It has been a chastening few months for HMRC with customer service levels dipping to an all-time low and criticism mounting from politicians, taxpayers and business.

Problems have ranged from the availability of phone helplines, the reversal of big decisions regarding tax and support for taxpayers, the ongoing saga of Making Tax Digital (MTD) and the complexity of IR35. Here we take a look at the issues plaguing HMRC and giving taxpayers headaches.

Taxpayer exasperation

HMRC's customer service levels are at an all-time low, according to a recent critical report published by Parliament's Public Accounts Committee (PAC). The PAC expressed its disappointment in the five-year decline of the service levels and said it had seen ample evidence of 'taxpayer exasperation'.

The PAC said that against a backdrop of a rising population and an increase in the complexity of people's tax affairs 'HMRC is apparently struggling to cope'. It noted that HMRC still fell £2 billion short of its £36 billion target for compliance yield while there has been a significant reduction in criminal prosecutions by HMRC, from 691 in 2019/20 to 240 in 2022/23.

The PAC has also accused HMRC of 'Making Tax Difficult' for taxpayers as MTD adds to the burdens they face.

It said that while MTD will 'substantially benefit' HMRC by improving its systems, taxpayers are asked to spend more and do more in order to be compliant.

Waiting on hold

The accessibility of HMRC's advisers by phone is a major point of contention. The PAC found that 62.7% of callers waited more than 10 minutes to speak to an adviser during 2022/23.

HMRC told the PAC's inquiry that it did not have the resources to meet rising demand for its phone services and its own figures show that the wait time had risen to 24 minutes by February this year. Unsurprisingly, that month also saw over 650,000 calls to the tax authority abandoned before being answered.

HMRC is directing callers to use digital services which it insists are good quality. However, the PAC received a lot of evidence to the contrary from taxpayers and their agents. 

As part of this process HMRC planned to close its self assessment helpline for six months every year while also reducing the availability of its VAT and PAYE helplines.

However, such was the backlash to these announcements that the tax authority reversed these decisions within 24 hours.

HMRC said it was halting these plans 'in response to the feedback while it engages with its stakeholders about how to ensure all taxpayers' needs'.

Flip flopping

The rollback of the helpline withdrawal was the second time in a matter of weeks that HMRC had reversed a decision in short order.

Just a week after HMRC released guidance that classed double-cab pickups as cars rather than vans, the government reversed the decision.

On 19 February, HMRC confirmed that it's reversing the updated guidance announced on 12 February, meaning that double-cab pickups will continue to be treated as goods vehicles rather than cars.

It reversed course after listening to concerns from farmers and the motoring industry on the impact of the changes to the tax treatment.

Bearing the brunt

Unfortunately, this example of businesses being listened to appears to be the exception rather than the rule.

In a recent survey of members of the Association of Chartered Certified Accountants (ACCA), 66% said that poor HMRC services were having a negative impact on their clients, with small businesses 'bearing the brunt' of this issue.

This is a 14% increase in negative sentiment from the previous ACCA survey in October 2023, demonstrating that SMEs are 'reaching breaking point with the service'.

Tough approach

One area highlighted by the PAC is the scrutinised issues around the IR35 rules on off-payroll working.

The PAC said it is concerned that HMRC's approach to tackling IR35 is deterring legitimate economic activity, and that a lack of confidence in how to apply the rules, together with HMRC's tough approach when taxpayers make mistakes, is unnecessarily putting companies off using contractors.

This was reinforced by research published by the Association of Independent Professionals and the Self-Employed (IPSE).

IPSE's survey of more than 1,300 contractors in highly skilled roles found that 21% are not currently working, with half of them attributing this to the impact of reforms to IR35 tax rules.

This April will see significant changes to the National Living Wage (NLW) with the government lowering the age at which workers will qualify as well as the annual increase in the rate. It can be costly for employers to breach NLW and National Minimum Wage (NMW) laws. Last year saw employers forced to repay millions in underpayments in addition to fines. They also take a reputational risk as HMRC names and shames offenders. Here, we take a look at the new rates and what to do to make sure you comply.

The NLW and the NMW

Anybody working aged 21 or over and not in the first year of an apprenticeship is legally entitled to the NLW.

Despite its name, this rate is essentially a NMW for the over 20s. The government is committed to increasing this every year.

The NLW rate changes every April and employers will need to make sure they are paying their staff correctly as the NLW will be enforced as strongly as the NMW.

The table below shows the NMW and NLW rates applying from 1 April 2024:

*Under 19, or 19 and over in the first year of their apprenticeship

Who does not have to be paid the National Minimum Wage?

NMW and NLW apply to all workers, with certain exceptions such as:

• those who are genuinely self-employed
• workers who are still of compulsory school age
• company directors
• volunteers and voluntary workers
• family members living in the family home and working in the family business
• non-family members living and working with the family, for example au pairs
• students doing work experience as part of a higher or further education or a work placement up to a year.

There are more exceptions to the NMW and NLW. Visit this link for further guidance.

Beware the family company trap

Although there is an exemption for family members working in the family business and residing in the family home of the employer, the Regulations specifically refer to the employer's family. If the family business (i.e., the employer) is a limited company, then it does not have a family. Even if the family business operates as a sole trader or partnership, the only family members exempted are those who actually live in the home of the employer.

Breaching NMW laws

The government can impose penalties on employers that underpay their workers in breach of the minimum wage legislation. The penalty can be as much as 200% of arrears owed to workers. The maximum penalty is £20,000 per worker.

The penalty is reduced by 50% if the unpaid wages and the penalty are paid within 14 days. 

Periodically the government publishes a list of employers who have not complied. The reasons employers fail to comply vary and include topping up pay with tips and deducting sums for uniforms, among others.

Naming and shaming

This year the government named and shamed over 500 employers for failing to pay their lowest paid staff the minimum wage.

Together these firms were found to have failed to pay their workers almost £16 million in a breach of NMW law, leaving around 172,000 workers out of pocket.

The companies named by the government ranged from major high street brands to small businesses and sole traders. The government reiterated that no employer is exempt from paying their workers the statutory minimum wage.

Recent warnings from HMRC that fraudsters are targeting self assessment taxpayers with bogus offers of tax refunds have served as a useful reminder to stay vigilant for scams.

Being targeted by fraudsters can be distressing, while sorting out the damage done can be time-consuming, as well as taking a toll on finances. Here, we highlight the steps necessary for protection against fraud and scams.

Bogus offers

HMRC recently warned people to be wary of bogus tax refund offers following the self assessment deadline on 31 January.

HMRC warns that taxpayers who completed their tax return for the 2022/23 tax year by the 31 January deadline might be taken in by an email, phone call or text message offering a tax rebate.

These phishing scams are designed to use personal details for selling on to criminals, or to access people's bank accounts, says HMRC.

The warning comes after HMRC responded to 207,800 referrals from the public of suspicious contact in the past year to January. This is a 14% increase from the 181,873 reported for the previous 12 months. More than 79,000 of those referrals offered bogus tax rebates.

Too good to be true

Self assessment is just one of the areas where scammers will attack savings and finances.

They use tactics like phishing emails and fake ads in order to encourage people to handover their personal information over the phone or by registering on a bogus website.

If you see an offer that sounds too good to be true, it probably is. Always check the brand's official website or social media channels to verify whether an offer is authentic.

Devastating pension savers

Pension savers have long been a target of scammers. Pension scams often include free pension reviews, 'too good to be true' investment opportunities and offers to help release money from your pension, even for under 55s, which is not permitted under the pension freedom rules.

Pension fraud can have a devastating impact, both financially and emotionally, but anyone can fall victim to a fraud if they are not careful.

Protecting your pension

Although a ban on cold calling in the UK, including emails and texts, was introduced at the beginning of 2019, the problem continues. Cold calls are a major red flag for scams and unsolicited offers should be ignored or rejected. Cold callers will often offer a free pension review. Professional advice on pensions is not free – an unexpected free offer is probably a scam.

It is crucial that pension savers know who they are dealing with so checking the FCA Register is imperative. Dealing with an authorised firm gives access to the Financial Ombudsman Service or the Financial Services Compensation Scheme (FSCS), which can hold firms to account and give financial protection.

Pension savers should never allow themselves to be rushed or pressured into making a decision. They should not be afraid to miss out on an 'amazing deal' because of artificial deadlines, and if promised returns sound too good to be true, they probably are.

Impartial information, financial guidance and advice are all key to making a good decision before changing pension arrangements. 

Protecting personal information

The key to protection from the scam is by keeping the lid tightly sealed on all personal information. If lost, personal information can be used to fraudulently apply for loans, goods or services. It can also be used to take over or using an existing product, not necessarily just open new ones.

This means safeguarding sign-on credentials and passwords for online banking, retailers and other websites that may store financial information. Password managers can be a great way of creating strong passwords and keeping track of them.

Also, when looking for websites make sure the URL is correct and that it has https at the start, or a little padlock – these mean it should be secure.

It is also prudent to keep settings on the highest privacy level on all social media accounts.

Shred documents

Although most identity theft happens online it is still important to be careful with letters and other documents. Bills, statements and invoices often have names, addresses and account details on them. It is good practice to shred any document with your personal details on it rather than risk someone finding it in the bin or on a landfill site.

Watch out for red flags

According to the Information Commissioner's Office, there are a number of red flags that will alert you to someone else using your identity. If bank statements dry up, you start to receive letters or demands for debts that aren't yours or you are turned down for financial products such as credit cards or a loan, despite having a good rating, these could all be red flags.

Report any suspicious activity on your account – even if you are not certain it is the result of fraud – to your bank, to Action Fraud and Cifas.

Everyone is a potential target for fraudsters and scammers, so always check before you respond to messages, even if they appear genuine at first sight. Be careful to protect your personal details. If in any doubt, please do get in touch.

The start of the year is often a good time to take stock of a situation and make a plan for the coming 12 months. As those in the self-employed sector look ahead they will see a number of challenges, including the continued rise in living and working costs, the need to undertake training to keep up with workplace evolution and difficulties in dealing with HMRC.

Feeling the squeeze

The cost-of-living crisis continues, with the rate of inflation rising again in December. The past year has seen the cost of the weekly supermarket shop spiral while may will have seen rent or mortgage payments rise.

Unfortunately, the energy price cap rose by 5% at the beginning of 2024 while still more people will need to re-mortgage this year and will be faced with paying a higher rate of interest.

Sadly, increases in rates for freelancers have rarely kept pace with inflation while many are reporting a rise in late payment among clients, according to the Association of Independent Professionals and the Self-Employed (IPSE).

Meanwhile, some freelancers are still paying off debts incurred during the pandemic. All these hurdles combine to impact on the profitability of a self-employed business.

Increases and side hustles

One option for freelancers is to increase the rate they charge clients. This does carry risks, so considering how clients may react is key. Communicating any increases and the reasons for making them will be essential.

If increasing rates is not possible then there are other options, including trying to generate more business, diversifying or establishing an entirely new side hustle altogether.

This may reduce reliance on client work and provide an additional revenue streams which in turn may help alleviate the pressures of rising living costs.

Retraining or upskilling

Developments in the world of work, from a widespread shift to remote working to a boom in free-to-use generative AI tools, are transforming our understanding of working practices.

These rapid cycles of innovation also create opportunities for freelancers to boost their efficiency and diversify their offer, but only if they can find the time and money to get ahead of the curve.

Finding the time to train

Learning new skills, and keeping current ones up to date, can help freelancers reinvigorate a business offering and escape a cycle of stagnant income.

However, for freelancers, time spent learning something new is time not spent on their core business activities, working on projects or generating leads, something that many freelancers can't afford. In addition, money spent by freelancers on learning new skills is not tax deductible.

Despite these obstacles finding training opportunities is important. It is also true that non-core skills – such as thought leadership, networking or public speaking – could bring new opportunities.

Taxing times

It is a fact for the self-employed that tax can take up a lot of time. That might be time spent filling in and filing self assessment returns, locating tax forms or corresponding with HMRC.

Talking to the tax authority is currently a fraught and time-consuming business. Data shows that the average wait time for HMRC's phonelines has increased by more than double since 2020, from 10 minutes to 24 minutes.

On top of this HMRC announced it would only be answering 'priority queries' in the run-up to January's self assessment deadline. It is doubtful that the self-employed would be using their valuable time to call HMRC if their query were anything other than a priority to them.

Financial health

The scrapping of Class 2 National Insurance contributions (NICs) in the Autumn Statement was welcome, as was the recent announcement of a new 'offset' mechanism for the off-payroll working rules from April next year.

It remains imperative that freelancers take time and care to manage the financial health of their business. By regularly updating invoices and expenses, managing key financial deadlines, tackling administrative tasks promptly the self-employed can save time and money overall.

Although recent falls in the rate of inflation have been welcome, prices are still rising and the cost-of-living crisis continues. Interest rates are at their highest level in over 15 years, the energy price cap has increased and the festive season has brought its own financial pressures.

Businesses are facing their own pressures and pay rises are not always possible. However, there are other ways to help employees combat financial challenges. Here we look at some of the ways firms can support employees in navigating the cost-of-living crisis.

Negative health impact

Around half of workers agree that money worries can have a negative impact on their mental and physical health, according to research from Nuffield Health.

This has a knock-on impact on the businesses that employ them. A third of employees said that they accomplished less than they would like due to emotional problems or worries, and a similar number felt they were less careful than usual, according to the Money and Mental Health Policy Institute.

Open up about money

Managers and senior executives should try to normalise money conversations at work. Opening up about the money issues confronting the business can help improve people's understanding of financial wellbeing and encourage better conversations. ?

Educate staff in financial literacy

Businesses can provide staff with financial benefits education, debt counselling and advice on debt consolidation.

There are plenty of resources, many of them free, to help staff who need advice on making their money go further. There is also a range of apps that can help employees manage bills, keep a track of spending and find best deals for purchases.

Enhance emotional support

Money worries can have a significant negative impact on wellbeing and can cause mental health issues. Employers should signpost individuals towards the relevant emotional wellbeing support available to them. This may include cognitive behaviour therapy sessions (CBT) or employee assistance programmes (EAPs), which provide individuals with direct access to specialists.

Improve the overall package

Increasing salaries in line with inflation is not an option for many organisations. However, there are other ways to improve the overall remuneration package for employees.

These could include paid-for meals at work, access to an EAP to support employees with stress and debt problems, and access to employee discount schemes.

Offering salary sacrifice as an option for cycle to work, pensions and childcare voucher schemes is also something businesses should consider. These not only help employees through financial hardship but could also save the employer national insurance contributions (NICs).

Of course, your firm may already offer benefits like season ticket loans, interest-free loans or gym memberships: make sure staff are aware of them.

Use tax-efficient gifts

The trivial benefits scheme allows an organisation to give its staff a non-cash gift, such as a gift card, of up to £50 with no tax or national insurance to pay.

There is a £50 limit per gift for each employee and firms can use the trivial benefits scheme more than once a year as long as it doesn't become a part of the employee's regular salary or contract. Company directors are limited to £300 per year through the scheme.

Be flexible and allow hybrid working

Businesses can help to reduce the financial pressure on staff by reducing their work-associated outgoings. For example, this might involve allowing employees to work from home so they can lower travel expenditure or by offering flexitime to avoid peak-time travel expenses. In addition to reducing commuting costs, flexibility in working hours and remote working policies can help employees to manage stress and offer support with childcare.

Offer direct financial help

If there is capacity, set up an emergency fund or grants that employees can apply for if facing financial hardship. Another way could be to provide employees with short-term interest-free loans to cover unexpected costs.

The cost-of-living crisis will continue to put pressure on both household and business finances during 2024. We are happy to advise on the best approach to suit your circumstances. Please contact us for information on payroll, cashflow, NICs or other related matters.

An astounding total of £26.6 billion is currently sitting lost and unclaimed in UK pension pots, according to recent figures. This shocking number comes as many people face working longer before retiring or having to deal with a pension shortfall. Planning for retirement in advance is vital, with many people neglecting to make suitable arrangements until it is too late.

Here, we look at how to find lost pensions, consolidate pots and put tax-efficient plans into action.

Lost and unclaimed

One in four people have lost track of at least one pension in the UK, with almost three million pension pots unclaimed. The estimated combined value of these unclaimed pensions is £26.6 billion. The average value of each pension pot is £9,500, which increases to £16,004 for those aged between 55 and 75.

One of the major reasons for these unclaimed pots is the change in modern working lives, with few people now working for 30 years with the same employer before retiring. The average number of jobs a person will have over their lifetime is now 11 and a pension could have been started in each of these.

However, only 4% of people tell pension providers when they change address and the average number of times a person will change address is eight.

The advent of auto enrolment will push the numbers of unclaimed pensions higher still.

Track and trace

These pots are safe with the provider, usually invested in the default fund and still growing. But the saver has lost contact with the provider.

Tracking down these lost pension pots is a matter of going through past employers and finding out who the provider for the pension scheme is. Contacting the employer directly is easiest but where that is not possible getting in touch with former colleagues is recommended.

A government tracing service is available on GOV.UK while the Association of British Insurers (ABI) can also help. There are also private tracing services, although these cost money.

Those attempting to find lost pensions should be aware that it is an area that has been targeted by scammers in the past and cold calling is banned.

Pension dashboards

One development that aims to help clarify people's pension situations is pensions dashboards. These are a digital service that allow people to keep track of all their pension savings. The roll-out of dashboards is currently scheduled to happen before October 2026.

Consolidating pots

The increase in people with multiple employers over their lives means that now over half of pension savers have two or more pension pots. A third of these savers want all their pension pots in one place but many people don't know how to combine their pensions.

There are several reasons for consolidating pension pots. Keep pensions together makes keeping track of retirement savings easier while fewer providers will lower the charges payable for managing funds.

Consolidating pensions also gives access to different investment options and funds while different providers offer access to different feature that may make retirement planning easier.

Consolidating pensions is another area that has been targeted by scammers so those thinking of consolidating must be wary.

Chancellor Jeremy Hunt has warned of the need to make difficult decisions in the upcoming Autumn Statement. The Chancellor's choices are being restricted by the state of the public finances. However, that isn't preventing business groups from asking for action and Conservative MPs from asking for tax cuts. Here we examine some of the options open to Mr Hunt on 22 November.

State borrowing billions over predictions

The Chancellor's warning came after recent news that there has been a 'sharp worsening' of the public finances over the past six months.

Mr Hunt said state borrowing was on course to be £20 billion to £30 billion higher than predicted at the March Budget.

The Chancellor said: 'The fiscal position has worsened since the spring, and I will have to take difficult decisions in the Autumn Statement.

'The main reason things are more challenging is because interest rate projections for all economies have gone up. The UK is not immune to those changes. We are likely to see an increase in debt interest payments of £20 billion to £30 billion and that's a huge challenge.'

At the time of the March Budget, the Office for Budget Responsibility (OBR) said the chancellor had only a £6.5 billion buffer to meet his fiscal rule of having debt as a share of national income falling at the end of five years. Higher borrowing in response to the Covid-19 pandemic has pushed the national debt above £2 trillion.

No short cuts

The government is now expecting the OBR to cut its future growth forecasts for the UK economy, which would pile additional pressure on the public finances.

However, Mr Hunt says he is not prepared to borrow more to finance the tax cuts being demanded by some Conservative MPs. Instead he says he will make savings to pave the way for a more generous Budget next spring as the next general election draws closer.

The Chancellor said: 'I will do everything I can to prevent tax rises and also show how I can reduce the tax burden over time. But I have to be honest – there are no short cuts. Borrowing to finance tax cuts is no tax cut at all. It just passes on the cost to a future generation.

'All western economies have found themselves in a low-growth trap. The Autumn Statement will show how we can get out of it.'

General Election ahead

The Autumn Statement comes with the UK still battling inflation and looking at an uncertain economic forecast. It also comes as the run up to the next General Election is firmly underway.

The Chancellor would no doubt like to go into that election with inflation falling, the economy growing and the ability to make voters feel good with some tax cuts. He also faces pressure from within his own party to cut taxes.

The former PM Liz Truss is planning to release what her allies call a 'Growth Budget' ahead of his Autumn Statement.

Meanwhile, a long campaign by some Conservative MPs to cut inheritance tax is under serious consideration in Downing Street, according to newspaper reports.

Among the proposals under consideration is to reduce the 40% rate paving the way to abolish it in future years. However, this appears more likely to happen in next March's Budget rather than this autumn.

Unleash green markets

Meanwhile, the UK's business groups are also making their pitches for the Autumn Statement.

The Confederation of British Industry (CBI) has urged Chancellor Jeremy Hunt to 'unleash green markets' to drive long-term prosperity and sustainable growth.

One of the CBI's key proposals is for the government to realise the UK's net zero growth opportunity. It has urged the Chancellor to decrease waiting times to build electricity transmission infrastructure and speed up the process for becoming connected to the grid.

The business group also advocates introducing a targeted 'green' super-deduction for incorporated and unincorporated businesses, with a first-year allowance of at least 120%.

Making full expensing permanent to unlock investment

The CBI is also urging the Chancellor to make full expensing permanent to 'unlock business investment across the economy'. Analysis carried out by the CBI showed that permanent full expensing could help to drive investment by 21% and increase GDP by 2% by 2030/31.

Five key changes

In addition, the Institute of Directors (IoD) has written to the Chancellor Jeremy Hunt with five key policy recommendations for the Autumn Statement.

• Tax credits for companies that train staff to meet national skill shortages.
• Stronger incentives for SME net zero transition – such as a differential corporation tax rate.
• Permanent 100% capital expensing.
• An export target based on volumes, not values, and the proportion of companies that export.
• Greater reputational pressure on slow invoice payers.

While the relentless increase to interest rates over the past 18 months has posed challenges to businesses and households, as the cost of borrowing has inexorably risen, there has been a silver lining for savers. Rates on savings returns are finally rising after years in the doldrums.

However, savings rates still lag behind inflation so savings are losing value in real terms, while increased returns mean that many individuals may face a tax bill. Here, we look at the challenges facing savers as interest rates increase.

Frozen Savings Allowance

The frozen Savings Allowance, combined with rising interest rates, will push over one million individuals into paying tax on their savings this tax year, according to research by investment platform AJ Bell. 

In the 2023/24 tax year it is estimated that over 2.7 million individuals will pay tax on interest, up by a million in a year. 

This year's predicted total includes nearly 1.4 million basic rate taxpayers, a figure which has quadrupled in just four years, AJ Bell's research found. 

Tax on savings income

Savings income is income such as bank and building society interest.

The Savings Allowance applies to savings income and the available allowance in a tax year depends on the individual's marginal rate of income tax. Broadly, individuals taxed at up to the basic rate of tax have an allowance of £1,000. For higher rate taxpayers the allowance is £500. No allowance is due to additional rate taxpayers.

Savings income within the allowance still counts towards an individual's basic or higher rate band and so may affect the rate of tax paid on savings above the Savings Allowance.

Some individuals qualify for a 0% starting rate of tax on savings income up to £5,000. However, the rate is not available if taxable non-savings income (broadly earnings, pensions, trading profits and property income, less allocated allowances and reliefs) exceeds £5,000.

Tax bills

Tax bills from savings income are paid either through self assessment or deducted from income through a tax code adjustment. Many won't be aware that they owe the tax until HMRC sends them a letter to change their tax code to deduct the money from their payslip.

That tax hit will compound the fact that cash savings are losing value in real terms, with savings interest lagging well behind the rate of inflation.

Tax-efficient savings strategies

It is vital to review your financial strategies regularly. This includes planning to make the most of the tax-saving opportunities available to you, particularly ahead of the tax year end in April.

Individual Savings Accounts (ISAs)

ISAs are sometimes referred to as a tax 'wrapper' for investments: they allow you to make a tax-efficient investment, rather than dealing directly in the investment market and facing the tax consequences attaching. 

The tax benefits here are considerable. ISAs are free of income tax and capital gains tax and do not impact the availability of the savings or Dividend Allowance.

There are four types of ISA: cash ISAs, stocks and shares ISAs, innovative finance ISAs and Lifetime ISAs. The total you can invest in any tax year is set by the government: for the tax year 2022/23, it is £20,000. This can be allocated across the different types, as you choose. 

Although you cannot hold an ISA with, or on behalf of, someone else, you and your spouse each have an ISA subscription limit: this means you can invest £40,000 between you.

Premium bonds

Premium bonds from NS&I offer a secure way to hold cash. Rather than a set interest rate, prizes of £25 to £1 million are paid monthly. The advantage is that any prizes are free of tax. However, the return on Premium Bonds is not guaranteed and you may never win a prize, so anyone choosing this option needs to be prepared to make no return on their money.

Using your partner's allowance

Every individual is entitled to their own personal allowance (PA), which is £12,570 for the 2022/23 tax year. A key element in tax planning is to make the best use of the PA. If your spouse or civil partner has little or no income, you might want to consider the ownership of income-producing assets.

This may involve redistributing income-producing assets to minimise the couple's tax liability – but be mindful of the settlements legislation governing 'income shifting'. Any transfer must be an outright gift, with 'no strings attached'.

Use your pension

If you've just tipped over into the next tax bracket, and seen your Personal Savings Allowance halved or wiped out you can use your pension to bring you back down into the lower income tax bracket. When you contribute to your SIPP, the gross value of the contribution has the effect of extending your basic rate tax band, meaning that you could avoid tipping into the higher-rate band.

As your accountants, we can work with you to make sure your business and personal finances are in the strongest possible position for whatever the future may hold. Please get in touch to discuss the tax planning opportunities available to you.

In the Bank of England's battle against inflation its main weapon has been increasing the base rate of interest. The UK's base rate has risen 14 times in succession from a lockdown low of 0.1% in December 2021 to 5.25% now. These increases are designed to squeeze spending power and cool the economy. However, rising interest rates also impact on borrowers, homeowners, savers and taxpayers. Here, we take a look at the effect of rising interest rates.

Fighting inflation

Interest rates are at a 15-year high as the Bank of England (BoE) continues its fight to bring inflation down to its target of 2%.

The latest official data shows that inflation dropped to 6.8% in July from 7.9% the month prior, according to the Office for National Statistics (ONS). The figure was lower than expected, meaning that the Bank may slow down its rate-rising activity.

The Chancellor, Jeremy Hunt, has also pledged to halve the rate of price rises by the end of the year. Mr Hunt described high inflation as 'a destabilising force eating into pay cheques and slowing growth'.

Despite the recent drop in inflation some economists predict that interest rates will need to rise to 7% to tackle the problem.

Squeeze on homeowners

Rising interest rates can significantly affect homeowners, especially those with variable rate mortgages, those looking to remortgage or get a new mortgage. Mortgage lenders often pass on these increases to borrowers, leading to higher monthly mortgage payments.

A typical five-year fixed mortgage deal in the UK now has an interest rate of more than 6%, putting further pressure on borrowers who are hoping to buy a home or reaching the end of their existing deals.

Higher mortgage payments squeeze homeowners' disposable income and reduces their spending power. They can also deter potential homebuyers from the market, which puts downward pressure on property prices.

Silver lining for savers

While rising interest rates can pose challenges for borrowers, they provide a silver lining for savers.

Banks and building societies often take their time to adjust savings account rates in response to rate changes. However, the rate rises are gradually feeding through, and savings rates are at their highest points in years with easy access accounts now over 4.5%, notice accounts over 5% and fixed-term accounts over 6%.

These rates are constantly changing and because they remain below inflation in real terms the money held in savings accounts is shrinking. It is vital to shop around for the best rates possible for your savings.

Late payments and repayments to HMRC

HMRC moves the rates it charges taxpayers for late payments and repayments in line with the base rate.

The tax authority increased interest rates with late payment bills charged 7.75% from 22 August, the highest rate since 2001.

Late payment interest is payable on late tax bills covering income tax, national insurance contributions (NICs), Capital Gains Tax (CGT), corporation tax pay and file, Stamp Duty Land Tax (SDLT), stamp duty and stamp duty reserve tax.

Repayment interest was also increased from the 4% rate to 4.25%.

With rising interest rates, taxpayers who encounter difficulties meeting their tax deadlines may face higher costs due to accumulating interest charges. For businesses, this could result in financial strain, potentially affecting cash flow and profitability.

Shrinking household wealth

The recent hikes in interest rates have caused household wealth to fall by £2.1 trillion over the past year, according to research carried out by think tank the Resolution Foundation.

The report notes that Britain has experienced an unprecedented wealth boom in recent decades, with total household wealth rising from around 300% of national income in the 1980s, to 840% – or £17.5 trillion – in 2021.

However, the Bank of England's rapid rate-rising cycle since late 2021 has caused mortgage rates to rise, house prices to fall and, critically, the price of government and corporate bonds to plummet.

Falling bond prices have reduced the measured value of pension assets (largely in defined benefit schemes, or already in payment), normally the biggest single source of household wealth in Britain.

The Foundation's estimates suggest total household wealth has fallen to 650% of national income in early 2023 – a cash fall of £2.1 trillion over the past year and the biggest fall as a share of GDP since World War II.

Uncertain path

The future path of interest rates is uncertain. Higher rates may be here to stay, or they may return to more manageable levels in the future.

In the meantime, homeowners may find themselves burdened with higher mortgage payments while savers may enjoy better returns on their investments.

It is essential for individuals and businesses to remain vigilant and adapt to the changing interest rate environment, making informed decisions to secure their financial well-being.

Please contact us if you need information or advice on any of the issues discussed in this blog.

Environmental, social and corporate governance (ESG) has risen up the agenda for modern businesses despite sometimes being misunderstood and occasionally controversial. Some believe it is the job of government not business to deal with environmental or social issues. Others are concerned that ESG is too closely associated with political agendas.

However, ignoring ESG is not an option that businesses can afford any longer due to the legal and reputational risks involved. Here we look at ESG and assess some of the factors that businesses must consider.

Rarely considered

A few years ago, it would have been rare for many businesses to consider ESG factors and wider sustainability issues in significant detail.

Now a combination of government policy, increased regulations, industry initiatives and increased awareness of climate change have changed that. This change brings a number of challenges.

There have been concerns around availability and quality of data, effective modelling of outcomes and impacts.

There are also risks around greenwashing and the potential for green hushing – where firms keep quiet about their emissions reduction targets to avoid scrutiny.

Other businesses may consider that addressing the climate and biodiversity crisis is a matter for government and policymakers, not for businesses.

These are legitimate concerns, but they should not be a barrier to firms meeting their legal duties. Especially as the pace of change in relation to data improvements, policy development and guidance has reduced some of these industry challenges in recent years.

Better decisions

Many business leaders believe considering ESG factors helps them to make better decisions for their firm.

This was the conclusion of an Institute of Directors (IoD) survey. In addition, the 42% of business leaders polled by the IoD said that all three aspects of ESG were of equal importance. Of those remaining, 26% highlighted 'governance' as the most important component, whilst 17% chose 'environment' as the most important factor and 9% selected 'social'.

The IoD survey also highlighted that a solid governance framework is a pre-requisite for success in the other aspects of ESG. So, getting governance right should be the starting point for the directors of all kinds of organisations.

Rules and oversight

ESG governance refers to the implementation of decision-making, board oversight, rules, policies, and procedures throughout an organisation relating to environment social and governance.

Key governance topics include:

• board diversity
• business ethics and conduct
• tax transparency and strategy
• risk management
• anti-competitive practices
• data protection, privacy, and cybersecurity
• ESG data controls
• ESG reporting and disclosure.

Stewarding nature

Environmental relates to how firms perform as a steward of nature, and how they utilise natural resources in the course of doing business. It also takes into consideration environmental concerns and is often the most watched element by members of the public.

Common environmental factors include:

• carbon emissions and energy usage
• water usage and management
• waste management and reduction
• biodiversity and habitat conservation
• pollution and toxic chemical usage
• supply chain sustainability
• climate change adaption and resilience.

Managing relationships

The final part of ESG is a broad topic that covers a wide range of social issues. It covers the business's relationships with everyone from the shareholders and employees to tenants, neighbours and partners. How a business interacts with these stakeholders is very important to potential investors, and managing these social relationships should be at the heart of any ESG strategy.

Common social factors include:

• diversity and inclusion
• fair pay
• education
• flexible working hours
• employee turnover
• company relationships
• company hierarchies
• tenant relationships
• company ethics
• reputation.

Improved understanding

It is vital that businesses of all types improve their understanding of climate, ESG and wider sustainability issues. They will also need to improve the quality of their policies and disclosure, move away from boilerplate wording and ensure action follows intent.

In the past not enough firms focused on ESG issues in any significant detail, now they can no longer ignore the elephant in the room.

Implementing ESG successfully means changing budget priorities but can also open up new opportunities for your business. Please contact us if you want to discuss any of the financial aspects related to this area.