Newsletter 166
In this month’s Enews we consider the major
announcements from the Chancellor’s Spring Statement. We also update you with
the latest economic growth forecasts and the Bank of England’s latest decision
on interest rates. With guidance on student loans and ground rents for
leaseholders, there is a lot to update you on.
The media have again brought into focus, the tax
status of the Chancellor’s wife Akshata Murthy pictured below left.
She is a UK resident for tax purposes but as a “Non Dom” she pays tax separately in India on any income or gains derived there. She has Non Dom status because this is a Domicile of Origin gained from her father. This is a complex area of tax law which Ms Murthy can use legitimately as part of her tax planning. Her husband who was born in Southampton cannot benefit from Non Dom status.
Chancellor
Rishi Sunak announced a 5p per litre cut in fuel duty for petrol and
diesel in the 2022 Spring Statement.
The
government says it is the largest ever cut on all fuel duty rates,
which applies from 6pm on 23 March 2022.
The
Chancellor also announced that the starting thresholds for national insurance
contributions (NICs) will rise to £12,570.
From
6 July 2022 employees earning between £242 (£190 from 6 April to 5 July 2022)
and £967 per week will pay NICs at 13.25%. Earnings over £967 will attract a
3.25% charge. Employers will pay 15.05% on their employees’ earnings over £175
per week.
Although
employees’ NICs only become payable once earnings exceed £242 per week, any
earnings between £123 and £242 per week protect an entitlement to basic state
retirement benefits without incurring a liability to NICs.
For
the self-employed, where their profits exceed £11,908 per annum, they will pay
10.25% on the profits up to £50,270 and 3.25% on profits over that upper
profits limit.
However,
from April 2022, there will be a temporary increase in the rates of NICs
payable for employees, employers and the self-employed as a transitional
provision in readiness for the introduction of the Health and Social Care Levy
from April 2023.
Mr
Sunak also pledged that the basic rate of income tax will be cut by 1p in the
pound in April 2024. By then the Chancellor said that the Office for Budget
Responsibility (OBR) expects inflation to be back under control, with debt
falling sustainably.
From
April 2022, a £1,000 increase to the Employment Allowance will
benefit SMEs, while there will be no business rates due on a range of green
technology used to decarbonise buildings.
In
addition, the Chancellor announced 50% business rates relief for
eligible retail, hospitality, and leisure properties.
In
his Spring Statement speech, the Chancellor said:
‘This statement puts billions back into the
pockets of people across the UK and delivers the biggest net cut to personal
taxes in over a quarter of a century.
‘Cutting taxes means people have immediate help with the rising cost of living, businesses have better conditions to invest and grow tomorrow, and people keep more of what they earn for years to come.’
Internet links: GOV.UK
The
UK’s business groups gave a mixed response to Chancellor Rishi Sunak’s Spring
Statement speech.
Shevaun
Haviland, Director General of the British Chambers of Commerce (BCC), said:
‘The Spring Statement falls short of the
action businesses needed to see. While there are some positive announcements
that firms will welcome, it did not fundamentally address the huge cost
pressures they are facing.’
The
Confederation of British Industry (CBI) warned that the measures announced by
the Chancellor ‘don’t do enough to
tackle the current challenges facing firms’.
Tony
Danker, Director General of the CBI, said:
‘The Chancellor is right that the government
can’t solve every challenge. However, the only enduring response to inflation,
energy prices and cost of living challenges is a relentless campaign for
economic growth.’
Meanwhile,
the Federation of Small Businesses (FSB) said that it was pleased to see the
Chancellor adopt its recommendation of uprating the Employment Allowance to
help small employers with national insurance costs.
Martin
McTague, National Chair of the FSB, said:
‘We originally put forward the Employment
Allowance as a targeted measure to help small firms, and it has now been
expanded three times since its creation.
‘Together with a cut to fuel duty, these measures will provide crucial breathing space for our embattled small employers.’
Internet links: BCC website CBI website FSB website
OBR updates economic picture
In
his Spring Statement speech, Chancellor Rishi Sunak responded to the latest
forecasts as published by the Office for Budget Responsibility (OBR).
The
OBR forecasts UK economic growth to be 3.8% in 2022, a significant cut from its
previous prediction of 6.0%. The OBR then predicts the economy to grow
by 1.8% in 2023 and 2.1% in 2024.
Meanwhile, borrowing
is set to more than halve from its post-World War II high of £322 billion
(15.0% of GDP) in 2020/21 to £128 billion (5.4% of GDP) in 2021/22.
Borrowing
is then predicted to be £16 billion higher in 2022/23 than previously
forecast in October.
In
its latest forecast, the OBR said that Russia’s invasion of Ukraine has had ‘major repercussions for the global economy’,
which has already been severely impacted by the coronavirus (COVID-19) pandemic
and rising inflation.
The
significant rise in gas and oil prices since the start of the conflict
will ‘weigh heavily on a UK economy
that has only just recovered its pre-pandemic level’, the OBR said.
In regard to rising levels of inflation, the public body said that real living standards are set to fall by 2.2% in 2022/23 and not recover to their pre-pandemic level until 2024/25.
Internet link: OBR website
Estimates
show that up to £195 million in extra tax revenue has been collected via Making
Tax Digital for VAT (MTD for VAT), according to research from HMRC.
The
research, conducted by HMRC and peer reviewed by independent academics, showed
that in 2019/20 the estimated additional tax revenue was between £185
million to £195 million, compared to a previous estimate of £115 million.
The
tax authority stated that the additional revenue was due to the reduction in
error on tax returns.
The
research revealed that, for businesses below the £85,000 turnover threshold,
the estimated additional tax revenue that is collected is £19 per business per
quarter, which is a 2.2% increase from the average liability estimates for
businesses not signed up to MTD.
For
businesses above the threshold, the estimate of the average additional tax
revenue is £57 per business per quarter and is a 0.9% increase.
Internet link: GOV.UK
The Bank of England has raised interest rates
for the third consecutive time.
The
Bank also warned that the Ukraine conflict could see under-pressure households
hit with double-digit inflation later this year.
Members
of the Bank's Monetary Policy Committee (MPC) voted eight to one to
increase rates from 0.5% to 0.75%. The move takes rates back to where they were
before the pandemic struck.
Alpesh
Paleja, Lead Economist at the Confederation of British Industry (CBI), said:
'With ongoing conflict in Ukraine pushing
global commodity prices higher and exacerbating supply chain disruption, the
MPC are clearly making moves to counter growing inflation.
'But they will be walking a tightrope in the months ahead, having to both keep price pressures in-check and manage the impact of tighter monetary policy on economic growth – particularly against a background of rising living costs.'
Internet link: Bank of England
website
UK
economic growth is expected to halve this year amid soaring inflation, major
tax rises, and global shocks including Russia's invasion of Ukraine, warns the
British Chambers of Commerce (BCC).
The
BCC has downgraded its expectations for UK GDP growth in 2022 to 3.6% from
4.2% in its previous forecast in December 2021. This would be less than half
the growth of 7.5% recorded last year.
It
says business investment is forecast to grow at 3.5% in 2022, down
from the previous forecast of 5.1%.
The
BCC says that rising raw material costs, the increase in the energy price cap,
the reversal of the hospitality VAT cut and upward pressure on energy and
commodity prices from the impact of Russia's invasion of Ukraine will lift
inflation.
The
business group forecasts inflation reaching a peak of 8% in Q2 2022,
the highest rate since July 1991. The BCC also projects that UK interest rates
will double over the course of this year, from 0.5% to 1%.
Suren
Thiru, Head of Economics at the BCC, said:
'Our latest outlook suggests a legacy of COVID and Brexit is an increasingly unbalanced economy with a growing reliance on household spending to drive growth. Such economic imbalances leave the UK more exposed to economic shocks and reduces our productive potential.'
Internet link: BCC website
The
level at which students begin to pay back their loans will be lowered from
£27,295 to £25,000 for new borrowers.
From
September 2023, the interest rate on student loans will also be set to RPI+0%.
Additionally, the length of time that students have to pay their loans back
until they can be written off has been extended from 30 to 40 years.
University
tuition fees have been capped at £9,250 for the next two years and will not
rise with inflation.
Michelle
Donelan, Higher and Further Education Minister, said:
'We are delivering a fairer system for students, graduates, and taxpayers as well as future-proofing the student finance system. We are freezing tuition fees and slashing interest rates for new student loan borrowers, making sure that under these terms no one will pay back more than they have borrowed in real terms.'
Internet link: GOV.UK
Intervention by the Competition and Markets Authority
(CMA) has freed more leaseholders from increasing ground rent terms that saw
them trapped in homes they struggled to sell or mortgage.
Businesses which had bought freeholds from housing
developer Countryside have now given formal commitments to the CMA to remove
terms that cause ground rents to double in price.
These terms, which kick in every ten or 15 years, mean
people often struggle to sell or obtain a mortgage on their leasehold home.
Their property rights can also be at risk if they fall
behind on their ground rent. The move comes after the CMA secured undertakings
from Countryside in September 2021 to strike out terms that doubled ground rent
every ten to 15 years.
Andrea Coscelli, Chief Executive of the CMA, said:
'Thousands more
leaseholders can now rest easy knowing they will not be forced to pay costly
doubling ground rents. We believe these terms are unjust and unwarranted and
can result in people trapped in homes they are unable to sell or mortgage – a
major cause of anxiety and stress for so many.
'We welcome the
commitment from these businesses to do what is right by their leaseholders by
removing these terms, and we will hold them to it.'
Internet link: GOV.UK
After
twenty years at Walker Thompson, Margaret our receptionist has decided to
retire. We know that many of our clients have become used to being welcomed to
the office by Margaret and we wish her & her family well in her retirement.
Going
forward we warmly welcome Jess Wilmer as our new secretary / receptionist. Jess
comes originally from Bedfordshire and has previously worked front of house for
a national hotel group.
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