Government Updates on New Tax Rules
Welcome to our round-up of the latest business news for our clients. Please get in touch with us if you want to discuss how these updates affect your business. We are here to support you!
Chancellor’s Speech Paving the Way to a Potentially Difficult Autumn Budget
The Chancellor of the Exchequer, Rachel Reeves, addressed the House of Commons last week to detail the results of a Treasury spending audit. She has alluded to this in previous comments when making assessments of the public spending inheritance.
She claimed that the audit revealed £22 billion of unfunded pledges inherited from the previous government. These include commitments to the Rwanda scheme, the Advanced British Standard, and the New Hospital Programme. Shortfalls were also found from not increasing departmental budgets to cover public sector pay settlements.
As a start on dealing with the overspending, the Chancellor announced savings of £5.5 billion for this year, with a further £8.1 billion to come next year.
These measures include:
The Chancellor did confirm that the Independent Pay Review Body recommendations for pay uplifts for public sector workers have been accepted. These will average 5.5%.
New plans were outlined for Spending Reviews to be set every two years but over three years, so there is a one-year overlap with the previous Spending Review. This should allow for a more joined-up approach to public finance.
The Chancellor also committed to a single major fiscal event a year, as has been the case for the last few years. This will continue with the recent pattern of the budget taking place in the autumn, covering all significant tax and spending announcements. Any spring statement would respond to the Office for Budget Responsibility’s second forecast.
As part of her speech, the Chancellor also outlined tax plans that will be confirmed in the budget, which is scheduled for October 30. These include:
These measures have all been discussed in the Labour Party manifesto so there are no great surprises here.
Of course, you don’t need a calculator to see that the £22 billion shortfall in public spending will not be covered by the saving measures the Chancellor has already announced. So, it remains to be seen whether there will be any further ‘pain’ in the October Budget.
Alternatively, the Chancellor may be delivering all the bad news now, while it’s expected following the change in government, and she’s saving some good news for the budget. We will wait to see, but we will keep you posted on all the changes that may affect you. If you are concerned about how any of these measures affect you, please feel free to contact us; we will be happy to help you.
Bank of England Reduces Base Rate to 5%
As anticipated, the Bank of England reduced its base interest rate on August 1 from 5.25% to 5%. The decision was a close call, with a majority of five to four voting in favour of the cut.
The Monetary Policy Report accompanying the decision explains that while higher interest rates have helped return inflation to the Bank’s target of 2% and allowed them to make this cut, they are expecting a temporary increase to 2.75% later this year.
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Why might inflation increase again?
The fall in household energy prices has been helping to bring inflation down. However, as energy prices normalise, their downward pull on inflation will end. Prices for services such as hotels and restaurants, insurance, and housing rents, on the other hand, continue to rise at rates well above their past averages.
In addition, demand for goods and services this year has been higher than expected, which may contribute to higher inflation.
However, the Bank considers this to be a temporary situation and expects inflation to fall back to its target level next year.
Is another cut likely?
The Bank is prioritising keeping inflation low and has said that it will not cut rates too much or too quickly. This suggests that a further cut when they next meet on September 19 is unlikely.
What should you do about the rate cut?
Regardless of future decisions, the cut to 5% is good news for borrowers but may be better for savers.
Commercial banks typically follow the Bank of England, but only sometimes, all to the same degree. If you have loan finance on variable interest rates, check to see that the interest rate reduces. Many loans and overdrafts have a rate tied to the Bank of England’s base rate, so these should be reduced automatically.
For savings, it may be worth shopping around to ensure you get the best market rates.
Abolishment of Furnished Holiday Lettings Tax Regime Confirmed
HM Revenue and Customs (HMRC) has published draft legislation and a policy paper outlining the proposal to abolish the furnished holiday lettings (FHL) tax regime. The previous government originally announced this, and any hopes that the new government may stall it are now laid to rest.
The new measures are proposed to take effect for income and capital gains tax on or after April 6, 2025, and for corporation tax from April 1, 2025.
The proposed revisions will remove the tax advantages that furnished holiday let landlords have over other property businesses, as follows:
Some specific transitional rules will apply to these changes.
If you own properties that currently qualify for the FHL tax regime, we recommend that you review the effects of the legislation change to determine if you need to take any action. If you need help with this, please do not hesitate to book a free consultation, and we will be pleased to help you.
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