In our last newswire, we covered some of the steps that you could take to keep a closer eye on your money.

If you have followed them, hopefully by now you have a better appreciation of how current inflationary pressures are affecting your finances, but what steps can you take to reduce the cost of living?

Unfortunately, there is no single solution to ease the cost-of-living crisis, but here are some steps that everyone can take to reduce the impact of this ongoing period of economic difficulty.

Revaluate your mortgage – If you have a mortgage then it is likely to be one of your biggest monthly outgoings. In recent months mortgage rates have shot up as the Bank of England’s base rate has increased. Those on non-fixed mortgage rates will have seen the amount they pay each month rise quite drastically as a result.

However, since the markets have calmed down in recent days, lenders have begun dropping their fixed-rate mortgage rates, with further falls anticipated into the new year.

If you have been experiencing higher mortgage costs as a result of recent events, then it might be worth seeking independent advice to see what options are available to you and which approach is best for your future.

Can you get cashback? – If you spend a lot on credit or debit cards, as many of us do, you might be able to make use of the cashback function offered by many High Street banks.

While this will not entirely solve the problems created by rising inflation, it will mean that you can recuperate some of the cost from your spending.

Some bank accounts offer cashback on the bills you pay, while others will cover any spending, including cashback of up to 15 per cent of your purchase at certain retailers!

Do not forget your future – With the cost-of-living crisis affecting a wide range of expenses, it might be tempting to cut back on your savings and pensions. However, by reducing the amount you pay, you will lose out in the long run as your savings will not benefit as much from the effect of compound interest. This works best when you have more in your account for interest to build on.

If you decide to stop paying into a private pension or your savings, then you may find that you have to work for longer or suffer an inferior standard of living in retirement. In many ways, it may make sense to live more frugally now while you are working, rather than tolerate a lower quality of life in retirement when you have more time to enjoy your hobbies and passions.

Next steps

It is easy to do nothing and hope for the best when things seem out of your control. But failing to act now could have long-term consequences on your wealth and prosperity.

In the last year, Inheritance Tax receipts have risen sharply – soaring from £0.5bn to £4.1bn year-on-year between April and October.

This rate is likely to climb higher and higher due to rising house prices, inflation and the Chancellor’s decision to freeze Inheritance Tax allowances, such as the nil-rate band and residence nil-rate band, until 2028.

None of us wants to pass on a tax burden to our beneficiaries through our estate, but for more and more people it is becoming a reality, in large part due to the rising value of the homes that we own.

While there are many ways to mitigate a potential Inheritance Tax bill, with Christmas just around the corner, what better time of year than to look at the rules around gifting?

Annual Exempt Gifts

You can give away a total of £3,000 worth of gifts each tax year without them being added to the value of your estate. This is known as your ‘annual exemption’.

You can give gifts or money up to £3,000 to one person or split the £3,000 between several people. You can carry any unused annual exemption forward to the next tax year – but only for one tax year.

You can give as many gifts of up to £250 per person as you want each tax year, as long as you have not used another allowance on the same person.

You can also give a larger wedding gift to a child worth £5,000 or more prior to their nuptials and certain payments to help with a family member’s living costs, such as school fees, may be exempt as well.

Birthday or Christmas gifts you give from your regular income are exempt from Inheritance Tax.

The Seven Year Rule

Taper relief or as it is more commonly known, The Seven Year Rule, applies tax to gifts you have made in the seven years prior to your death on a sliding scale.

If there is Inheritance Tax to pay, it is charged at the full 40 per cent on gifts given in the three years before your death. However, the rate of tax paid on gifts made three to seven years before your death is taxed at different rates as follows:

• 3 years or less – 40 per cent
• 3 to 4 years – 32 per cent
• 4 to 5 years – 24 per cent
• 5 to 6 years – 16 per cent
• 6 to 7 years – 8 per cent
• 7 or more – 0 per cent

While you cannot usually plan the date of your death, it is important to understand how this mechanism works and plan lifetime gifts accordingly.

Charitable Gifts

Any money or assets that you give to a qualifying charitable body, whether during your lifetime or in your will via a legacy donation, is exempt from Inheritance Tax.

What’s more, if you leave more than 10 per cent of your net estate to a charity after you die the rate at which tax is paid on the rest of your estate is reduced from 40 per cent down to 36 per cent.

Planning for later life should include a clear pension, savings and investment strategy, but ought to also consider your estate after you are gone.

It is highly advised that you seek independent advice if you anticipate paying Inheritance Tax as there is a lot that can be done to reduce the amount that is paid.

The message from the Chancellor, Jeremy Hunt, in the days before he rose to the despatch box in the House of Commons to deliver the Autumn Statement was clear; he would be outlining billions of pounds of tax rises and spending cuts.

These spending cuts and tax rises, he said, would affect everybody and were necessary to re-establish the markets’ trust in the future health of the public finances.

What was less clear was exactly who the announcements would affect the most and how they would be impacted.

Of course, the challenges for the Chancellor extended well beyond winning the trust of the markets in relation to his stewardship of the public finances. He will also have been thinking about inflation, the cost-of-living crisis, interest rates and promoting economic growth, not to mention the political optics.

These are competing but intricately related pressures; action to address the cost of living carries with it the risk of further inflation; action to reassure the markets brings the twin dangers of not addressing the cost-of-living crisis or promoting economic growth. Different economic considerations do not exist in a vacuum.

Further underscoring the scale of the challenge, just a day earlier, the Office for National Statistics announced that inflation had reached a 41-year high of 11.1 per cent.

This followed warnings from the Bank of England’s Monetary Policy Committee, as it increased interest rates to three per cent in early November, that the UK faces a “prolonged” recession.

The only real questions concerned the detail of what the Chancellor would do. Which taxes would be affected? Will they rise now or in the future? Would tax rates rise? Would the focus be on freezing thresholds? How much pain would there be? Who would bear the brunt?

And, most importantly, would it work?

• Public finances
• Personal tax
• Business tax
• National Living Wage, Energy and Pensions
• Conclusion

Public finances

Addressing the Office for Budget Responsibility’s (OBR) economic forecasts, the Chancellor said that the economy is now in recession and is expected to shrink by 1.4 per cent in 2023/24 before growing in 2024/25.

Meanwhile, he said unemployment is expected to rise to 4.9 per cent in 2024, up from 3.6 per cent now, before falling to 4.1 per cent the next year.

Borrowing this year stands at 7.1 per cent of GDP, according to the OBR. Debt as a percentage of GDP is expected to peak at 97.6 per cent in 2025/26 before falling to 97.3 per cent in 2027/28.

Personal tax

Beginning with personal tax, the Chancellor said that the threshold for the additional 45p rate of Income Tax will fall from £150,000 to £125,140 from April 2023.

At the same time, National Insurance, Inheritance Tax and Income Tax thresholds and Allowances will be frozen at their current levels for a further two years to 2028.

He said the Dividend Tax Allowance will fall from its current level of £2,000 to £1,000 in 2023/24 and then to £500 in 2024/25.

Turning to Capital Gains Tax, the Chancellor said the current Annual Exempt Amount will fall from £12,300 to £6,000 in 2023/24 and then to £3,000 in 2024/25.

He then turned his sights to electric vehicles, saying that a road tax will apply to them from 2025.

Finally, on personal tax measures, he said that the Stamp Duty Land Tax (SDLT) cuts announced by his predecessor, Kwasi Kwarteng, in September 2022 will end on 31 March 2025 and will not be permanent.

Business Tax

Turning to business taxes, the Chancellor said he would reduce the enhanced deduction rate for Research & Development (R&D) Tax Relief for SMEs from 130 per cent to 86 per cent of qualifying expenditure from April 2023. The tax credit for loss-making SMEs will fall from 14.5 per cent to 10 per cent.

On Business Rates, he said that the revaluation exercise will go ahead as planned in April 2023. £13.6 billion of support will be provided over five years to help businesses transition to the new bills.

He said the Business Rates multipliers will be frozen in 2023/24 and there will be extended and increased relief for businesses in the retail, hospitality and leisure sectors. That relief will increase to 75 per cent.

The National Insurance Secondary Threshold will remain at £9,100 until April 2028.

National Living Wage, Energy and Pensions

Turning to the National Living Wage (NLW) and National Minimum Wage (NMW), the Chancellor announced he would increase the rates for those aged 23 and over by 9.7 per cent to £10.42 an hour from 1 April 2023.

Meanwhile, the rate of NMW for those aged 21 and 22, 18 to 20, and 16 and 17 will rise to £10.18, £7.49, and £5.28 an hour respectively. The apprentice rate will also rise to £5.28 an hour.

Moving to address energy costs, the Chancellor said the current Energy Price Guarantee (EPG) will remain in place until April 2023, limiting typical energy bills to £2,500 per year. From April 2023, the EPG will rise to £3,000 for the typical household.

Concluding his speech with pensions, the Chancellor said that the State Pension Triple Lock will remain in place, meaning the State Pension will rise in April 2023 in line with September 2022’s rate of CPI – 10.1 per cent.

Conclusion

The economy is a complex and dynamic system, and there are limits to what can be known about how it will respond to any particular intervention – it is the sum of the ever-changing actions of millions of individuals.

What is more, the Chancellor only has his hands on some of the levers of economic influence, not all of them, and moving one of the levers he controls can stop him from moving another.

Mr Hunt will be hoping he has pulled the right levers by the right amount and that the factors out of his control move in the direction he wants them to.

For businesses and business owners, the impact of the changes is likely to vary considerably and a renewed focus on tax planning is likely to be needed.

Link: Autumn Statement 2022

Following the elation within the contracting sector about the Government’s decision to repeal the 2017 and 2021 reforms to IR35, we are extremely disappointed the new Chancellor has chosen to reverse the measures.

IR35 was among a number of policies targeted by Jeremy Hunt in his emergency fiscal statement this month, which undid the tax cuts announced in his predecessor’s mini-Budget.

While this change is frustrating, it doesn’t materially change the reality of working as a freelancer or add further restrictions to the existing rules.

If you continue to work outside of the off-payroll legislation then you should be largely unaffected, but for those currently deemed inside, this may be a wake-up call to review current opportunities and to see what is out there that might offer more favourable terms.

Unemployment is, after all, at a historic low and many organisations have skills gaps that require filling – the ball is in your court.

Rishi Sunak has now been announced as the new Prime Minister following the resignation of Liz Truss after 45 days in office. Hopefully he will look favourably upon the contracting world.

As always, we will be here to guide you come what may, offering advice and support that makes your life easier.

We are in unprecedented times as energy bills, food costs, mortgage rates and inflation continue to rocket upwards.

The latest Consumer Price Index, which is the official mark of inflation in the UK, hit 10.1 per cent this month, driven up in large part by the cost of food.

Given the propensity for the current cost-of-living crisis to get worse, now is a great time to get your financial affairs in order.

While we can’t tell you best place to invest or save, here are a few simple tips to consider:

Managing and monitoring costs

Have you reviewed your outgoings recently? While there is very minimal scope to switch deals or cut costs, you would be amazed at how many people are on legacy contracts or terms that make their regular costs, such as broadband, higher.

Even small changes could add up to big savings overall, so it is worth taking the time to look at what costs can be cut, with the least effort and impact.

Taking advantage of tax reliefs

There is a wide range of personal tax reliefs available to all of us that we might not take advantage of that could reduce the amount of tax paid.

This is just one example, but if you are married and your partner earns less than the personal allowance (£12,570) and doesn’t pay any income tax you could use the Marriage Allowance to transfer £1,260 of their allowance to you. This could reduce the tax you pay by up to £252 in the tax year.

Re-evaluating existing contracts

Have you been working under the same contract for some time? Does your fee take into account inflationary pressures?

If your current contract isn’t making ‘ends meet’ then perhaps it is time to look elsewhere or seek a new contract with the same engager at a higher fee.

Given the shortage of skills within many industries, some businesses may be willing to meet in the middle or even match your requests given the cost of recruiting and onboarding a potential replacement.

An increasing number of retirees are looking to return to the workplace to supplement their pensions and reconnect with careers that they loved.

The new world of flexible working has never made it easier to choose when, where and how often you work.

If you have previously been a contractor or want to give it a go following a career in regular employment, what do you need to consider:

Changing job requirements

If you have been out of work for some time, it is important that the roles you are applying for align with your needs and skills.

Some jobs may require you to be up to speed on new standards or have different qualifications.

This can even be the case if you have done the job previously, as professional bodies and industries constantly update their policies.

If the role involves technology or certain types of software, you may also need to brush up on new programmes and processes.

If you have considerable experience in a certain field, but do not meet all of the requirements, some businesses may be willing to accommodate any needs that you have.

Costs of work

Although going to work is primarily about getting paid, many roles also incur costs. This can range from investment in new equipment or training to everyday costs, such as commuting, or if you work from home, your electricity and gas.

With the price of everything going up, you really do need to consider whether the fees you charge merit the costs you will encounter.

If you only end up slightly better off, it may not be worth the expense and effort in some cases.

However, this will rarely be the case in most roles, and returning to work could really boost your income during these challenging times and support a higher standard of living during your retirement.

Get connected

If you only recently retired, you may still be quite active on platforms like LinkedIn or have existing connections and contacts that you can rely on to secure new work.

However, if you have been out of work a little longer then you may need to refresh your online profile and build new connections within your industry.

People retire, move on and, more frequently, change the industries they work within. The pandemic saw a huge shake up to where and how people worked, so you can’t assume that your old contacts will still be around.

That is why it is important to put yourself out there and build relationships with agencies and potential engagers of your services.

How much and for how long are you willing to work?

If the return to work is not out of necessity, and you just want a little bit of additional income, you may need to think about how long and for how many hours each week you want to work.

While contracting does offer greater flexibility, there will still be certain expectations within each role and a certain amount of work that will need completing.

If you have got used to the extra free time in retirement, you need to consider the impact that returning to work will have on your life.

Nevertheless, freelancing still gives you greater freedom to decide how often and for how long you work.

Enjoy it

If you have retired and find yourself milling around the house or you miss the busy days of going to work and daily interaction with colleagues, then the return to work can be really enjoyable.

What’s more, you are likely to be in a position where you can choose contracts that are appealing to you, with less concern about how much they pay.

Speak to us

If you are genuinely considering a return to work then we are here and ready to help you with all your tax and accounting requirements, so get in touch if you need support.

Government repeals unfair 2017 and 2021 changes to both public and private sector IR35 legislation from April 2023

Chancellor Kwasi Kwarteng used the recent mini-Budget to repeal IR35 legislation in the public and private sectors, stunning and delighting contractors.

Mr Kwarteng said IR35 reform had imposed “unnecessary cost and complexity” for “many businesses,” so it will be repealed, “as promised by…the Prime Minister.”

In fact, Liz Truss only promised the Off-Payroll rules would be reviewed, but that’s not stopping the contractor sector from celebrating that all IR35 status decisions will be reverting to them from 6th April 2023.

The Chancellor was clear when he said “From this date, workers providing their services via an intermediary will once again be responsible for determining their employment status and they will be responsible for paying the appropriate tax and National Insurance contributions. This will free up time and money for businesses who engage contractors that could be put towards other priorities.”

Until now, a long line of Treasury ministers, backed by HMRC have, contrary to the evidence, said that the IR35 changes of 2017/2021 do not affect genuine contractors – conveniently ignoring the fact some organisations made a blanket determination and banned all limited company workers.

Along with a planned increase in Corporation Tax from 2023 being cancelled, this is great news for contractors and we expect to see clients who were forced to work PAYE or through an Umbrella Company, resulting in a large drop in net income, once again working through their limited company.

You don’t however have to wait until April 2023 to increase your take-home pay if you are currently working ‘inside IR35’ through PAYE or Umbrella. You can do so now by finding and moving to a new ‘outside IR35’ contract working through your own limited company.

As always, we are here to help and advise you.

With a new King at the Palace and a new Prime Minister at Number 10, it was no surprise that the new Chancellor at Number 11 used his first statement to the House of Commons to signal a “new era” for fiscal policy.

It turned out to be a striking change of direction, as the Chancellor opened his speech, saying: “We will be bold and unashamed in pursuing growth, even where that means taking difficult decisions”.

Gone was the Sunak era’s post-Covid emphasis on fiscal responsibility. Instead, in what the Government dubbed its ‘Plan for Growth’, Kwasi Kwarteng set out an approach prioritising tax cuts for individuals and businesses over immediate repairs to the public finances.

The Chancellor’s assumption is that cutting tax rates will boost economic growth and so increase the overall tax take.

This was Mr Kwarteng’s first real test as Chancellor, 18 days into the job, with inflation sitting at 9.9 per cent and energy prices spiking, interest rates rising, a weakened pound, plus the economic recovery from Covid by no means complete.

Only a day earlier, the Bank of England’s Monetary Policy Committee had raised interest rates sharply by half a percentage point to 2.25 per cent – the highest level in eight years – in a bid to stave off spiking inflation.

Despite being a Fiscal Statement rather than a Budget, the policies trailed in the days and weeks running up to the speech suggested that it might prove to be more significant an event than many full Budgets.

• Income Tax
• National Insurance/ Health and Social Care Levy
• IR35 Off-Payroll Working Rules
• Corporation Tax
• Stamp Duty Land Tax (SDLT)
• Annual Investment Allowance (AIA) and SEIS
• Investment Zones
• Energy Bills
• Conclusion

Income Tax

In a speech full of significant announcements, perhaps the most notable related to Income Tax.

The Chancellor announced that the Additional Rate of Income Tax, which is currently 45 per cent on income over £150,000 will be scrapped entirely.

He then moved to bring forward the cut in the Basic Rate of Income Tax to 19 per cent planned for April 2024 to April 2023.

National Insurance/ Health and Social Care Levy

Another landmark policy of the Johnson Government was the 1.25 per cent Health and Social Care Levy paid by employees and employers to help meet the cost of social care.

The current tax year is a transitional year in which the increase has been applied to National Insurance Contributions and it was to have become a standalone tax from April 2023.

Now, the Chancellor has announced that the charge will be scrapped and will no longer apply from 6 November 2022.

He said the reason for the move was to support smaller businesses, help households and boost economic growth.

IR35 Off-Payroll Working Rules

In an unexpected move, the Chancellor announced that the reforms to the IR35 off-payroll working rules in 2017 and 2021 for individual contractors operating via personal service companies in the public and private sectors respectively would be scrapped.

The change means that it will no longer be the responsibility of the organisation engaging contractors’ services to determine whether a contractor should pay tax on the same basis as an employee. Instead, that responsibility will revert to the contractor, as was the case previously.

Cancellation of planned Corporation Tax increase

The last Chancellor but one, Rishi Sunak, had announced a plan to increase the rate of Corporation Tax from 19 per cent to 25 per cent from April 2023 for companies with profits of more than £250,000. Those with profits of between £50,000 and £250,000 would have benefitted from tapered relief, while there would have been no increase for those with profits of £50,000 or less.

In a striking change from the previous Government’s policy, and consistent with the Prime Minister’s leadership campaign pledge, Mr Kwarteng announced that the planned increase will no longer go ahead and Corporation Tax rates will remain at 19 per cent.

He said that the rationale for the change is to encourage the investment needed to help the economy grow.

Stamp Duty Land Tax (SDLT)

In what might prove to become a tug of war between the Treasury and the Bank of England, just a day after many homeowners learned of a painful interest rate rise, the Chancellor offered substantial consolation in the form of a cut to Stamp Duty Land Tax (SDLT).

Indeed, just yesterday, the Governor of the Bank of England wrote to the Chancellor to warn him that tax cuts might mean even sharper interest rate rises.

Undeterred, the Chancellor pressed ahead with a move to double the SDLT threshold from £125,000 to £250,000 with immediate effect. For first-time buyers, the threshold will rise to £425,000 on properties of up to £625,000. The measure will apply permanently.

Annual Investment Allowance (AIA) and SEIS

In another surprise move, the Chancellor announced that the Annual Investment Allowance (AIA) would not fall back to £200,000 in 2023 but would instead remain at its current £1 million level permanently.

Meanwhile, he said there would be a two-thirds increase in the amount companies can raise through the Seed Enterprise Investment Scheme (SEIS) to £250,000 from April 2023. At the same time, the Annual Investor Limit will rise to £200,000.

Investment Zones

The Chancellor also announced the launch of up to 40 Investment Zones. In England, he said the Government is considering time-limited tax incentives for 10 years, including 100 per cent Business Rates relief, 100 per cent first-year allowances for qualifying expenditure of plant and machinery and an enhanced Structures and Buildings Allowance.

He said the Government is also considering zero-rate Employer National Insurance Contributions (NICs) on salaries of new employees in Investment Zones up to £50,270 a year, as well as full Stamp Duty Land Tax (SDLT) relief on land and building bought for commercial or new residential development.

The Chancellor said he will work with the Devolved Administrations to offer similar incentives in Investment Zones across the UK.

Energy Bills

Following on from the Prime Minister’s announcement on 8 September of the Energy Price Guarantee and the Secretary of State for Business, Energy, Innovation and Skills in relation to business energy costs, the Chancellor reiterated the support being offered.

He said that the Energy Price Guarantee, alongside the £400 credit already announced will cut bills by around £1,400 for a typical household in comparison to the levels they were expected to reach without Government action.

Meanwhile, he confirmed that businesses, charities and public sector organisations will benefit from equivalent relief if they had not locked into a fixed-rate tariff by April 2022. That measure will last for six months from 1 October 2022.

The Chancellor said that the Government’s intervention will reduce inflation by around five percentage points.

Conclusion

The speech was a dramatic statement of the fiscal philosophy being pursued by the new occupants of Number 10 and Number 11 Downing Street. They hope that by reining in energy bills and cutting taxes, consumers will be prompted to spend and businesses will be more likely to invest, ultimately benefitting the public finances through increased tax receipts.

Whether that’s likely to be the case will be a point of serious contention amongst economists and various factions of the Conservative Party, especially given rising inflation and the possible impact on interest rates. Many will see the measures as a serious gamble.

What is certain, however, is that businesses will be more interested in what actually comes to pass than any abstract debate about whether the Government is taking the best course of action.

Link: The Growth Plan 2022

Please note that due to impending holiday commitments, our offices will be closed on the following days over the next few weeks:

• Tuesday 27 September
• Wednesday 5 October
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• Tuesday 18 October

We will be open for business as usual on all other dates.

We thank you in advance for your understanding.

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