Author: Steve Jones

A typical five-year fixed rate mortgage has hit 6.02%, the highest figure since the 2010 financial crisis.

Mortgage rates have been rising throughout 2022, but there was a significant increase after the mini-budget announcement on 23 September.

The average two-year mortgage also hit its highest rate since the 2008 financial crisis at 6.07%.

Following the announcement, a large number of lenders removed their mortgages from the market. Between 28 September and 5 October, the number of products on the market dropped from 3,961 to 2,371.

Prime Minister Liz Truss addressed homeowners’ concerns in her speech at the Conservative Party conference, citing the stamp duty cut as one measure the Government is taking to offset the cost of living crisis.

Those most affected by the increased rates include first-time buyers and homeowners looking to remortgage.

An average of 100,000 people a month will be coming to the end of their current mortgage from October, and will also see a sharp rise in their monthly repayments.

Rachel Springall, press officer at Moneyfacts, said:

“The mortgage market has seen relentless rate rises this year, and borrowers coming off a fixed mortgage will find the cost to secure a new deal is much higher than they were perhaps anticipating.

A new survey from the British Chambers of Commerce (BCC) reveals that business confidence declined significantly in Q3 compared to Q2 of this year.

Of the 5,200 firms that took part in the BCC’s quarterly economic survey, nearly four in ten (39%) businesses believe they will see a fall in profits over the next 12 months.

Inflationary pressures are affecting business confidence, with soaring interest rates also cited as a growing concern for businesses.

Only 44% of businesses expect their turnover to increase over the next year, down from 54% in the last quarter.

Fewer businesses reported increased sales compared to Q2, with only 33% of firms reporting an increase in domestic sales in the last three months.

The retail and wholesale sector took a particularly large hit to sales, with more firms reporting a decrease (39%) than an increase (25%).

More businesses are experiencing cashflow problems, with 32% of firms reporting reduced cashflow compared to 23% reporting an increase.

David Bharier, head of research at the BCC, said:

“This quarter’s results point to a significant decline in business confidence, with a clear shift downwards in many of the key indicators we track.

“Businesses now desperately need to see economic stability in order to rebuild the confidence to invest.”

Responding to the findings of the economic survey, director general of the BCC, Shevaun Haviland, said:

“Our findings paint a worrying picture of the state of affairs at many UK firms. Almost every key business indicator is trending downwards – sounding alarm bells across all sectors and regions.

“Sales and cashflow are down, firms are operating below capacity, and the number of businesses expecting to see their profits increase is falling.

The BCC continued to urge the Government to bring forward any fiscal plans to help businesses and markets to understand how they may be able to find stability over the coming months.

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The inflation rate hit 10.1% in the 12 months to September, according to new data from the Office for National Statistics (ONS).

This is up from 9.9% in August and sees a return to the recent 40-year high witnessed in July.

One of the biggest contributors to the rise in the inflation rate in September was a 9.3% increase in housing and household services costs. This was mostly fueled by housing costs, private rents, and soaring energy prices.

A significant increase in food and drink costs heavily affected inflation, with prices rising by 14.6% in the 12 months to September, compared to only 13.1% in August.

The inflation rate for this category has continued to rise for the last 14 consecutive months.

The rise in inflation was partially offset by a continued decrease in petrol and diesel fuel prices. Fuel prices increased by 26.5% in the year to September, compared to 32.1% in August.

David Bharier, head of research at the British Chambers of Commerce, said:

“Businesses will need to see a clear long-term economic plan to provide a stable environment to invest, alongside specific measures that relieve unprecedented inflationary pressures.”

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Prime Minister Rishi Sunak announced that the statement on the Government’s fiscal plan, originally planned for 31 October, will be delayed until 17 November.

The PM said the delay is in an effort to ensure the tax and spending plans “stand the test of time”.

The statement will also be released alongside a full economic forecast from the Office for Budget Responsibility.

Speaking to his cabinet on 26 October, the Prime Minister said:

“It is important to reach the right decisions and there is time for those decisions to be confirmed with Cabinet.

“The Autumn Statement will set out how we will put public finances on a sustainable footing and get debt falling in the medium term and will be accompanied by a full forecast from the Office for Budget Responsibility.”

The decision to delay the statement comes just a couple of weeks after Chancellor of the Exchequer, Jeremy Hunt, announced the reversal of his predecessor’s fiscal plan.

The new Chancellor quickly scrapped the majority of Kwasi Kwarteng’s previous tax plans within days of his new role, in a statement delivered on 17 October 2022.

Kwarteng’s fiscal statement or ‘mini-budget’ caused much controversy among politicians and the public after he announced it on 23 September.

As a result, the majority of mini-budget decisions are being reversed in an effort to protect the economy, which Hunt says should raise around £32bn a year.

The basic rate of income tax will remain at 20% instead of decreasing to 19% and will not be cut until “economic circumstances allow.”

Changes to IR35 and dividend tax rates are also being scrapped, along with the VAT-free shopping scheme.

Alcohol duty rates will be frozen for one year from February 2023, while the proposed measures on stamp duty and National Insurance will stay in place.

The energy bills relief scheme will remain to help households and businesses with soaring energy costs. However, the Government will launch a Treasury-led review of the scheme after April 2023.

Talk to us about your business costs.

HMRC has announced that penalties will be issued to those not completing VAT returns through Making Tax Digital (MTD) from 1 November 2022.

Anyone who files a VAT return via a non-electric submission will face penalties of up to £400.

These changes will apply to VAT customers for accounting periods on or after 1 April 2022.

The amount businesses will be fined for not submitting the VAT return through functional compatible software will depend on their annual turnover:

• £100 if turnover is below £100,000;
• £200 if turnover is between £100,000 and £5,600,000 inclusive;
• £300 if turnover is between £5,600,001 and £22,800,000 inclusive; and
• £400 if turnover is £22,800,001 or above.

Between £5 and £15 will be charged per day if businesses do not keep the records required of them digitally in the appropriate software.

The same goes for every day the business does not use digital links to transfer or exchange the required data between software when multiple pieces of software are used.

Up to 100% of the VAT owed can also be charged as a result of making a mistake by failing to use ‘checking functions’ in the software.

Speak to us about Making Tax Digital.

How to make savings during the cost-of-living crisis.

Nobody wants one, but a recession in the UK is looming, with the Bank of England (BoE) and British Chambers of Commerce (BCC) predicting the UK will enter one by the end of 2022.

The monetary policy committee of the BoE wrote:

“The latest rise in gas prices has led to another significant deterioration in the outlook for activity in the United Kingdom, which is now projected to enter recession from the fourth quarter of this year.”

A key aspect of the slowing economy is the worryingly high rate of inflation as measured by the consumer price index, which hit 10.1% in July 2022 and could peak at 14% according to the BCC.

It predicts GDP growth to grow in 2023 at a very low 0.2%, but the BoE expects the economy to continue contracting throughout 2023.

“Growth thereafter is very weak by historical standards”, it said.

How do recessions impact businesses?

Recessions can hurt any business in the country, but smaller ones are more likely to suffer, because the majority enjoy less of a financial cushion, market power and leverage within their industry to weather through tough times.

The one the UK faces is being driven by high inflation, which itself is being driven primarily by an explosion in energy prices, which is biting into the budgets of businesses more than expected.

It’s especially bad for industries that spend a big portion of their budget on energy, such as road freight transport and removal services (31%).

Micro businesses, which are defined as businesses with fewer than ten employees, are also especially vulnerable as they spend 20% of their budget on energy on average.

At the same time, consumer confidence has hit an all time low since comparable records began, as the cost-of-living crisis constricts household budgets.

Energy suppliers might see more profits, but businesses selling non-essential goods and services might see less business – ultimately reducing activity and fueling a recession.

Businesses also need to bear interest rates in mind. At the time of writing, the Bank of England base rate of interest is 2.25%. It is not completely certain whether this figure will increase, especially when considering consecutive increases throughout the year in an attempt to curb inflation by making it more expensive to borrow money.

All of this is to say that business owners need to start preparing right away (if they haven’t done so already) for the tough times ahead. A recession is more than just a headline buzzword for journalists and economists.

Assess your finances honestly

Surgically trimming your business budget is the obvious place to start. The challenge is to be smart about where to cut spending.

Oddly enough, however, cutting back is easier to do during a downturn than during prosperous times, as tough times provide an imperative to change. When survival is the goal, it’s easier to make the tough choices. Managers can defy old mindsets and creatively search for solutions, not just the next lifeline.

The challenge is to make your decisions well-defended and evidenced. To make sure they are, review your budget with key members of your financial team, advisers and accountants to get the insight you need to make the right decisions. They may be able to pick up on something you missed if they have all your business information at hand, giving you the confidence to say you’re making the right choices, no matter how tough they may be.

This should be a triage of your brand, products and services. Determine which have poor survival prospects, which may suffer in declining sales. Then you can cut loose what isn’t working, improve what might and keep doing what does.

Energy costs

A lot of businesses are and will continue to struggle because of rising energy costs. The Government recently announced an ‘energy price guarantee’ for households, and an ‘energy bill relief scheme’ to support businesses.

The energy bill relief scheme caps prices to 7.5p per kWh for gas and 21.1p per kWh for electricity, for six months from 1 October 2022.

Businesses can also look to reduce costs in the ‘normal’ ways – use energy efficient lighting; turn down the heat; turn things off when not in use; be careful with kitchen etiquette (overfilling the kettle costs the UK £68 million a year in energy costs!); use energy efficient tech; avoid energy waste, go paperless and so on.

You’ve heard these solutions before, but really focussing on them and getting the whole team involved after an energy audit could save you up to 10% on your business bill, according to the UK wing of Électricité de France.

If you are still worried about paying your business energy bills, contact your supplier, as they may be able to work with you to agree on a payment you can more easily afford. It’s always worth asking if in doubt.

Employment costs

Employees are essential to getting work done. For a lot of business owners, nothing could be done without them.

Employment costs, which for a typical restaurant usually stand at around 30% of revenue, can be expensive. But the solution isn’t always to cancel your new hire.

Instead, you can keep your number of full-time hires down by outsourcing certain tasks to third parties. A popular function to outsource is payroll – you need to get it done, but you’ll probably find you can save more by outsourcing it than hiring a payroll specialist.

Not only does outsourcing provide better value for money, but it also reduces the need for a large office with large rent fees and expensive energy bills. You might then be able to move somewhere less expensive, or get rid of the office altogether and move to remote working.

To save on employment costs, start with employee expenses, not employees themselves. You can make savings by ending or reducing the frequency of any free lunches you provide, for instance, or toning down this year’s Christmas party.

Embrace remote working

After the pandemic, a lot of employers were probably happy to see their staff return to the office, but that fondness doesn’t make it any less expensive than remote working.

When there are employees in the office, all those energy costs we’ve talked about are out in force, so you might want to reconsider your policy.

We’re not suggesting you go back to remote working completely, but re-evaluate how your working week goes. For instance, is there a day where only one or two employees come into the office, unnecessarily racking up your lighting costs? If so, consider closing the office permanently for that day.

When it comes to remote working, always remember that employees have been proven to be happier and more productive without the watchful eye of their employer.

Negotiate with suppliers and your landlord

Like your energy costs, what or how you pay your suppliers doesn’t have to be set in stone forever. Ultimately, they want to stay in business too and might be struggling. Furthermore, your payments are their income, and they want to keep that coming in, if you’re reasonable.

A great way to get a better deal is to buy in bulk. Suppliers, eager to move their stock and keep a positive cashflow, might just agree to a discount for a particularly big order of supplies.

Likewise, if you’ve been in a building for a while, you may be able to negotiate a better deal with your landlord, particularly if you’ve been a good tenant and have paid on time every month.

You might be surprised as to what you get and you certainly won’t lose anything by trying.

Talk to us about your business budget.

MTD non-compliance penalties also published.

After much anticipation from accountancy bodies and businesses, HMRC has finally updated its guidance on Making Tax Digital (MTD), filling in several blanks.

HMRC updated some of its informational pages on GOV.UK in late August, including fresh information on how to meet the requirements for MTD for income tax self-assessment (ITSA) and how to sign up for the scheme.

The new guidance follows a prolonged silence from HMRC and comes ahead of the commencement for MTD ITSA in April 2024.

What is MTD?

MTD is the Government’s policy to digitise the UK tax system in an attempt to simplify the process for taxpayers and improve their experience.

It also stems from the fact that the Treasury believes it lost £8.5 billion between 2018 and 2019 due to avoidable mistakes from taxpayers – mistakes that the Government believes technology and technological knowledge could have prevented.

The scheme first burst onto the scene in April 2019, applying to VAT-registered businesses above the £85,000 threshold at which registering for VAT is mandatory. Every VAT-registered business was expected to comply from 1 April 2022 onwards.

The scheme requires eligible businesses to keep records in software that can connect to HMRC to file the VAT return.

After the scheduled introduction of MTD ITSA in 2024, you can expect MTD for corporation tax to follow by 2026 at the very earliest.

Qualifying income

MTD ITSA must be complied with if an individual or sole trader has ‘qualifying income’ above £10,000 a year.

All of the following is considered as qualifying income:

• rents received from UK or overseas property (there is no deferral for landlords)
• self-employed sales from UK or overseas businesses
• income-based carried interest
• disguised investment management fees
• property or trading income received by a trust, which is taxed on the beneficiary.

However, there were some types of income that HMRC had omitted from this information, which it has now clarified.

First, non-domiciled individuals should know they do not need to include their foreign income in the threshold calculation or follow the MTD requirements for that foreign income.

HMRC also confirmed that income from a partnership is not included unless the income is in the form of “disguised investment management fees or income-based carried interest”.

The Revenue will use this approach until partnerships are fully mandated into MTD ITSA, which will be from April 2025 – from that point onwards, you can expect HMRC to view partnership income as qualifying income.

Please note, taxpayers with qualifying income above £10,000 but below the allowance for income tax will have to comply with MTD rules, even when there’s no tax to pay.

Exemptions from MTD ITSA

HMRC has confirmed all the following categories of taxpayers will not have to worry about the MTD ITSA reporting regime:

• Lloyds members, but only in respect of their underwriting businesses
• non-resident companies (these don’t pay income tax anyway as their property income is now subject to corporation tax)
• estates of deceased persons
• trusts
• trustees of non-registered pension schemes.

Charities are not automatically exempt from MTD ITSA. Instead, this will depend on their trading structure.

Authorise your agent to meet the requirements

HMRC has also updated its guidance to give clarification on the role of agents – such as accountants – in MTD ITSA.

Taxpayers can authorise HMRC to exchange data with their agent for any MTD service, the Revenue has confirmed.

Once authorised, your agent can:

• sign up your business
• use software to create and store digital records on your behalf
• use software to view, edit and send your data to HMRC.

Taxpayers who have previously authorised an agent to act on their behalf will not need to reauthorise them for MTD ITSA.

An agent may not have access to all your source data, however. If an agent cannot make corrections to your digital records, they will need to tell you about any corrections needed, according to HMRC.

Check if you can voluntarily sign up now

HMRC is currently running an MTD ITSA pilot programme to investigate the efficacy of the proposed new system and highlight any flaws.

Unfortunately, however, relatively few businesses and individuals have signed up – perhaps partly because they did not realise they were eligible. HMRC has now published full details of who can and cannot sign up for the MTD ITSA pilot.

Taxpayers can voluntarily sign up now if they are a UK resident, are registered for self-assessment and their accounting period aligns with the tax year – for example 6 April 2021 to 5 April 2022.

Volunteers must also have submitted at least one self-assessment tax return, keep digital records of the income and expenditure, and be up to date with their tax records (have no outstanding tax liabilities, for example).

Lastly, one or more of the following must have been included in a taxpayer’s last return:

• existing self-employment income
• a UK or foreign property source.

You cannot sign up yet if you need to report income from other sources, have a payment arrangement or have an income tax charge – for example, high income child benefit charges or certain pension tax charges.

You must also have an up to date address with HMRC, cannot join if you are a partner in a partnership, are currently or going to be bankrupt or are a Minister of religion. Lloyds underwriters and foster carers are also not allowed to join.

If you have a third capacity, you are likewise unable to sign up right now, including:

• trusted helpers
• insolvency practitioners
• nominees
• solicitors.

MTD penalties confirmed

HMRC also announced in mid-August how penalties for non-compliance with MTD will work, which will kick in from 1 November 2022 for VAT.

Anyone who files a VAT return through a non-electronic submission, contrary to MTD mandates, will face penalties of up to £400.

What we don’t know

The recently published guidance from HMRC on MTD is welcome, but it still needs to provide details on certain procedures.

HMRC has not yet published information on how to apply for exemption, or when we can expect such information.

Furthermore, taxpayers do not yet know how they can elect to use the calendar quarter as the period to report, rather than the tax year quarters ending (5 April, 5 July, 5 October, 5 January), which is how HMRC wants businesses to do things.

We will be keeping an eye on all developments and let you know of what we learn as soon as possible.

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The Government is joining forces with lenders and agencies to tackle the high level of bounce-back scheme fraud cases.

A new report shows that £1.1 billion worth of loans provided through the Government’s bounce-back loan scheme (BBLS) have been marked as suspected fraud.

The Department for Business, Energy and Industrial Strategy (BEIS) released a document on 5 September on the scheme’s performance, with data covering up to 31 July 2022.

Data released by the BEIS has confirmed that since September 2020, investigations have only been launched into £160m worth of claims out of the £1.1bn total.

The BBLS provided rapid financial aid to small businesses affected by the Covid-19 pandemic.

Applicants were required to self-declare their eligibility criteria for the loans to encourage banks to lend quickly.

The large amount of fraud committed against BBLS is thought to have occurred due to the speed and urgency of the scheme’s rollout, with some businesses giving false information when filling out their applications.

To date, the scheme has paid out £46.6bn worth of loans, and the Government estimates 500,000 businesses could have permanently ceased trading had the scheme not been in place.

Protections were introduced from the start of the scheme to reduce the number of fraudulent claims, and lenders were required to make or maintain various checks to screen applicants.

Lenders reported preventing over £2.2bn worth of fraud from being committed against the scheme as a result of these checks.

The Government says it is working with the British Business Bank, lenders and law enforcement agencies to tackle fraud in BBLS and penalise fraudsters.

In the new report, the department for BEIS said:

“It is unfortunate that some have taken the decision to take advantage of this vital intervention by defrauding the scheme for their own financial gain.

“The Government has always been clear that anyone who sought to do so is at risk of prosecution.”

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The Bank of England (BoE) has predicted that the UK will enter a recession before the end of the year.

The prediction, backed up by the British Chambers of Commerce (BCC), follows consecutive rises in interest rates, with inflation reaching a 40-year high of 10.1% in July.

Although the BoE expects the economy to contract over 2023, the BCC predicts that it will grow slowly over the next year at 0.2%.

Both agree that inflation, as measured by the consumer price index rate, will hit a peak of around 14% in the last quarter of 2022.

The sharp rise in inflation is due to increasing energy costs and supply chain issues following the Covid-19 pandemic and the war in Ukraine.

Alex Veitch, director of policy at the BCC, said:

“We have revised our projected inflation rate upwards by four percentage points to a new high of 14%.

“Inflation is running rampant, and it is not only impacting the cost of doing business but also the ability of some firms to keep their doors open.

“Time is fast running out. The Government must step up to the plate and do what is needed to protect businesses, livelihoods and jobs.”

Talk to us about your budget during the fiscal squeeze.

The additional tax rate has been scrapped completely by the new Chancellor.

Kwasi Kwarteng has announced the biggest bundle of tax cuts since 1972 in his first fiscal statement as Chancellor.

Income tax, corporation tax and stamp duty make up the majority of the most significant cuts in a bid to promote growth within the economy.

The basic rate of income tax will decrease by 1% to 19% from April 2023, and the 45% additional rate for top earners will be scrapped altogether.

The stamp duty threshold for house-buyers in England and Northern Ireland will be doubled from £125,000 to £250,000, and first-time buyers will not pay stamp duty on homes worth £425,000.

The Chancellor estimated that the energy bill relief scheme, announced earlier in September, would be worth more than £60bn over the next six months from October.

As anticipated, the Government is reversing the 1.25% percentage point increase in National Insurance, effective immediately. The planned rise in corporation tax will also be scrapped, along with the cap on bankers’ bonuses.

The Government will also introduce low-tax investment zones, VAT-free shopping for overseas visitors and tighter rules for people receiving Universal Credit.

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