General

As had been widely predicted, the results at the polls have seen the Labour Party back in power after 14 years in opposition. Labour have swept into power with their second-largest majority whilst the Conservative Party have had their worst ever result in terms of the number of seats won.

We should expect Labour to fulfil their election pledges and make their reported tax changes that were included in their manifesto.

These changes, which Labour say will make the tax system fairer include the following:

• Ending tax breaks for private schools, which exempt them from VAT and business rates.
• Closing the loopholes which allow some ‘non-dom’ mega rich people who live in the UK to avoid paying tax.
• Introducing a proper windfall tax on the huge profits of the energy giants.

But the new government has pledged not to increase National Insurance, VAT or Income Tax.

The new Chancellor, Rachel Reeves was formally appointed on 5 July 2024. In her first speech as Chancellor on 8 July 2024, she confirmed that a Budget will be held later this year alongside a forecast from the Office for Budget Responsibility. The government must provide the Office of Budget Responsibility (OBR) with 10 weeks’ notice meaning that the Budget will not take place before mid-September. 

Our new government, and in particular, Rachel Reeves, the new Chancellor, will be responsible for raising the funds that our new government requires to finance its activities.

The government has already declared that it will not increase Income Tax, National Insurance or VAT and government borrowing has to remain within tight limits. In which case, the only source of new money has to come from revenues raised from economic growth – more activity, more tax revenues.

Rachel Reeves is no stranger to government financing as she was an economist at the Bank of England. It will be interesting to see how the Treasury manages government finances if growth is slow in the coming months. For example, will the new Chancellor find it necessary to raise other taxes to meet funding requirements.

Income Tax, National Insurance and VAT are our major taxes but there is speculation that Inheritance Tax, taxation of dividend income and perhaps Capital Gains Tax may come under the Chancellor’s microscope.

The Autumn review is the next “normal” time for the Chancellor to review the state of the UK’s finances but as our new government flexes its muscles, don’t be surprised if the Chancellor announces some changes in the coming weeks.

More than a million parents will receive reminders to extend Child Benefit for their teenagers if they are continuing their education or training after their GCSEs.

HM Revenue and Customs (HMRC) is sending more than 1.4 million Child Benefit reconfirmation letters to parents between 24 May and 17 July. The letters will include a QR code which, when scanned, directs them straight to GOV.UK to update their claim quickly and easily online.

Child Benefit is worth up to £1,331 a year for the first or only child, and up to £881 a year for each additional child. Payments will automatically stop on 31 August on or after the child has turned 16 unless parents renew their claim where their child is continuing in education.

Parents have until 31 August to act, or their payments will automatically stop.

Letting HMRC know digitally that a child is continuing in education is the quickest way to get it sorted, with no need to contact HMRC by phone or post.

If you have not received a letter by 17 July, there is no need to worry – if eligible, you can still extend your Child Benefit claim via GOV.UK or the HMRC app.

Child Benefit can continue to be paid for children who are studying full time in approved non-advanced education, which includes:

• A levels or Scottish Highers
• International Baccalaureate
• Home education – if it started before their child turned 16, or after 16 if they have a statement of special educational needs and it was assessed by the local authority
• T levels
• NVQs, up to level 3.

Child Benefit will also continue for children studying on one of these unpaid approved training courses:

• in Wales: Foundation Apprenticeships, Traineeships or the Jobs Growth Wales+ scheme;
• in Northern Ireland: PEACEPLUS Youth Programme 3.2, Training for Success or Skills for Life and Work;
• in Scotland: Employability Fund programme and No One Left Behind.

If a child changes their mind about further education or training, parents can simply inform HMRC online or in the HMRC app and payments will be adjusted accordingly.

Parents will need a Government Gateway user ID and password to use HMRC’s online services. If they do not have one already, they can register on GOV.UK  and will just need their National Insurance number or postcode, and 2 forms of ID.

HMRC can enquire into any statutory return (or amendment of that return) or statutory claim to check if the return / claim has been prepared correctly or if further information is required.

HMRC’s internal manuals state that there is no statutory definition of an enquiry, so it carries its normal dictionary meaning of `seeking information, asking, questioning’. In practice the nature and extent of enquiries will vary considerably.

HMRC has historically referred to ‘full enquiries’ covering a tax return as a whole, and ‘aspect enquiries’ dealing with one or more matter(s). However, the legislation does not distinguish between different types of enquiries. Therefore, all enquiries into tax returns are legally enquiries into the full return, even if in practice HMRC only need to check part of the return.

If HMRC make no enquiries within the period allowed, or if they have completed an enquiry, the return becomes final unless

• the taxpayer is still within time to amend their return;
• the taxpayer has carelessly or deliberately caused a loss of tax; or
• HMRC discover that the return was incorrect, and the taxpayer had not disclosed enough information to show this. This is known as a discovery assessment. If a discovery is made in such circumstances HMRC can make a discovery assessment up to 6 years (20 years if the taxpayer has failed to notify chargeability) after the end of the relevant accounting period.

As time passes during the present election campaign, its seems more likely that we may have a change of government from the 5 July.

Labour have disclosed a number of tax changes they would introduce. To summarise they are:

• Private school fees will attract VAT at 20% which private schools will no doubt pass on to parents. The Labour Party has also said it will also end business rates relief for private schools. The £1.7bn raised by this move will be used to improve local authority schools.
• There may be changes to the taxation of Non-Doms to close loopholes that the Labour Party considers are unfair.
• To introduce a windfall tax on the profits of the energy supply companies.

They have also been vocal in confirming that they will not raise Income Tax, National Insurance or VAT (apart from the changes highlighted above).

In contrast, the Conservative Party has pledged to:

• Introduce a triple-lock pension allowance that would raise the tax-free pension allowance by at least 2.5% a year.
• They would raise the threshold for the claw back of child benefits (the High Income Child Benefit Charge) to £120,000 and base the income on household income rather than the income of the highest wage earner.
• Longer term, the Chancellor has disclosed his intention to reduce employees NIC and consider scrapping Inheritance Tax.

Of course, we will have to wait for the outcome of the election and then the formal disclosure of any future tax changes. Which ever party assumes control, let us hope we can look forward to a period of economic growth. If the pundits are correct, expanding economic activity and productivity are the necessary ingredients to increase prosperity. Fingers crossed that the new brooms are up for this task.

The following notes are reproduced from a Treasury statement issued 21 May 2024.

Lower inflation supports people by maintaining the purchasing power of their money.

If prices only rise slowly, people can plan their budgets more effectively – encouraging spending and investment, which fuels the economy.

Lower inflation also helps businesses grow by providing a stable, predictable environment for them to operate in – allowing for more job opportunities or the ability to research new products and services. 

Finally, low inflation enhances the UK’s competitiveness in a global market. When the economy is stable and predictable, other countries are more interested in investing in the UK.

This can bring in more money from foreign investors, give us better trade deals, and make the overall economy stronger. 

How will lower inflation help my business?

If inflation is lower, it means the price of materials businesses use to produce their goods and services aren’t rising as quickly, so there is less pressure on them to pass price increases onto their customers. 

For example, a coffee shop won’t face large increases in the cost of their coffee beans, paper cups, or the energy to turn on the lights in the coffee shop.

Because none of those things are getting drastically more expensive, they don’t have to pass those costs on to coffee for their customers.

Lower inflation provides a sense of stability for businesses, which is important to empower them to make decisions about their future. 

If inflation is high and volatile, businesses aren’t able to plan for their future spending decisions.

For example, if you want to invest in a factory that will take a year to build, it’s important to know how much things will cost in a year’s time.

What does inflation going down mean for my mortgage?

Inflation influences mortgage rates indirectly, through financial market’s expectations for the Bank of England’s base interest rate.

The base interest rate, which is also known as the Bank Rate, is the tool used by the Bank of England to bring inflation down. 

Mortgages are generally priced to reflect what the financial markets expect future interest rates to be. 

This means that if markets start to expect higher inflation, they will raise their expectations for the Bank Rate, in order to cool the economy and bring inflation back to target. This is in turn reflected in mortgage interest rates.

If inflation falls more quickly than expected, it may lead to reductions in market expectations for the base interest rate and therefore reductions in mortgage rates offered.

There is a French saying “Plus ca change, plus c’est la meme chose” meaning, the more things change, the more they stay the same.

Its interesting to apply this to a change that is about to come about, if, as expected, the Labour Party form the next government from the 5^{th of} July.

The present Shadow Chancellor, Rachael Reeves, has indicated that there will be no immediate post-election budget, which means no immediate tax changes.

Both sides (Conservative and Labour) have underlined that they will not add to UK debt by increasing government spending. Instead, they have asserted they will cover any expenditure with tax funding.

But don’t hold your breath. Once the new government is safely ensconced at Downing Street who knows what may be in store for us.

One thing is certain, we may have to rethink any financial planning that we have implemented thus far if we have a Labour administration. Their longer term focus is likely to be tackling income inequalities and levelling up. We shall see…

Meantime, expect no immediate, drastic changes in economic policy. But expect movement next year as the new government becomes familiar with facts and figures. We may see evidence short-term that policy may appear to stay the same, but it’s unlikely that this will continue long-term.

The Digital Markets, Competition and Consumers Act has become law after receiving Royal Assent.

The Act paves the way to give consumers rights across the UK, with greater control and clarity over online purchases. 

It does this by requiring businesses to provide clearer information to consumers before they enter a subscription contract, remind consumers that their free trial or low-cost trial is coming to an end, and ensure consumers can easily exit a contract. 

Unavoidable hidden fees will also need to be included in the initial cost or clearly illustrated at the start of the purchasing journey. This will ensure consumers are clear from the offset about what they’re spending. 

The Digital Markets, Competition and Consumers Act will also give new tools to the Competition and Markets Authority (CMA) to address the challenges to competition in digital markets.

These tools will allow the competition regulator to set tailored ‘conduct requirements’ which require a powerful tech company to change the way it operates if it is not treating users fairly. These rules could give consumers the room to freely choose the services they use or stop companies from withholding information consumers need to make good decisions.  

The Act also gives the regulator powers to intervene and direct a firm to change its behaviour to boost competition – whether that is to benefit people using smartphones or businesses dependent on cloud services.   

The Act will also give new powers to the CMA to closely monitor road fuel prices and report any sign of malpractice to the government.

Only a handful of the most powerful global technology companies will be subject to these new rules if, following an investigation, they are deemed to hold ‘strategic market status’.

The Prime Minister, Rishi Sunak, declared from the steps of Downing Street (on 22 May 2024) that the next general election will take place on 4 July 2024. 

The Prime Minister confirmed that he had spoken with His Majesty the King to request the dissolution of parliament. The King granted this request, thereby confirming that the general election will take place on the 4 July 2024. This will be the first election to take place in July since 1945.

Following the announcement by the Prime Minister the Chief Executive of the Electoral Commission, said:

“The electoral community will now be putting all its planning into action, working to support voters and delivering well-run polls. I’m very grateful to all involved for their crucial work supporting our democracy. 

Voters need to be registered to take part in the election. Applying only takes five minutes at www.gov.uk/register-to-vote and must be done by 18 June. Voters can choose whether to vote at a polling station, by post or by proxy. 

For the first time at a UK general election, those voting at a polling station will need to show photo ID. Voters should check now if they have an accepted form of ID, and if not to apply for free ID, called the Voter Authority Certificate."

Key dates:

An economist from the Treasury explains exactly what a fall in inflation means for you.

How will lower inflation help the economy?  

Lower inflation supports people by maintaining the purchasing power of their money.  

If prices only rise slowly, people can plan their budgets more effectively – encouraging spending and investment, which fuels the economy.  

Lower inflation also helps businesses grow by providing a stable, predictable environment for them to operate in – allowing for more job opportunities or the ability to research new products and services. 

Finally, low inflation enhances the UK’s competitiveness in a global market. When the economy is stable and predictable, other countries are more interested in investing in the UK.  

This can bring in more money from foreign investors, give us better trade deals, and make the overall economy stronger. 

How will lower inflation help my business?  

If inflation is lower, it means the price of materials businesses use to produce their goods and services aren’t rising as quickly, so there is less pressure on them to pass price increases onto their customers. 

For example, a coffee shop won’t face large increases in the cost of their coffee beans, paper cups, or the energy to turn on the lights in the coffee shop.  

Because none of those things are getting drastically more expensive, they don’t have to pass those costs on to coffee for their customers.

Lower inflation provides a sense of stability for businesses, which is important to empower them to make decisions about their future. 

If inflation is high and volatile, businesses aren’t able to plan for their future spending decisions.  

For example, if you want to invest in a factory that will take a year to build, it’s important to know how much things will cost in a year’s time.  

What does inflation going down mean for my mortgage?  

Inflation influences mortgage rates indirectly, through financial market’s expectations for the Bank of England’s base interest rate.  

The base interest rate, which is also known as the Bank Rate, is the tool used by the Bank of England to bring inflation down. 

Mortgages are generally priced to reflect what the financial markets expect future interest rates to be. 

This means that if markets start to expect higher inflation, they will raise their expectations for the Bank Rate, in order to cool the economy and bring inflation back to target. This is in turn reflected in mortgage interest rates.  

If inflation falls more quickly than expected, it may lead to reductions in market expectations for the base interest rate and therefore reductions in mortgage rates offered.