Newsletter 204

 

January 2026

In this month’s Enews, there is news on protection for bank deposits, the latest news on UK inflation and a warning on the risks of relying on advice from AI tools.

We take a look at the readiness of sole traders for the next stage of Making tax Digital and the penalty regime. There is also news on mandatory e-invoicing for VAT-registered businesses.

There is also news on the government’s apprenticeship initiative, the economic forecasts following the Budget to update you on and lots more.

• Bank deposit protection limit to be increased to £120,000
• UK inflation rate falls for first time since March
• Chancellor raises £26 billion in Autumn Budget
• AI tools giving risky consumer advice, warns Which?
• Advisory fuel rates for company cars
• MTD penalties waived for first year of Income Tax
• E-invoicing will be fundamental change for VAT-registered businesses
• Sensible solution on unfair dismissal will deliver faster improvements
• Most sole traders are not ready MTD changes
• Covid fraud cost UK taxpayer £10.9 billion
• Salary sacrifice changes will impact over three million employees
• £725 million UK apprenticeship overhaul targets youth unemployment
• Budget unlikely to be growth game changer

Bank deposit protection limit to be increased to £120,000

UK bank customers will benefit from an increase to the maximum amount they would be reimbursed for if their bank were to fail from 1 December, the Prudential Regulation Authority (PRA) has confirmed.

From December, the deposit protection limit, which applies to the Financial Services Compensation Scheme, will protect up to £120,000 of a depositor’s money should their bank, building society or credit union fail.

This increases the limit from the current £85,000 which was set in 2017. It is also more than the previous PRA proposal of £110,000, which the regulator has changed due to consultation feedback and the latest inflation data.

This increase in the deposit protection limit is the latest in a series of regulatory thresholds to be updated by the PRA.

Sam Woods, Deputy Governor for Prudential Regulation at the Bank of England and CEO of the PRA said:

‘This change will help maintain the public’s confidence in the safety of their money. It means that depositors will be protected up to £120,000 should their bank, building society or credit union fail. Public confidence supports the strength of our financial system.’

Internet link: Bank of England website

 

UK inflation rate falls for first time since March 

The UK inflation rate fell to 3.6% in the year to October, according to the latest data from the Office for National Statistics (ONS).

October’s decline was led by a smaller rise in gas and electricity prices compared with a year ago as well as a drop in hotel prices, the ONS said.

Core inflation, which excludes energy and food, was 3.4% in October, down from 3.5% in September. However, food and drink inflation rose to 4.9% in October, up from 4.5% in September.

This is the first time the rate has fallen since March and the lowest the rate has been since the year to June. But it remains above the Bank of England's 2% target.

Ben Jones, Lead Economist at the Confederation of British Industry, said:

‘Inflation eased in October, broadly in line with the Bank of England’s expectations.

‘With Q3 GDP figures confirming a weak growth backdrop, and the labour market continuing to soften, today’s figures add to the evidence that price pressures are gradually subsiding.

‘Combined with the likelihood of further fiscal consolidation measures at the Budget, the data should give the Bank’s Monetary Policy Committee confidence that inflation risks are diminishing.

‘If this trend continues, the case for an interest rate cut in December looks increasingly compelling.’

Internet link: ONS website CBI website

Chancellor raises £26 billion in Autumn Budget

Chancellor of the Exchequer Rachel Reeves set out tax-raising measures worth up to £26 billion in the Autumn Budget.

The increases will be achieved through a range of measures, including extending the freeze on Income Tax thresholds for a further three years.

Ms Reeves also announced extra spending increasing to £11.3 billion in 2029/30, including an extra £9 billion on welfare.

Despite the uplift in spending the Chancellor has more than doubled her fiscal headroom from around £10around to around £22 billion, according to the Office for Budget Responsibility (OBR).

The OBR overshadowed the Chancellor’s speech with the accidental publication of its main measures prior to the Budget being announced in Parliament.

On Income Tax the personal allowance, the higher rate threshold and additional rate threshold are frozen at £12,570, £50,270 and £125,140, respectively, until 2030/31.

Taxes on property, dividend and saving income – which currently face no equivalent of National Insurance contributions (NICs) – will be increased by up to 2%.

From April 2029, the government will charge employee and employer NICs on any pension contributions made via salary sacrifice above £2,000 a year

The Budget also halves Capital Gains Tax relief for company owners selling their businesses to Employee Ownership Trusts from 100% to 50%.

In addition, the Budget introduced a High Value Council Tax Surcharge on homes worth more than £2 million, while protecting those on low incomes.

Individual Savings Accounts (ISAs) will be reformed from April 2027 when the annual cash limit will be set at £12,000, within the overall annual ISA limit of £20,000.

The Chancellor also took action to cut £150 off energy bills, freeze rail fares and end the two-child benefit cap.

The government is extending the 5p fuel duty cut until the end of August 2026 with rates then gradually returning to March 2022 levels by March 2027.

Ms Reeves said:

‘I can tell you today that, for every family we are keeping our promise to get energy bills down and cut the cost of living with £150 taken off the average household energy bill from April.

‘Money off bills, and in the pockets of working people. That is my choice.’

Internet link: GOV.UK

AI tools giving risky consumer advice, warns Which?

AI tools including Chat GPT, Gemini and Meta AI are giving inaccurate, unclear and risky advice which could prove costly if followed, warns consumer champion Which?.

Research showed that around half of UK adults are now using AI tools to research topics including personal finance, the law and health.

Which? tested six AI tools - ChatGPT, Google Gemini, Gemini AI Overview (AIO), Microsoft’s Copilot, Meta AI and Perplexity - to establish how well they could answer common consumer questions.

Meta AI received the worst score in Which?’s tests, achieving just 55% overall.

ChatGPT, which is the most used tool according to Which?’s survey, came second to bottom with an overall score of 64%,

Perplexity topped the table with 71%. It received the highest scores for accuracy, relevance, clarity and usefulness of any of the tools on test.

Andrew Laughlin, Which? Tech Expert, said:

‘Everyday use of AI is soaring, but we’ve found that when it comes to getting the answers you need, the devil is in the details. Our research uncovered far too many inaccuracies and misleading statements for comfort, especially when leaning on AI for important issues like financial or legal queries.

‘When using AI, always make sure to define your question clearly, and check the sources the AI is drawing answers from. For particularly complex issues, always seek professional advice - particularly for medical queries, before making major financial decisions or embarking on legal action.’

Internet link: Which? website

Advisory fuel rates for company cars

New company car advisory fuel rates have been published and took effect from 1 December 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 December 2025 are:

Engine size	Petrol
1400cc or less	12p
1401cc - 2000cc	14p
Over 2000cc	22p
Engine size	Diesel
1600cc or less	12p
1601cc - 2000cc	13p
Over 2000cc	18p
Engine size	LPG
1400cc or less	11p
1401cc - 2000cc	13p
Over 2000cc	21p

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 below. Electricity is not a fuel for car fuel benefit purposes.

Advisory Electricity Rate
Home Charger	7p
Public Charger	14p

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

Internet link: GOV.UK AFR

MTD penalties waived for first year of Income Tax

Self assessment taxpayers due to join Making Tax Digital (MTD) for Income Tax next April will not face penalties if late filing quarterly updates.

In the Autumn Budget 2025 documents, the government said it will not charge penalty points if those joining MTD submit any of their compulsory quarterly updates of income and expenses late during 2026/27.

This means that the first group of taxpayers earning non-PAYE income over £50,000 will not be liable for the new penalty regime under MTD until April 2027.

HMRC will apply the new penalty regime for late submission and late payment to all income tax taxpayers from 6 April 2027.

The new system is based on a points-based sanctions regime and will penalise those who persistently do not comply by missing filing and payment deadlines.

Under the new regime, when a taxpayer misses an annual submission deadline, they will incur a penalty point. A taxpayer becomes liable to a fixed financial penalty of £200 only after they have reached the points threshold of two for late submission of their final declaration.

Sharron West, Technical officer at LITRG, said:

‘We’re pleased to see the government defer penalties for the first year of Making Tax Digital.

‘Making Tax Digital is the biggest change to the tax system since self assessment and because of that, we expect that there will be some teething problems when it goes live in April.

‘This period of grace is especially good news for those who will be getting used to the new system without the help of a tax adviser.’

Internet link: CIOT website

E-invoicing will be fundamental change for VAT-registered businesses

The mandatory introduction of e-invoicing for all VAT-registered businesses selling to UK business customers from April 2029 will be a fundamental change, says the Chartered Institute of Taxation (CIOT).

The government announced the requirement in the Autumn Budget 2025 policy documents.

It said: ‘Continued collaboration between the government and the private sector is essential for driving innovation. To drive productivity further, the government will require the use of electronic invoicing for all VAT invoices for business-to-business and business-to-government transactions from 2029, with a roadmap to be published at Budget 2026.’

The CIOT is cautioning the government against rushing into mandatory e-invoicing, calling for the use of thresholds and staged implementation to try to mitigate the impact of such significant digital change.

E-invoicing is a digital exchange of invoice information directly between the supplier and customer’s accounting systems; invoices sent electronically by email with a pdf or jpeg format attachment will no longer suffice.

CIOT spokesperson Alison Kerrey said:

‘E-invoicing is a fundamental change for businesses. This goes further than Making Tax Digital, because it is not just digital record keeping, it is communicating digitally with customers and suppliers.

‘We are particularly concerned that those businesses that only issue and receive a handful of invoices per year will face disproportionate costs.

‘The CIOT support moves to increase the adoption of e-invoicing. But if there is to be a mandate, there need to be real benefits to HMRC and UK businesses and sensible, realistic implementation.’

Internet link: CIOT website

Sensible solution on unfair dismissal will deliver faster improvements

Reducing the qualifying period for unfair dismissal protection is a sensible move, says the Resolution Foundation.

The government is amending the Employment Rights Bill to reduce the qualifying period for unfair dismissal protection from two years to six months, rather than scrapping altogether for a ‘day one’ right.

This is a sensible move that will speed up the delivery of improvements to working conditions and reduce the risk of firms being put off hiring, said the think tank.

The UK currently has a two-year qualifying period for unfair dismissal protection – meaning workers can be well established in their job but still lack this protection.

According to the Foundation, other rich countries which have unfair dismissal protection typically have much shorter qualifying periods, reflecting the fact that it does not take employers more than a few months to judge whether a new hire is a good fit.

But getting rid of qualifying periods altogether would have been a step too far in the other direction, risking putting employers off hiring, it adds.

Nye Cominetti, Principal Economist at the Resolution Foundation, said:

‘The UK currently has one of the longest qualifying periods for protection which needs to come down. But scrapping it entirely would have meant lurching from one extreme to the other and putting firms off hiring new workers.

‘This sensible move to a six-month qualifying period will bring the UK into line with other countries, deliver tangible improvements to working conditions, and help the government move forward with other key aspects of the Employment Rights Bill.’

Internet link: Resolution Foundation

Most sole traders are not ready MTD changes

The majority of sole traders do not have a clear understanding of Making Tax Digital (MTD) for Income Tax, according to research from IPSE, the self-employed association.

A survey conducted by IPSE found that 70% either have not heard of the initiative or do not realise it requires digital record-keeping and quarterly submissions through approved software.

MTD for Income Tax will come into force in April 2026.

However, IPSE’s survey found that most sole traders are still managing their finances in ways that will not meet MTD requirements. A third continue to use pen and paper for their books, two-thirds rely on spreadsheets, and more than half track income through bank statements.

The timeline for MTD is:

From April 2026: Sole traders and landlords earning over £50,000 must keep digital records and submit quarterly updates through compatible software.

From April 2027: Sole traders and landlords earning over £30,000.

From April 2028: Sole traders and landlords earning over £20,000.

IPSE said:

‘Given the fact that we’ve already had previous delays and considerable resources and time have been invested, HMRC will not be pausing this rollout anytime soon.

‘However, HMRC has a duty to inform as many sole traders as possible – and right now, that awareness campaign is simply not landing.

‘With less than six months until the first deadline, our findings highlight a serious communication gap. Most respondents reported receiving no direct information from HMRC about MTD, which explains why awareness remains so low.’

Internet link: IPSE website

Covid fraud cost UK taxpayer £10.9 billion

Taxpayers lost £10.9 billion to fraud and error as the UK government’s pandemic response left the front door open to fraud, according to an independent report.

The Covid Counter Fraud Commissioner, Tom Hayhoe’s, final report to Parliament finds many schemes - including Bounce Back Loans and Eat Out to Help Out - were rolled out with huge fraud risks and no early safeguards – costing the taxpayer millions.

Weak accountability, bad quality data and poor contracting were identified as the primary causes of the £10.9 billion pound losses.

The report highlights that counter fraud controls were ‘inadequate’ and only improved later in the pandemic.

It makes further recommendations to ensure the country is prepared for further crises that need an economic response from government - emphasising that future preparation and robust controls will provide the best value for money for taxpayers.

Chancellor, Rachel Reeves said:

‘Leaving the front door wide open to fraud has cost the British taxpayer £10.9 billion — money that should have been funding our public services, supporting families, and strengthening our economy.

‘We have started returning this money to the British people and we will leave no stone unturned in rooting out the fraudsters who profited from pandemic negligence.’

Internet link: HM Treasury website

Salary sacrifice changes will impact over three million employees

The removal of full tax-free salary sacrifice on pensions with a new £2,000 limit will hit over three million employees at 290,000 companies, according to government figures.

The change to pension salary sacrifice is due to come into effect from 6 April 2029 and will see a new £2,000 limit on the amount of contributions employees can make into a salary sacrifice scheme free of tax and national insurance contributions (NICs), hitting schemes run by UK employers.

Almost eight million employees currently use salary sacrifice to make pension contributions. Of these, over three million sacrifice more than £2,000 of salary or bonuses.

However, just over half of employees will fall below the threshold based on current HMRC estimates, meaning over four million pension savers will not be affected.

The government said:

‘The government supports and incentivises pension saving and has retained Income Tax and NICs reliefs on pensions contributions that are worth over £70 billion per year.

‘Most other salary sacrifice opportunities were closed in 2017. Salary sacrifice for pensions contributions remains, and its cost as a relief has increased markedly from £2.8 billion in forgone NICs in tax year 2016 to 2017, rising to £5.8 billion in tax year 2023 to 2024. Were no changes made, it is expected that this would nearly triple to £8 billion by tax year 2030 to 2031.’

Internet link: GOV.UK

£725 million UK apprenticeship overhaul targets youth unemployment

A £725 million package of skills reforms to the apprenticeship system with the aim of helping to tackle youth unemployment and drive economic growth, has been announced by the UK government.

The government says the reforms will create 50,000 additional apprenticeships and foundation apprenticeships over the next three years.

As part of the package, the government will also cover the full cost of apprenticeships for eligible young people under 25 at small and medium-sized businesses.

The announcement also emphasised that removing the 5% co-investment rate for SMEs means that the training costs for all eligible under 25 apprentices are fully funded, opening up thousands of opportunities for young people.

Lizzie Crowley, Skills Adviser for the Chartered Institute of Personnel and Development (CIPD), said:

‘Apprenticeship starts have been falling for years, limiting opportunities for young people and preventing organisations - especially smaller firms - from building the skills they need to boost performance.

‘Creating 50,000 apprenticeships and giving mayors a stronger role in connecting young people with employers is a positive step. And in a year of rising employment costs, fully funding apprenticeship starts for under-25s in smaller businesses will be welcome.

‘However, removing the 5% employer contribution alone won’t drive take-up. Cost is rarely the main barrier for smaller employers; the greater challenge is releasing staff for off-the-job training and having the management capacity to support apprentices effectively day to day. Without tackling those practical constraints, take-up is likely to remain limited.’

Internet link: GOV.UK CIPD website

Budget unlikely to be growth game changer

The Autumn Budget is unlikely to kickstart the UK economy with the nation’s growth outlook remaining subdued, according to research from the British Chambers of Commerce (BCC).

The UK economy is expected to grow by 1.4% in 2025, revised slightly up from the previous forecast of 1.3%, driven by strong public spending, according to the BCC.

However, GDP is expected to slow to 1.2% in 2026, before rising to 1.5% in 2027, because of productivity challenges and cautious fiscal tightening, the business group added.

The BCC says that business investment is forecast to suffer significantly next year – falling from expected growth of 3% in 2025, to just 0.9% in 2026. It is then expected to rise again to 1.5% in 2027.

The projected weak levels of business investment are due to ongoing cost pressures on firms and the lack of direct growth measures in the Budget.

David Bharier, Head of Research at the British Chambers of Commerce said:

‘Our forecast suggests the Autumn Budget is unlikely to be a growth game changer for the UK economy.

‘Taken together the forecast paints a picture of an economy remaining stuck in low gear. Businesses are showing remarkable resilience and innovation, but many are weighed down by political uncertainty and the cumulative cost pressures.

‘Delivery on growth is now key – the government has published industrial, trade, and infrastructure strategies, and these must translate into action.’

Internet link: BCC website