from the pandemic. In addition, 31 March is the final day that businesses can pay back in full deferred VAT covering the period to June 2020.
UKHospitality stated that the move ‘might prove fatal’ for business owners and that the removal of the lower rate lifeline ‘dashes the hopes that many businesses could begin to recoup some of the losses of the last two years’.
Kate Nicholls, chief executive, UKHospitalty said: ‘Locking in VAT at 12.5% would have given hospitality businesses a major boost and helped the sector in its ambition to lead the UK back to post-Covid prosperity.
‘As it is, thousands of jobs could be lost, the UK will remain uncompetitive versus international rivals, and already hard-pressed consumers in the midst of a cost-of-living crisis will see price rises in their favourite pubs, bars and restaurants, further fuelling inflation.’
Described by the FSB as the ‘April flashpoint’ from 1 April the national living wage rate for over 23s goes up to £9.50, the 66% business rates discount comes to an end, and the requirement for businesses to make their VAT returns Making Tax Digital (MTD) compliant is also introduced.
From 3 April, Statutory Sick Pay (SSP) is also set to rise to £99.35, and from 6 April the 1.25% increase to National Insurance contributions (NICs) hits employees, employers, and sole traders, as well as a rise in the dividend rate.
The FSB highlights that according to statistics from the Office of National Statistics (ONS) Covid-19 infection rates are rising with one in seven business not currently trading at full capacity due to infection rates.
The current cost of living crisis, rising Covid cases, and the rapidly increasing inflation and energy costs, are causing ‘huge anxiety’ for businesses across the UK with 5%, which is around 250,000 businesses, fearing ‘imminent collapse’, FSB warned.
Martin McTague, national chair, FSB, said: ‘There’s no use hiding from the facts though: this April flashpoint will push some firms to the brink.
‘The spiralling energy costs are causing huge anxiety for small firms trying to navigate the energy market remaining sandwiched between domestic consumers protected by a price cap, and big corporates, which have the leverage to secure the best deals.
‘With so many business owners and employees now forced to isolate as Covid infection rates soar, we and the TUC are urging the government to launch a permanent a sick pay rebate that covers all absences to protect livelihoods.’
- Published in VAT
National Living Wage increases to £9.50
The National Living Wage and National Minimum Wage rise comes into effect from 1 April
Announced in the Autumn Budget last year by the Chancellor, from 1 April the National Living wage rate rises 6.6% from £8.36 to £9.50.
According to the Department for Business, Energy, and Industrial Strategy (BEIS), the increase in the hourly rate will apply to about 2.5m people which will put £1,000 a year more into full-time workers’ pay packets.
The National Living Wage is the government’s set minimum rate that employers must pay staff aged 23 and over for each hour worked. If you’re over 23, you are legally entitled to the National Living wage, however if you’re under 23, you are only entitled to the National Minimum Wage, which varies based on your age.
The complete list of minimum wage increases from 1 April is as follows:
National Living Wage: £9.50 up from £8.91 (6.6% increase)
21-22 year-old rate: £9.18 up from £8.36 (9.8% increase)
18-20 year-old rate: £6.83 up from £6.56 (4.1% increase)
16-17 year-old rate: £4.81 up from £4.62 (4.1% increase)
Apprentice rate: £4.81 up from £4.30 (11.9% increase)
Accommodation offset: £8.70 up from £8.36 (4.1% increase)
Business secretary Kwasi Kwarteng said: ‘We have never been more determined to make work pay, and by providing the biggest cash increase ever to the National Living Wage, we are giving a boost to millions of UK workers.
‘While no government can control the global factors pushing up the cost of everyday essentials, we will absolutely act wherever we can to mitigate rising costs.
‘With more employees on the payroll than ever before, this government will continue to stand up for workers.’
Even with the increase in wages, many have expressed concern and criticised the Chancellor stating that the rise in wages will not be enough to support families facing the current cost of living crisis.
Energy bills are set to rise dramatically as the price cap increases from £1,277 to £1,971 as of 1 April and the cost of groceries, National Insurance contributions, and VAT on eating and drinking are all set to rise at the same time.
As well as the National Living Wage, there is also an unofficial and voluntary ‘real living wage’. This is calculated by the Living Wage Foundation, a campaigning organisation, and is based directly on cost of living.
According to the Foundation, the ‘real’ living wage is currently £9.90 an hour for workers across the UK and £11.05 in London, almost a pound above the mandatory National Living Wage.
- Published in National Wage Rates
Rates rise to pile more pressure on SMEs
UK business groups have described the Bank of England’s interest rate rise as ‘ill timed’ as it will only pile on more pressure to SMEs already struggling with debt repayment burdens
The Federation of Small Businesses (FSB) and the British Chamber of Commerce (BCC) have both expressed concern over the announcement from the Bank of England (BoE) yesterday, which increased interest rates to 0.75%.
The groups stated that the move will mean higher debt costs for many businesses as they try to continue to fight through the economic consequences of the pandemic with the BCC stating that the move was ‘ill-timed against a backdrop of growing domestic and global headwinds’.
In a statement released by the FSB, national chair Martin McTague stated that SMEs were being constantly ‘undermined by a vicious cycle of rising costs’ as they try to make up for the time lost over the last two years of the Covid-19 pandemic.
The BCC stated that while interest rates remain low ‘by historic standards’ the latest rise will be viewed by many as a further step in the ‘prolonged period of aggressive monetary tightening’ at a time when consumers and businesses are struggling as increasing the interest rate will do ‘little to curb the global causes behind this inflationary surge’.
The BCC added that the move will only ‘damage confidence’ and ‘deepen the financial squeeze on consumers and businesses.
In a statement released by the FSB, McTague said: ‘A lot of small firms have had no choice but to increase prices in response, but this isn’t always an option, especially in sectors still trying to entice customers back, such as hospitality and tourism, and their suppliers.
‘At the same time, consumer confidence has plunged and the cost-of-living squeeze has intensified, with record fuel prices and sky-high utility bills meaning loss of disposable income.
‘Small businesses increasingly feel that the Government is indifferent to the cost pressures they face.
‘The planned hikes to national insurance and dividend taxation taking effect in a matter of days, alongside an income tax threshold freeze, will, for many, be the final straw.’
Both the FSB and the BCC have urged the Chancellor to consider this when he releases his Spring Statement next week with the BCC stating that it is vital for the Chancellor to priorities ‘the escalating cost of doing business’.
The BCC called on the Chancellor to delay the National Insurance Increase (NIC) and to introduce a temporary energy price cap for small businesses.
Suren Thiru, head of economics, at the BCC: ‘This would give firms the headroom to keep a lid on prices, protect jobs and make an investment that is so vital to sustaining our economic prospects.’
As well as support for rising energy costs, the FSB calls for an increase in the Employment Allowance and a rise in the business rates relief threshold on rates.
The FSB also stated a ‘pay as you grow’ option on other state-loan-backed schemes to allow businesses to spread the pressure of their debt repayments.
McTague concluded: ‘We urgently need to see the Chancellor ease the pressure on the five and a half million small firms and sole traders on which our recovery will depend.’
- Published in Business Rates
HMRC late payment interest rates revised
HMRC has increased its late payment interest rates to 0.75% after the Bank of England increased their base rates
The tax authority revised its interest rates for late payments after the Bank of England (BoE) increased the base rate from 0.5% to 0.75%.
HMRC confirmed that the repayment interest rate will rise to 0.75% with the rises due to come into effect shortly The repayment interest rate will remain at 0.5%.
The changes to late payment interest will come into effect on:
- 28 March 2022 for quarterly instalment payments; and
- 5 April 2022 for non-quarterly instalments payments.
HMRC’s interest rates are linked to the Bank of England’s base rate, and due to the base rate increasing HMRC automatically increases rates.
- Published in HMRC
Treasury collects £4m extra a day in fuel VAT
Since the beginning of 2022, the Treasury has collected nearly £4m extra a day in fuel VAT due to the increasing price of petrol which totals an extra £270m so far this year
The data, compiled by former Office National Statistics (ONS) statistician Jamie Jenkin and provided by RAC, shows that as the average price of petrol has increased to 161.06p per litre since the beginning of 2022.
Jenkin highlighted in a Twitter thread that over half of what is paid at petrol pumps goes to the UK government in tax with 57.98p being fixed for every litre and 20% of the setting price being taken in VAT. If this price goes up by 10p then the government gets an additional 2p.
Jenkin stated that due to the fact that petrol prices have increased by 14p since the beginning of January and that 133m litres of petrol are purchased each day, the current fixed rate and VAT means that the Treasury is estimated to be taking at least an extra £3.7m each day. This means that over the 73 days so far this year, the Treasury has brought in an extra £270m in VAT from fuel.
According to data released by the Department for Business, Energy, and Industrial Strategy (BEIS) shows that the increase between 28 February and 7 March was the sharpest in 18 years, with the average price of a litre of petrol rising from 149.2p to 153.0p, the average diesel price rose from 153.4p to 158.6p.
With the ongoing crisis in Ukraine, the cost of fuel is expected to continue to rise significantly over the coming few weeks.
Jenkins told Accountancy Daily: ‘As fuel prices rise, the Treasury receives an extra £3.7m a day since the beginning of January.
‘The VAT take for fuel is rising and with the added cost for families, this is an area where the Chancellor could temporarily cut back next week. There are a few areas he can also look to help out families with the cost of living.
‘A temporary cut in fuel duty, or a suspension of the green levy on household energy bills would be a welcome boost with costs soaring. With extra money coming in through VAT on these increased fuel bills, he has some room for manoeuvre.’
Many are urging Rishi Sunak to act on the increased cost of living in next week’s Spring Statement, with the RAC calling on the Chancellor to cut VAT on fuel and to reduce fuel duty.
A spokesperson from the RAC said: ‘Prices at the pumps have been breaking records on a daily basis and to make matters worse the price increases have been seriously steep recently. We believe the Chancellor must take immediate action by cutting VAT on fuel to at least 15% to give drivers some instant respite and to protect them from future increases.
‘The Chancellor could also temporarily reduce fuel duty, which is currently levied at 58p per litre, reducing this would help both businesses and consumers.’
Last week, the RAC promoted a petition which has gathered increased momentum due to the impact the Russian invasion of Ukraine has had on the price of fuel.
According to the petition: ‘The government should reduce the cost of fuel through a reduction of 40% in fuel duty and VAT for two years. This can effectively offset the rise in fuel prices since 2020.
‘We believe people may understand to a degree the need for tax following the pandemic however prices of £1.50 or more per litre will cancel out any understanding. The government has the ability to sacrifice some revenue to appease the British public.’
- Published in Fuel Rates, VAT
570k scams hit self assessment taxpayers, HMRC warns
HMRC is warning self assessment taxpayers to be on their guard following the tax return deadline after more than 570,000 scams were reported to HMRC in the last year
At this time of year, self assessment taxpayers are at increased risk of falling victim to scams. They can be taken in by scam texts, emails or calls either offering a ‘refund’ or demanding unpaid tax, thinking that they are genuine HMRC communications referring to their self assessment return.
Criminals try and steal money or personal information, using phone calls, texts and emails to try and dupe citizens, and often mimic government messages to make them appear authentic.
In the 12 months to January 2022, nearly 220,000 scams reported to HMRC offered bogus tax rebates. The tax authority responded to 572,423 referrals of suspicious contact from the public.
There were also hundreds of telephone numbers identified as faking HMRC to try to scam taxpayers. HMRC has been working with the telecoms industry and Ofcom to remove more than 920 phone numbers being used to commit HMRC-related phone scams.
The number of phone scams has escalated in the last year with 267,671 reports of phone scams in the last year. In April 2020 HMRC received reports of only 425 phone scams while by January 2022 this had soared to 3,995.
The internet is another minefield with more than 6,160 malicious web pages taken down over the 12-month period.
The various government covid schemes also provided fertile territory for fraudsters. Since March 2020, HMRC detected 463 Covid-related financial scams, mostly disseminated by text message and it worked with internet service providers to take down 443 Covid-related scam web pages.
Myrtle Lloyd, HMRC’s director general for customer services, said: ‘If someone contacts you saying they’re from HMRC, wanting you to transfer money or give personal information, be on your guard.
‘Never let yourself be rushed, and if you’re in any doubt then check our ‘HMRC scams’ advice on gov.uk.’
Following the extension of the self assessment deadline to 28 February 2022, taxpayers have until 1 April to pay their outstanding tax bill or set up a time to pay arrangement to avoid receiving a late payment penalty. Interest has been applied to all outstanding balances since 1 February.
Taxpayers should report suspicious phone calls using the form on gov.uk and forward suspicious emails claiming to be from HMRC to phishing@hmrc.gov.uk and texts to 60599.
HMRC has a dedicated team working on cyber and phone crimes. They use innovative technologies to prevent misleading and malicious communications from ever reaching the taxpayer. Since 2017, these technical controls have intercepted 500 million emails. More recently, new controls have prevented 90% of the most convincing SMS messages from reaching the public and controls have been applied to prevent spoofing of most HMRC helpline numbers.
HMRC is also reminding people to double check websites and online forms before using them to complete their 2020/21 tax return. People can be taken in by misleading websites designed to make them pay for help in submitting tax returns or charging to connect them to HMRC phone lines.
HMRC’s advice to the public:
Stop:
- Take a moment to think before parting with your money or information.
- If a phone call, text or email is unexpected, don’t give out private information or reply, and don’t download attachments or click on links before checking on gov.uk that the contact is genuine.
- Do not trust caller ID on phones. Numbers can be spoofed.
Challenge:
- It’s ok to reject, refuse or ignore any requests – only criminals will try to rush or panic you.
- Search ‘scams’ on gov.uk for information on how to recognise genuine HMRC contact and how to avoid and report scams.
Protect:
- Forward suspicious texts claiming to be from HMRC to 60599 and emails to phishing@hmrc.gov.uk. Report tax scam phone calls on gov.uk.
- Published in Self Assessment