News – Business
Business groups plead for government to enact changes
- The UK’s largest business organisations said the government needs to reverse the National Insurance hike, and cut VAT and fuel duty now if firms are to survive
Both the Federation of Small Businesses and the British Chambers of Commerce said the government has the power to make immediate changes to support businesses across the country.
FSB national chair Martin McTague said the government can no longer sit on its hands after the release of the latest consumer price index figures that showed a 10.1 per cent increase – the highest since records began in 1997.
“We’re seeing a toxic cocktail of rampant inflation, high taxes, soaring energy costs and shrinking economic growth. Action is needed right now,” he said.
“While the consumer prices rate of inflation bursting through 10 per cent is eye-watering, producer input prices are up by more than double that figure and this will filter through, pushing up the cost of living even more.
“The cost-of-living crisis can’t be solved without addressing the cost of doing business crisis.
“That’s why we need to see a reversal of the hike in National Insurance, a cut in VAT and fuel duty, and help for struggling small firms on energy bills to match that being given to households.”
The unprecedented rise in the CPI was fuelled by the rise in food and non-alcoholic drink prices and Mr McTague said hospitality businesses are also feeling the pinch – from the B&B owner who now has to pay 50p per slice of bacon to the bar that has seen prices for mixers and soft drinks spiral.
“While small businesses do their absolute best to offer good value to customers, they will be squeezed to the margins as consumers’ disposable spending falls,” he said.
FSB research set out the effect the current economic climate is having on small businesses, with more small firms reporting a decline in revenues in Q2 than an increase (40.7 per cent against 34.8 per cent). Expectations for any betterment in performance in Q3 are similarly subdued, with those predicting a fall in revenue (35.8 per cent) outnumbering those who predict an increase (32.4 per cent).
“Reports from members of four- or five-fold – or even higher – increases in their energy bills are coming in thick and fast, with relief on this front also desperately needed,” he said.
“The new figures small firms are being quoted for energy costs would be laughable if their potential effect on the business were not so serious – these are huge, unmanageable sums for businesses whose margins have been battered and whose reserves have been depleted by the disruption to trading caused by the pandemic.
“With so many small businesses on the brink as inflation runs ahead of their ability to keep up, the time is now for the Government to act to prevent the loss of even more businesses.”
British Chambers of Commerce director of policy and public affairs, Alex Veitch, said the higher-than-expected inflation increase, alongside eye-watering energy prices, confirms the severity of the cost-of-doing business crisis.
“This squeeze on businesses’ operating costs is also reflected in the latest Producer Price Inflation figures which show a 22.6 per cent rise in the year to July 2022, which remains among the highest levels since records began in 1985,” he said.
“The difference between input and output inflation illustrates that many firms are absorbing as much of these additional costs as they can. There is a limit to how much additional cost firms can absorb and is limiting growth and investment.
“Our research shows that two out of three firms expect to raise their own prices in the coming months, with utilities, labour costs, and raw materials all cited as the main drivers of costs. Firms have been telling us about this inflation shock for 18 months now.
“Businesses want to support their people, they want to invest and grow and they don’t want to put prices up for their customers, but they are left with little choice.
“The Government should act and has levers to pull to give vital support to businesses now.
“The two immediate and impactful choices would be to review and reform the Shortage Occupations List to help fill the 1.3 million job vacancies; and bring businesses’ energy costs down by lowering the VAT rate from 20 per cent to 5 per cent.
“It’s time for action and we’re offering solutions. It’s time for Government to listen.”
This article was sourced from Financial Accountant: https://www.financialaccountant.co.uk/news/business-groups-plead-for-govt-to-enact-changes
News – Employer Insights
LITRG warns workers of tax and benefits hit from fuel top up money
- This brings with it an administrative burden for employers
- Plus, tax and National Insurance implications for employees that they may not be aware of
Some employers are starting to pay or reimburse employee business mileage at more than the HMRC ‘approved’ amount because petrol and diesel prices are soaring. But the Low Incomes Tax Reform Group (LITRG) cautions employees that they may not see the full benefit.
If employers use the ‘approved’ rates when they pay or reimburse employees for using their own car for business travel, the payments are not subject to income tax or National Insurance, an employer does not need to report them to HMRC and they do not affect universal credit awards.
The approved mileage allowance rates, which are supposed to cover fuel costs as well as other running costs/wear and tear, are:
|First 10,000 business miles in the year||Each business mile over 10,000 miles in the tax year|
|Cars and vans||45p||25p|
But these rates have been in place since 2011 when petrol prices were around £1.35p per litre. The average rate is now around £1.87p.1
LITRG understands that some employers, worried that the rates will no longer cover an employee’s costs, are starting to pay or reimburse employees at more than the approved rates. But this brings with it an administrative burden for employers as well as tax and National Insurance implications for employees that they may not be aware of – and potential knock-on effects for universal credit.
Head of LITRG Victoria Todd said:
“Where an employer pays or reimburses at more than the approved mileage allowance rate, then HMRC deem the employee to have received extra wages. The way the excess is treated for tax and National Insurance purposes is complicated.”
‘Burdens on employers’
The excess is taxable on the employee and as such, the employer should either enter the amount on the employee’s P11D (used to detail certain expenses and benefits that they are liable to pay tax on), or if the employer payrolls expenses and benefits, add the profit amount to the employee’s pay, and deduct and pay tax over as normal under PAYE.
The employer may also need to deduct Class 1 National Insurance on the excess through the payroll, even if they put the amount on the P11D for tax purposes. But for National Insurance purposes, the ‘approved’ rate of 45p per mile is used for all business mileage, even if this exceeds 10,000 miles in the tax year. This means the amount of excess for tax purposes and the amount for National Insurance purposes may be different.
‘Universal credit hit’
Where the employer applies the correct treatment, only the excess amount should flow through to DWP to be picked up as income for universal credit purposes. This means where an employer reimburses mileage at a rate at, say, 50p per mile then universal credit should ignore 45p a mile but should include the 5p balance, after any tax and National Insurance, as income. However this still means that, in addition to potentially confusing tax and National Insurance treatment, an employee’s universal credit award will be lower than they may expect because of their higher income.
Victoria Todd said:
“These complications are a potential headache for the well-meaning employer and in many cases, a shock to the employee when they realise they may not feel much of the benefit of their employer’s generosity. And this is before you start to consider the possibility of errors in how the excess is processed by employers due to the complexity of the rules.
“This situation would be easily relieved if HMRC increased the approved rates, as they have the ‘advisory fuel rates’ for company car users recently.2 This might encourage more employers to pay their employees more for mileage. It would also mean an increased tax relief deduction for employees where employers do not pay at the rates – an added bonus for the low-paid who are dependent upon their cars.3 In the light of soaring fuel prices, now is the time for a review.”
This article was sourced from LITRG: https://www.litrg.org.uk/latest-news/news/220801-press-release-litrg-warns-workers-tax-and-benefits-hit-fuel-top-money
News – Property
How could rising interest rates and high inflation affect buy-to-let?
- Rising average property prices can mean higher future sale prices for landlords
- However, high inflation can also mean higher maintenance and property upkeep costs
The long-term impact of Covid-19, ongoing supply chain issues, and the war in Ukraine have combined to create uncertain economic conditions.
From rising energy bills and an inability to pay rent to increased maintenance costs and higher remortgage payments, the cost of living crisis is affecting many landlords and their tenants.
The UK inflation rate reached 9.4 per cent in June and is forecast to peak at over 13 per cent in the autumn.
In an attempt to get inflation under control, the Bank of England (BoE) recently increased the base interest rate, but what does high inflation and rising interest rates mean for buy-to-let landlords?
What impact does high inflation have on the rental market?
Inflation is when the cost of goods and services rise over time. It can be affected by things like demand and supply. Read our guide to inflation for more on how it works and why it’s rising.
High inflation can have some benefits for landlords, such as:
- rising average property prices, meaning higher future sale prices[Text Wrapping Break]
- rental growth caused by higher demand if people choose to delay buying property due to higher prices[Text Wrapping Break]
These factors can combine to increase yields for landlords. On the other hand, high inflation also has its downsides for the rental market, including:
- higher maintenance and property upkeep costs[Text Wrapping Break]
- increased chance of rent arrears or tenants unable to pay bills[Text Wrapping Break]
Issues like these could put pressure on landlords’ finances, making it harder to meet buy-to-let mortgage repayments.
Bank of England increases base interest rate again
Earlier this month, the Bank of England’s Monetary Policy Committee voted to increase the base interest rate to 1.75 per cent.
Between March 2020 and December 2021, the base rate was at an all-time low of 0.1 per cent. Since the end of last year, it’s been increasing gradually as the BoE tries to curb inflation.
The recent base rate increase from 1.25 per cent to 1.75 is the highest for many years. That being said, interest rates remain well below the highs of 5.75 per cent in July 2007 and almost 15 per cent in October 1989.
A higher interest rate could lead to more expensive mortgage repayments for landlords on a variable buy-to-let mortgage. Landlords on a fixed deal won’t be affected. However, the cost of fixing a new deal is likely to be higher if the base rate keeps rising.
According to Anthony Codling, CEO at property platform Twindig, mortgage costs will start to be affected by the recent base rate rise from September.
He estimates that those with a variable rate of 2.5 per cent could face an extra £25 a month in repayments for each £100,000 borrowed.
Read our guide to buy-to-let mortgages for more information on rates, repayments, and affordability.
How to stay on top of rising interest rates and inflation
Challenging economic conditions, including rising energy bills and high prices for fuel and materials, mean it’s important that landlords attempt to keep their costs down.
Managing higher interest rates
With interest rates no longer at a record low, what can landlords do to keep mortgage costs under control?
- shop around for the best mortgage products – you may have to switch lender but it could be worth it financially[Text Wrapping Break]
- look for fixed rate deals of two or five years as the base interest rate is likely to keep rising for the foreseeable future[Text Wrapping Break]
- work with a specialist buy-to-let mortgage broker – their knowledge of the market and strong relationships could save you a significant amount of money[Text Wrapping Break]
Managing rising costs
Keeping costs down is tricky at the moment, but here are some practical things you can do to save money in the long run:
- get a range of quotes for maintenance work – doing your research can increase your chances of working with reliable and affordable tradespeople[Text Wrapping Break]
- inspect your property regularly – picking up on small problems before they escalate could help you to make big savings on costly repairs[Text Wrapping Break]
- build relationships and communicate regularly with tenants – getting ahead of any problems such as rent arrears or unpaid bills can help you to minimise their impact[Text Wrapping Break]
This article was sourced from Simply Business
News – Salary Sacrifice
Salary sacrifice pensions: a guide for employers
- For many employees who take a salary sacrifice pension, their take home pay remains the same but their monthly pension contributions are much higher
- This is because by reducing their gross salary, their income tax and Class 1 National Insurance contribution (NIC) payments are lower
Salary sacrifice pensions have a range of tax benefits for both employers and employees. They can also help businesses to attract the best candidates during the recruitment process.
Read on to find out how salary sacrifice pensions work, the tax benefits, and some of the best-known schemes.
What is a salary sacrifice pension?
A salary sacrifice scheme is when an employee gives up some of their wage for a benefit such as a cycle to work scheme or childcare vouchers.
One of the most popular salary sacrifices is for an employee to exchange a portion of their salary for higher pension contributions from their employer.
For many employees who take a salary sacrifice pension, their take home pay remains the same but their monthly pension contributions are much higher.
This is because by reducing their gross salary, their income tax and Class 1 National Insurance contribution (NIC) payments are lower.
The employer also makes a saving on their tax contributions, which they can choose to keep or add as a further contribution to the employee’s pension pot.
A salary sacrifice pension is something that has to be offered by an employer and agreed to by the employee.
How does a salary sacrifice pension work?
When an employee agrees to take a salary sacrifice to put towards their pension, you’ll need to agree a new contractual salary with them.
This means their contract will need updating. Generally this is done by adding a clause to the contract that explains the details of the salary sacrifice.
It’s worth getting legal advice before changing employee contracts, as well as reading government guidelines on salary sacrifice pensions.
The employee will need to decide how much of their salary they want to sacrifice. Most people give up between five and 15 per cent, but it’s important to remember that:
- an individual’s pension contributions usually can’t exceed £40,000 a year[Text Wrapping Break]
- a salary sacrifice can’t reduce the employee’s salary below the national minimum wage[Text Wrapping Break]
- the more of your salary you give up, the more it could affect your take home pay[Text Wrapping Break]
- employees can opt in to a salary sacrifice pension if they’re a higher rate taxpayer[Text Wrapping Break]
Salary sacrifice pension contributions
Since 2012, it’s been a legal requirement for employers to add their employees to a workplace pension if they’re aged 22 or above and earn more than £10,000.
Employees must make a monthly contribution of eight per cent of their salary to their pension, made up by a minimum contribution of three per cent from the employer and five per cent from the employee.
When an employee opts in for a salary sacrifice pension, their existing contributions (usually five per cent) will stay the same. The existing contribution from the employer (three per cent minimum) will still be paid but they’ll also contribute the employee’s sacrificed salary (e.g. £1,000) to their pension pot.
So even though the employee is contributing more to their pension from their salary, it’s counted as an extra employer contribution.
Paying into a salary sacrifice pension gives people extra pension tax relief. This is because you don’t pay income tax or National Insurance on the portion of your salary going straight into your pension pot.
All the tax savings made by employees and employers are instant – there’s no need to claim them back later.
Salary sacrifice pension examples
If one of your employees earns £30,000 a year and opts in to sacrifice £1,500 of their salary to save for their pension, here’s how it would work:
- their income tax would remain the same at £3,186[Text Wrapping Break]
- their NIC would drop from £2,309.48 to £2,110.73[Text Wrapping Break]
- your NIC would drop from £3,145.45 to £2,919.70[Text Wrapping Break]
- the employee’s net salary would increase from £23,004.53 to £23,203.28[Text Wrapping Break]
- their total pension contribution would increase from £2,400 to £2,625.75[Text Wrapping Break]
What are the main benefits of salary sacrifice pensions?
Salary sacrifice pensions help people to save more money for later life without significantly affecting their take home pay.
They offer a legal way for employers and employees to reduce their National Insurance payments, and employers can then choose to keep the savings or contribute them to the employees’ pensions.
Employers who offer salary sacrifice pensions and pass the tax savings on to employees can benefit from a happy workforce. On top of this, it also puts them in a strong position when recruiting for new staff as prospective employees will be looking for differentiators like benefits in kind.
Do salary sacrifice pensions have any disadvantages?
In most cases salary sacrifice pensions are win-win for employers and employees, but there are a few potential downsides to consider.
Downsides for employers
The main thing for employers to consider is the extra admin involved with offering a salary sacrifice pension scheme.
You’ll need to make sure that:
- employees have a clear and easy way to opt in or out of the scheme[Text Wrapping Break]
- contracts are amended for all employees who opt in[Text Wrapping Break]
- your payroll is up to date to include the new totals for gross salary and tax[Text Wrapping Break]
That being said, since the introduction of auto enrolment, most businesses are likely to already have the systems in place to manage pensions effectively.
Downsides for employees
As we already mentioned, employees who opt in for a salary sacrifice pension can save more for their retirement while often taking home the same (or more) monthly pay.
The main thing to remember is that by taking a salary sacrifice your gross annual salary is lowered. This could cause problems if:
- you’re applying for a mortgage and you need a higher salary for the property you want to buy[Text Wrapping Break]
- the level of cover for things like life assurance is lower due to your reduced salary[Text Wrapping Break]
This article was sourced from Simply Business: https://www.simplybusiness.co.uk/knowledge/articles/2022/08/salary-sacrifice-pension-guide/
R&D plans could catch out smaller companies
The Association of Taxation Technicians (ATT) is concerned that a requirement for companies to notify HMRC in advance that they intended to claim R&D tax reliefs risks denying tax relief to the very smallest and newest companies that need this relief the most.
The advanced notification requirement forms part of a package of R&D measures included in draft legislation for Finance Bill 2022-23 which was recently released. This states that, to claim R&D relief, companies will need to inform HMRC within six months of the end of the period to which the claim relates.
House price growth slowed to 7.8% in June
Figures released this week show that average house prices increased over the year in England to £305,000 (7.3%), in Wales to £213,000 (8.6%), in Scotland to £192,000 (11.6%) and in Northern Ireland to £169,000 (9.6%).
On a non-seasonally adjusted basis, average house prices in the UK grew by 1.0% between May and June 2022, representing the eighth consecutive monthly increase. This compares with an increase of 5.7% during the same period a year earlier (May and June 2021).
On a seasonally adjusted basis, average house prices in the UK increased by 0.5% between May and June 2022, following an increase of 0.8% in the previous month.
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