Driving Hastings forward 01424 205481

Negative inflation has turned positive this month because transport costs have helped the UK inflation rate to increase. Inflation stood at -0.1% in April but recently rose to 0.1% in May, as measured by the Consumer Prices Index (CPI).

The Office for National Statistics (ONS) reported that transport, in particular air fares, are the biggest contribution to the rise. However, although this was the main factor, other reasons are taken into account such as the rise in food and petrol prices during May. Despite these rises, the prices were still lower than a year ago.

When CPI turned negative in April, this was the first time it had done so since 1960. The food and fuel prices have had an effect on the rise in inflation and pulled down the rate by about 0.5 percentage, however this was less pronounced than the month before because the prices then had a negative effect of 0.7 percentage points.

Mark Carney, who is the Bank of England governor, said that he expects UK inflation to continue to be low in the short term. The Bank also expects near-zero inflation, which will help the UK economy by improving the spending power of households.

Every month, the directors at McPhersons share some useful financial tips especially for Business in Hastings readers. This month, Ainsley Gill looks at the recent announcement regarding paper tax forms being replaced with digital accounts.

Changing over to digital could make it much easier for over 11 million taxpayers and 12 million companies.

The Chancellor, George Osborne announced the end of the paper annual tax form and he promises to bring in digital tax accounts for all individuals and small businesses.

These new tax accounts unveiled in the March Budget and will be accessible at any time from a computer, smartphone or iPad. They will perform just like an online bank account.

The Treasury are selling the idea as a concept that will make it much easier for the 11 million taxpayers and 12 million companies who currently fill in an annual tax form to pay the right tax at the right time without filing a return. It describes the current system as complex, costly and time consuming.

Many believe the digital process is more to do with transparency for the Government and Treasury. When people log on to their account, they will be able to see how their tax is calculated as HM Revenue & Customs automatically updates it with information from employers, the Department for Work and Pensions, pension providers and banks. People will be able to pay their taxes when it is most convenient to them by linking to a bank account and arranging payments by instalments or by Direct Debit.

Instead, firms will be able to provide details in ‘real time’, the Government will benefit from prompt payments from this up to date information.

This change should help growing companies who will no longer have to pay a ‘one off’ big end of financial year tax demand because HMRC has calculated their payments on the previous year’s information.

According to the Treasury, the switch will be completed by 2020. In early 2016, 5 million small businesses and the some 10 million individuals will have access to their own digital tax account (or their accountant may access it for them).

By 2017, the first group of people with simple tax affairs will no longer have to complete an annual return. By 2020, businesses will be able to link their accounting software to their digital tax account so they can feed in information as they choose.

People who currently do their tax return on paper can continue to do so if they wish, but over time this is thought to reduce in favour of digital returns.

Need more help?

This feature aims to give some informal hints and McPhersons are offering small businesses free advice so get in touch now to arrange your free meeting 01424 730000.

The chancellor has stated that he will attempt to bind future governments to maintaining a budget surplus at times when the economy is growing. George Osborne made his annual Mansion House speech and outlined his plan to make sure that governments run a surplus. In January, Osborne first proposed the changed to the fiscal policy.

The government plans to sell its stake in the Royal Bank of Scotland, the chancellor confirmed in his speech. Since the financial crisis, concerns over the national debt have doubled. However, the plan would legally prevent future governments from spending more than they receive in tax revenue whilst the economy is growing.

National debt refers to the amount of money owed by the UK government and has been built up over many years by different governments. During April this year, the national debt stood at £1.48 trillion, which is the equivalent of 80.4% of the UK’s annual economic output, the Office for Nation Statistics (ONS) announced. Back in 2008, the debt was about £600 billion, or 42% of economic output.

An independent watchdog called the Office for Budget Responsibility (OBR) will be responsible for policing the new rules. As well as this, the OBR is set to have the power to decide when the government should be able to spend more than it is taking in revenue.

A vote by the House of Commons will be taken concerning Osborne’s proposal and is due to take place later on this year.

The Bank of England has kept UK interest rates at 0.5%. Not only that but the Bank also kept the size of its bond-buying stimulus programme unchanged at £375 billion. The decision comes more than six years after the record low was introduced. The Bank’s Monetary Polity Committee (MPC) made the decision.

Mortgage borrowers have benefited from lower repayments and the half-dozen years of ultra-low interest rates have cut savings’ returns. In April, ultra-low inflation turned negative to -0.1%, which has put on hold expectations about the Bank raising rates in 2015.

The Bank claimed in its quarterly inflation report last month that it was likely to raise the cost of borrowing in the middle of next year. On a different note, the recent ONS figures confirmed that the UK gross domestic product (GDP) growth slowed to 0.3% in the first quarter. This was the worst result since the end of 2012.

In all previous meetings so far this year, the nine-strong MPC has voted unanimously to keep rates on hold.

Britain’s biggest energy firms escaped being hit by Labour’s price freeze and have been ordered to cut their bills. The new Energy Secretary Amber Rudd has written to the six energy firms asking them to ease the pressures that they have put on families.

Since Labour threatened to freeze prices if Ed Miliband became the prime minister, gas and electricity bills increased and since he was defeated in the general election, the prices have not lowered at all. The promise by Labour involved an 18-month freeze, which also allowed energy companies to argue that they could not reduce tariffs too much before the election. This was because they could have been forced to keep them at the new low level.

This also meant that the big six energy companies were able to keep prices artificially high, which in turn, dramatically boosted their profits. The new Conservative government has said that energy firms must take action to reduce their charges. This is a result from the companies who saw their wholesale costs drop by 30%, yet they only reduced bills by 1.3% last winter.

Amber Rudd has written to British Gas, npower, EDF, e.on, Scottish Power and SSE to tell them that they should stop keeping their prices artificially high. In one year, the energy firms’ average profits have increased by 32% to £120 per household, according to the regulator Ofgem. This means that the energy firms are seeing an all-time high on their part.

The consumer group Which? estimated that the average family has lost out on £145 a year because the providers have failed to pass on lower costs. The Competition & Markets Authority has decided to start an inquiry into whether the companies have rigged the market by delaying price cuts. The Authority holds particular concern over the 60% of households who are on standard contracts because they pay more than those on non-standard tariffs. Loyal customers are also missing out on up to £234 over one year because they did not switch providers.

An EU referendum by the end of 2017 is among a  of new laws in the first Conservative Queen’s Speech in nearly two decades.

The programme also includes extra free childcare, an income tax freeze and the right-to-buy for housing association tenants.

The proposed legislation includes a ban on income tax, VAT and national insurance increases for five years. Not only that but there will be a freeze on working age benefits, tax credits and child benefit for two years from 2016 to 2017. By 2017, there will be 30 hours free childcare a week for three and four year olds. Adding to this list is 500 more free schools and those schools that are failing will be turned into academies.

The total amount that one household can claim in benefits will be cut from £26,000 to £23,000. The NHS should be improved by 2020, which is good news for all of those who felt that the NHS was sinking.

During the general election campaign, the Conservatives promised many of the proposed new laws and this now means that David Cameron can press ahead with plans that were previously blocked by the Liberal Democrats.

Despite this, the prime minister has delayed the plans to scrap the Human Rights Act; this is to avoid a potential confrontation with his own backbenchers. As a result of this, the government will bring forward proposals for a British Bill of Rights to replace the Human Rights Act, with legislation expected proceeding consultation in parliament in future.

The environment secretary Liz Truss said that the vote for the ban on fox hunting would happen by 2020.

Nationwide building society has reported a 54% rise in annual pre-tax profit to £1.04 billion. It has now regained its position as the UK’s second largest mortgage lender. The firm said that they accounted for nearly a third of new mortgage lending last year. In the year before, the building society saw a £667 million profit.

After nine years as chief executive, Graham Beale is expected to retire next year, Nationwide announced. In the mean time, the search for a replacement would begin. Beale served on the board of the building society for 13 years and first became the chief executive shortly before the financial crisis hit in 2007.

As the pace of house price growth eased, the firm expected growth to moderate in the years ahead but their net interest income, which Nationwide receives from savings deposits and its own investments, rose £458 million to £2.8 billion. Nationwide also said that savings deposits grew by £1.9 billion.

Net mortgage lending which are new mortgages advances minus those repaid in full, amounted to £7.1 billion in the year to the 4th April, which was down from £9.9 billion the year before. Nationwide therefore had a 31.2% share of the UK mortgage market.

Members of the Institute of Directors (IoD) have said that they think the new Conservative government should make bringing down the deficit a priority.

A survey was conducted with 1,211 Institute of Directors members taking part and the end result indicated that they believe the deficit reduction should be achieved mainly through spending cuts rather than tax rises. Other major policy areas that the business body’s members would like to see addressed by the government are infrastructure and education.

Over half of the members who took part in the survey, which was conducted immediately after the general election, strongly disagreed with increases in national insurance, income tax, VAT and business rates.

According to the research, improving the UK’s broadband capability, investing in energy generation and spending more on railways was said to be important to members. As well as this, a crackdown on tax avoidance was also top of the list.

 

George Osborne has stated that he will deliver a new Budget on the 8th July. He said that it would focus on raising productivity as well as living standards and that this unusual move of having a second Budget within a one-year period is to keep the commitments made to people in work.

The chancellor gave a broad outline of his plans for the next budget but would not comment on the details, including the Conservatives’ planned £12 billion of welfare cuts, Osborne said outside 11 Downing Street. The previous Budget was held on 18 March and included tax cuts for first-time house buyers. After this Budget, the independent forecaster in Institute for Fiscal Studies (IFS) stated that Osborne needed to say exactly how he could go ahead with his plans to cut £12 billion from welfare spending. Of these cuts, £2 billion were outlined ahead of the general election and all cuts are predicted to be in place between 2017 and 2018.

If the economy performs as forecasts made by the independent Office for Budget Responsibility say it should, borrowing will be reduced to £41 billion in 2016-17 and £14.5 billion in 2017-18. However, by 2018-19 the plan for the UK is to be running a budget surplus of £4 billion.

The Conservatives were under pressure form the Institute for Fiscal Studies (IFS) during the election campaign that wanted an explanation as to how they would find the remaining £10.5 billion, considering they gave details of how they will find £1.5 billion of savings from the UK’s social security budget.

The IFS said that the scale of the overall savings would involve the Conservatives looking at child benefit, child tax credit and disability allowances. The Budget would announce reforms of welfare that intended to protect the vulnerable while also making sure that the system is fair to taxpayers, according to the Treasury.

Osborne will say in the Budget that the Conservatives plan to have a fair and balanced approach to the deficit reduction and that the package will include a promise that spending on the NHS will be improved while cutting £13 billion from other Whitehall departments. In addition, designed to raise £5 billion will be a fresh crackdown on tax avoidance.

The timing of the Budget on the 8th July will mean that the Office for Budget Responsibility will produce new forecasts for the economy and the public finances. They will also give time for a finance bill to be passed.

Technology companies such as Facebook, Apple and Google have been told they need to stop extreme tax planning, according to the man charged with reforming global tax rules who told the BBC.

New standards would require businesses to pay even more tax in the countries where they have sold goods or created revenues, said Pascal Saint-Amans who runs the OECD’s Centre for Tax Policy. Companies should not use tax havens to shelter their profits, he said.

Mr Saint-Amans’ involvement is because of years of complicated negotiations and endless summits on reforming the issue of where large, multi-national companies pay their taxes. There should be an international agreement on possible upcoming tax laws ready for the G20 summit of global leaders in November, he revealed.

Before 2020, the implementation phase should mean that the rules are in place. According to Mr Saint-Amans, this will also mean that technology companies such as Facebook, Apple and Google have to pay more tax to the UK Treasury. In addition to this, they will also be required to pay more tax in a number of other countries and publish, country-by-country, how much they pay.

The UK has already agreed to new rules on the taxation of multi-nationals and the government predicts that companies that operate in the UK but paying tax in other jurisdictions, such as Google, will be obliged to pay hundreds of millions of pounds more in tax in Britain.

The technology companies that have been found by tax campaigners say that they continue to follow all of the rules laid down by governments and that it is for the governments to decide how they tax businesses, therefore they have not broken tax rules.