In the news this month we bring you the latest on Making Tax Digital for Income Tax (MTD for IT) and increases to the energy price cap. We also update you with the warnings on a possible Emergency Budget and the latest rates of inflation. With news on the advisory fuel rates for cars and the use of cash.
HMRC releases more details MTD for Income Tax
HMRC has published more details on how Making Tax Digital for Income Tax (MTD for IT) will work for buy-to-let landlords and sole traders with qualifying income over £10,000.
The new income tax framework for MTD for IT will be mandatory from 6 April 2024. HMRC is now asking for users to sign up for the test phase.
The new system will replace self assessment tax returns for anyone who qualifies for MTD for IT as they will have to submit all non-qualifying income through the Personal Tax Account (PTA) system instead.
Anyone who qualifies will have to make quarterly submissions, and the new deadline for end of year statements will be 31 January after the end of each tax year.
HMRC will use data from self assessment tax returns to calculate qualifying income in the first instance and will contact all affected taxpayers directly to inform them that they fall under the mandatory MTD for IT rules.
‘Your qualifying income is the combined income that you get in a tax year from self-employment and property income sources. We assess this before you deduct expenses (that is, your gross income or turnover).
‘All of your qualifying income must be reported through MTD compatible software.
‘All other sources of income reported through self assessment, such as income from employment, dividends or savings, do not count towards your qualifying income. You will need to report income from these sources using either your MTD compatible software (if it has the functionality) or HMRC online services account.’
Average household energy bills will rise to £3,549 in October following the decision of energy regulator Ofgem to raise the price cap.
The record 80% hike will see a typical default tariff customer paying an extra £1,578. The rise follows a 54% increase in April, which saw average bills surge to £1,971 a year.
Ofgem Chief Executive, Jonathan Brearley, said:
‘We know the massive impact this price cap increase will have on households across Britain and the difficult decisions consumers will now have to make. I talk to customers regularly and I know that today’s news will be very worrying for many.
‘The government support package is delivering help right now, but it’s clear the new Prime Minister will need to act further to tackle the impact of the price rises that are coming in October and next year.
‘We are working with ministers, consumer groups and industry on a set of options for the incoming Prime Minister that will require urgent action.’
Treasury Committee warns government against ‘flying blind’ with Emergency Budget
The Treasury Committee has urged the government to provide assurance that it is not ‘flying blind’ into a potential Emergency Budget this September.
In a letter sent to Chancellor Nadhim Zahawi, Mel Stride, Chair of the Treasury Committee, asked whether the Treasury is working with the Office for Budget Responsibility (OBR) on a forecast to be published with any potential Emergency Budget that may be announced.
The Treasury Committee has outlined to the Chancellor that an OBR forecast would need to include all changes to government policy and economic and fiscal data up to when the new Prime Minister takes office.
The government usually gives the OBR ten weeks’ notice of a fiscal event, such as a Budget, to allow officials to provide an independent forecast of the economy and the UK’s fiscal position.
In the letter, Mel Stride said:
‘As a committee, we expect the Treasury to be supporting and enabling the OBR to publish an independent forecast at the time of any significant fiscal event, especially where, unlike other recent fiscal interventions, this might include significant permanent tax cuts.
‘Whether such an event is actually called a Budget or not is immaterial. The reassurance of independent forecasting is vital in these economically turbulent times. To bring in significant tax cuts without a forecast would be ill advised. It is effectively ‘flying blind’.’
Economic analysts have warned that the rate of inflation could keep rising in 2023 as a result of rising energy prices.
Think tank the Resolution Foundation stated that inflation could go above 15%, whilst investment bank Citi said that it is ‘entering the stratosphere’ and could reach 18.6%.
Predictions outlined by the Bank of England (BoE) have suggested that inflation could rise to over 13% later this year.
Commenting on the matter, James Smith, Research Director at the Resolution Foundation, said:
‘Inflation has hit double digits earlier than expected off the back of the highest food price inflation in over two decades, and is set to continue climbing as energy bills soar this winter.
‘There is no escaping this cost-of-living crisis, with pay packets shrinking at their fastest pace since 1977 and low-income households facing the prospect of cutting back ‘non-essential’ spending by 25% to cope with energy bills of over £4,000 from January.’
Energy firms call for windfall tax to be scrapped by 2025
Trade body Offshore Energies UK (OEUK) has stated that the Energy Profits Levy, also known as the ‘windfall tax’, on UK energy firms should be scrapped by 2025 or it could risk having a ‘detrimental impact’ on investment in the sector.
OEUK said that a new round of windfall taxes would ‘leave the UK facing decades of energy insecurity’ and only serve to ‘heap further costs on consumers’.
The trade body warned that imposing new taxes would ‘make the UK seem fiscally unstable and a riskier place to invest’. It said that if investment in the sector declined, then production would plummet – creating a ‘disaster’ for UK energy security.
Mike Tholen, Sustainability Director at OEUK, said:
‘The government has a duty to both protect consumers and to ensure national energy security.Labour’s proposals to hit our own producers with further taxes will discourage investment and so risk a rapid decline in UK production.
‘That would mean buying more energy from abroad, increasing the UK’s trade deficit and further risking UK energy security.
‘It comes at the worst possible time for the UK offshore sector, which is still reeling from the introduction of the windfall tax in May.’
The Trades Union Congress (TUC) has called on the government to increase the National Minimum Wage (NMW) rates ‘immediately’ in order to guarantee decent living standards for families.
Research carried out by the TUC found that UK poverty levels are ‘likely to get worse’ if ministers continue to hold down pay. Additional financial support for families announced by the Treasury this year will be offset by cuts to real-terms pay and other living costs, the business group added.
The TUC has called for key workers to be given a fair pay rise to meet the costs of living; more funding for the public sector so that all outsourced workers are paid at least the real Living Wage; and a boost in Universal Credit to 80% of the Real Living Wage.
Frances O’Grady, General Secretary of the TUC, said:
‘Every worker should be able to afford a decent standard of living. But millions of low-paid workers live wage packet to wage packet, struggling to get by – and they are now being pushed to the brink by eye-watering bills and soaring prices.
‘For too long workers have been told that businesses can’t afford to pay them more. But again and again the evidence has shown that firms are still making profits and increasing jobs – we can afford higher wages.
‘And higher wages are good for the economy – more money in the pockets of working people means morespend on our high streets.
‘It’s time to put an end to low-pay Britain. Let’s get wages rising in every corner of the country and get on the pathway to a £15 per hour minimum wage.’
Banking trade body UK Finance has revealed that the rapid decline in the use of cash as a form of payment has eased.
A report published by UK Finance found that 40.4 billion payments were made in 2021, which marked a return to pre-pandemic levels. Cash payments accounted for 15% of all payments in the UK.
In 2021 there were 23.1 million consumers who used cash as a form of payment just once a month or not at all. At the same time, there were 1.1 million consumers who mainly used cash when doing their day-to-day shopping.
Debit cards proved to be the most popular form of payment method, making up 48% of all payments.
Adrian Buckle, Head of Research at UK Finance, said:
‘In 2021 we saw the total number of payments return to pre-pandemic levels and a return towards the long-run trends in payment method usage.
‘Contactless continued to be popular, accounting for almost a third of all payments. Cash usage fell slightly,although remained the second most commonly used payment method.’