A key issue in a recent high profile tax dispute centred around a penalty issued by HMRC for an error that was described as 'careless and not deliberate'. This phrase has caused many to ask questions about how HMRC categorises mistakes on tax returns and when penalties and interest payments might apply. Here we explain some of the terms used and take a look at the self assessment process.

Reasonable care

A plain English reading of the phrase 'careless and not deliberate' implies a simple error was made. However, UK tax law is more complicated, and the phrase is more likely a designation settled on by HMRC if it concludes it cannot prove deliberate behaviour.

A more thorough explanation was later given by HMRC's Chief Executive Jim Harra, who appeared before MPs on the Public Accounts Committee (PAC) in Parliament.

Mr Harra said: 'There are no penalties for innocent errors in your tax affairs. If you take reasonable care, but nevertheless make a mistake, whilst you will be liable for the tax, and for interest . . . you would not be liable for a penalty.

'But if your error was as a result of carelessness, then legislation says that a penalty could apply in those circumstances.

'Carelessness is a concept in tax law. It can be relevant to how many back years that we can assess, can be relevant to whether someone is liable to a penalty and if so, what penalty they will be liable to for an error in their tax affairs.'

While these words will come as a relief to many, it is still vital that care is taken to file tax returns in a timely and accurate manner.

Tax returns

Tax returns are issued shortly after the end of the fiscal year. Tax returns are issued to all those whom HMRC are aware need a return including all those who are self-employed or company directors.

This year saw a record 11.7 million self assessment taxpayers submitted their returns by the 31 January deadline.

Those individuals who complete returns online are sent a notice advising them that a tax return is due. If a taxpayer is not issued with a tax return but has tax due, they should notify HMRC, and it may then issue a return.

If you are not asked to complete a tax return, it remains your responsibility to advise HMRC if there is a new source of untaxed income, a capital profit that could lead to a tax liability, or your savings or dividend income is significant enough to result in tax being payable at the basic, higher or additional rates of tax.

Self assessment timetable

• Income tax and capital gains tax are both assessed for a tax year which runs from 6 April to the following 5 April.
• Shortly after 5 April - SA returns or a notice to complete a return are issued by HMRC.
• 31 October following - non-electronic returns need to be submitted to HMRC by this date.
• 31 January following - final date for submission of the return and all outstanding tax to be paid.

Penalties

Late filing penalties apply for personal tax returns as follows:

£100* penalty immediately after the due date for filing (even if there is no tax to pay or the tax due has already been paid)

*The full penalty of £100 will always be due if your return is filed late even if there is no tax outstanding.

Additional penalties can be charged as follows:

• over three months late - a £10 daily penalty up to a maximum of £900
• over six months late - an additional £300 or 5% of the tax due if higher
• over 12 months late - a further £300 or a further 5% of the tax due if higher. In particularly serious cases there is a penalty of up to 100% of the tax due.

Interest rates

HMRC will charge interest on late payments.

The current late payment and repayment interest rates applied to the main taxes and duties that HMRC currently charges and pays interest on are:

• late payment interest rate - 6% from 6 January 2023
• repayment interest rate - 2.50% from 6 January 2023.

Correcting the tax return

HMRC may correct a self assessment in order to correct any obvious errors or mistakes in the return.

An individual can usually, by notice to HMRC, amend their self assessment at any time within 12 months of the filing date.

HMRC may enquire into any return by giving written notice. In most cases the time limit for HMRC is within 12 months following the date of submission.

If HMRC does not enquire into a return, it will be final and conclusive unless the taxpayer makes an overpayment relief claim or HMRC makes a discovery.

It should be emphasised that HMRC cannot query any entry on a tax return without starting an enquiry. The main purpose of an enquiry is to identify any errors on, or omissions from, a tax return which result in an understatement of tax due. Please note however that the opening of an enquiry does not mean that a return is incorrect.

Keeping records

HMRC wants to ensure that underlying records to the return exist if they decide to enquire into the return.

Records are required of income, expenditure and reliefs claimed. For most types of income this means keeping the documentation given to the taxpayer by the person making the payment. If expenses are claimed records are required to support the claim.

January is a time when many businesses look to the future and plan for the year ahead. Later in the Spring, the new tax year will bring a number of changes that will impact on those businesses. Here we outline the key measures that will take effect from April 2023.

Income tax rates

At the Mini Budget in September, the government announced a plan to abolish the 45% additional rate of income tax from April 2023. It was announced on 3 October 2022 that the government would not proceed with this plan.

From 6 April 2023, the point at which individuals pay the additional rate will be lowered from £150,000 to £125,140. The additional rate for non-savings and non-dividend income will apply to taxpayers in England, Wales, and Northern Ireland. The additional rate for savings and dividend income will apply to the whole of the UK.

The income tax personal allowance and higher rate threshold were already fixed at their current levels until April 2026 and will now be maintained for an additional two years until April 2028. They will be £12,570 and £50,270 respectively.

Reduction in the Dividend Allowance

The government will reduce the Dividend Allowance from £2,000 to £1,000 from April 2023 and to £500 from April 2024.

Additionally, from April 2023, the rates of taxation on dividend income will remain as follows:

• the dividend ordinary rate - 8.75%
• the dividend upper rate - 33.75%
• the dividend additional rate - 39.35%.

As corporation tax due on directors' overdrawn loan accounts is paid at the dividend upper rate, this will also remain at 33.75%.

Capital gains

The government has announced that the capital gains tax annual exempt amount will be reduced from £12,300 to £6,000 from April 2023 and to £3,000 from April 2024.

Research and Development

For expenditure on or after 1 April 2023, the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20% but the small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86% and the SME credit rate will decrease from 14.5% to 10%.

Seed Enterprise Investment Scheme

From April 2023, companies will be able to raise up to £250,000 of Seed Enterprise Investment Scheme (SEIS) investment, a two-thirds increase. To enable more companies to use SEIS, the gross asset limit will be increased to £350,000 and the age limit from two to three years. To support these increases, the annual investor limit will be doubled to £200,000.

Vehicles

From 6 April 2023, car and van fuel benefits and the van benefit charge will increase in line with inflation.

National Living Wage and National Minimum Wage uprating

The government will increase the National Living Wage (NLW) and National Minimum Wage (NMW) from 1 April 2023. The rates will be as follows:

• £10.42 an hour for those aged 23 and over
• £10.18 an hour for workers aged 21-22
• £7.49 an hour for 18–20-year-olds
• £5.28 for 16-17-year-olds
• £5.28 an hour for apprentices.

Energy

The Government has protected businesses this winter from these high energy costs through the £18 billion Energy Bill Relief Scheme.

However, Chancellor Jeremy Hunt has made it clear that this level of support is 'unsustainably expensive' and that the current scheme was always time limited to six months.

The Chancellor has said that any future support, while at a lower level, would be designed to help them transition to the new higher price environment and avoid a cliff edge in support.

For consumers, the Energy Price Guarantee (EPG) will be maintained through the winter, limiting typical energy bills to £2,500 per year. From April 2023 the EPG will rise to £3,000.

Whatever 2023 has in store, we will be on hand to keep you up to date with changes to the tax system. We are available to help with any matters related to taxes, tax reliefs and grants. Please contact us if you have any queries.

The saga of HMRC's Making Tax Digital (MTD) initiative continues with the news of further delays to the introduction of Making Tax Digital for income tax self assessment (MTD for ITSA). As well as a two-year postponement the government has altered the terms of the self assessment stage of MTD, and a review means further changes could be in the pipeline. However, MTD for VAT (MTDfV) already applies to all VAT-registered businesses. Here we take a look at what we know about MTD so far.

Delay to MTD for ITSA

The mandation of MTD for ITSA will now be introduced from April 2026, with businesses, self-employed individuals and landlords with income over £50,000 mandated to join first, an apparent change from the current £10,000 limit.

Those with income over £30,000 will be mandated from April 2027.

The government will also review the needs of smaller businesses and look in detail at whether the MTD for ITSA service can be shaped to meet the needs of smaller businesses.

Following the new approach, the government will not extend MTD for ITSA to general partnerships in 2025.

How does MTD apply?

HMRC research suggests many people are unsure which developments apply to them. So, what are the rules on records and software?

MTD involves keeping and preserving specific accounting records in a prescribed digital format and transmitting information to HMRC digitally. It does not mean having to scan and store receipts and invoices digitally, as originally envisaged.

MTD rules require what is called functional compatible software for record keeping purposes. To make submissions to HMRC, the software is linked with HMRC systems, and there is a specific authorisation process at the outset (and every 18 months afterwards) to do this.

The rules require an uninterrupted digital journey to HMRC, information flowing from the accounting records to the digital filing, without manual input.

Spreadsheets can form a component part of digital record keeping, provided that the product that consolidates records or summary records from the spreadsheet is digital.

MTDfV so far

All VAT-registered businesses should now be using MTDfV, whether businesses with taxable turnover over the VAT registration threshold of £85,000, or those operating under this level. 

From 1 November 2022, the online VAT return facility will close. For businesses filing annual VAT returns, the last date to file the old way is 15 May 2023.

Appropriate software

Appropriate functional compatible software must be used for all business income and expenses. For retail sales, digital records mean a single digital record of the daily gross takings.

The penalty regime

New penalty rules are being introduced for late submission and late payment. They apply initially to VAT, for VAT periods beginning on or after 1 January 2023. The essence of the change is that instead of an automatic financial penalty for failure to submit on time, penalty points accrue. When a particular points threshold is reached, a penalty arises.

Last week saw Chancellor Jeremy Hunt present his first Autumn Statement. The announcement marked the end of a volatile period that began with previous Chancellor Kwasi Kwarteng's disastrous Mini Budget in September, which ended with him replaced by Mr Hunt who promptly rolled back most of his predecessor's measures.

As the dust settles on the Autumn Statement, we take a look at what it means for businesses and families across the UK.

Few surprises

The Autumn Statement had few surprises in store and Mr Hunt resisted the urge to pull any rabbits out of his hat on the day. It was an almost sombre occasion, with warnings that tough decisions would need to be made due to a grim economic picture heavily trailed prior to the day.

Most of the measures announced by Mr Hunt had been briefed to the press beforehand, so it was little surprise when a series of frozen tax thresholds increased the burden on UK taxpayers.

Frozen thresholds

The Chancellor announced that both the income tax personal allowance and higher rate thresholds will be frozen for a further two years until April 2028. In addition, basic national insurance and inheritance tax (IHT) thresholds have also been frozen until April 2028.

The threshold for the top 45% additional rate of income tax was cut to £125,140 from £150,000. The Dividend Allowance will be reduced from £2,000 to £1,000 next year and £500 from April 2024, while the capital gains tax (CGT) exemption will be reduced from £12,300 to £6,000 next year and then to £3,000 from April 2024.

Fair solutions

These measures are part of what the Chancellor called providing 'fair solutions' with his plan to tackle the cost-of-living crisis and rebuild the UK economy. The Chancellor said his priorities are stability, growth and public services, which required 'difficult decisions'.

Energy prices

As well as increasing the personal tax burden, the Chancellor also increased the windfall tax on the profits of oil and gas firms. This was increased from 25% to 35% and extended until March 2028.

There will also be a new 'temporary' tax on companies that generate electricity, which will apply from January. As energy prices continue to drive inflation, the Chancellor confirmed that the Energy Price Guarantee will be extended for a year from April 2023. However, the level at which typical bills are capped will increase to £3,000 a year from £2,500.

Business rates support

The Chancellor also announced a £13.6 billion package of support for business rates payers in England. To protect businesses from rising inflation, the multiplier will be frozen in 2023/24, while relief for 230,000 businesses in the retail, hospitality and leisure sectors was also increased from 50% to 75% for 2023.

Falling living standards

As the Chancellor finished his statement, the Office for Budget Responsibility (OBR) published a grim forecast for the UK economy.

The OBR says that despite the new support with energy bills, living standards are going to fall by 7% over the next two years, which will wipe out eight years of growth. It said that while the Chancellor's fiscal support over the next two years cushions the blow of higher energy prices, the economy will still fall into recession.

Global crisis

The Chancellor said: 'There is a global energy crisis, a global inflation crisis and a global economic crisis. But today with this plan for stability, growth and public services, we will face into the storm. Because of the difficult decisions we take in our plan, we strengthen our public finances, bring down inflation and protect jobs.'

The annual rush countdown for self assessment tax returns is now underway after HMRC reminded taxpayers that they have under 100 days to file online. Filing early comes with a number of benefits including the budgeting payments and receiving repayments sooner. Here, we take a look what taxpayers can do to prepare for the self assessment process.

The countdown

Self assessment taxpayers have until 31 January 2023 to submit their online return for the 2021/22 tax year. This means there are now under 100 days until the deadline for self assessment online returns.

According to HMRC, more than 66,000 taxpayers beat the clock and filed their tax return on 6 April – the first day of the new tax year.

HMRC is now encouraging others to complete their return as soon as they can, so they know what they owe and can budget to make the payment by 31 January 2023. This also means that if a repayment is due, it can be claimed back sooner.

The self assessment cycle

Under the self assessment regime an individual is responsible for ensuring that their tax liability is calculated, and any tax owing is paid on time.

Tax returns are issued shortly after the end of the fiscal year. The fiscal year runs from 6 April to the following 5 April. Tax returns are issued to all those whom HMRC are aware need a return including all those who are self-employed or company directors. Those individuals who complete returns online are sent a notice advising them that a tax return is due. If a taxpayer is not issued with a tax return but has tax due they should notify HMRC who may then issue a return.

A taxpayer has normally been required to file his tax return by 31 January following the end of the fiscal year. The return must be filed by 31 October if submitted in 'paper' format. Returns submitted after this date must be filed online otherwise penalties apply.

Late filing penalties

For those that fail to file their returns on time there is an automatic £100 penalty (even if there is no tax to pay or the tax due has already been paid).

The full penalty of £100 will always be due if your return is filed late even if there is no tax outstanding. Generally, if filing by 'paper' the deadline is 31 October and if filing online the deadline is 31 January.

Additional penalties can be charged as follows:

• over three months late – a £10 daily penalty up to a maximum of £900
• over six months late – an additional £300 or 5% of the tax due if higher
• over 12 months late – a further £300 or a further 5% of the tax due if higher. In particularly serious cases there is a penalty of up to 100% of the tax due.

Calculating your tax liability

The taxpayer does have the option to ask HMRC to compute their tax liability in advance of the tax being due in which case the return must be completed and filed by 31 October following the fiscal year.

Whether you or HMRC calculate the tax liability there will be only one assessment covering all your tax liabilities for the tax year. 

Changes to the tax return

HMRC may correct a self assessment within nine months of the return being filed in order to correct any obvious errors or mistakes in the return.

An individual may, by notice to HMRC, amend their self assessment at any time within 12 months of the filing date.

Enquiries

HMRC may enquire into any return by giving written notice. In most cases the time limit for HMRC is within 12 months following the filing date.

The main purpose of an enquiry is to identify any errors on, or omissions from, a tax return which result in an understatement of tax due. Please note however that the opening of an enquiry does not mean that a return is incorrect.

If there is an enquiry, we will also receive a letter from HMRC which will detail the information regarded as necessary by them to check the return. If such an eventuality arises we will contact you to discuss the contents of the letter.

Keeping records

HMRC wants to ensure that underlying records to the return exist if they decide to enquire into the return.

Records are required of income, expenditure and reliefs claimed. For most types of income this means keeping the documentation given to the taxpayer by the person making the payment. If expenses are claimed records are required to support the claim.

One of the themes of 2022 has been the inexorable rise in energy prices, largely driven by Russia's invasion of Ukraine. Successive increases to the price cap for domestic energy users caused fear of a hard winter ahead for households while businesses that faced uncapped prices were threatened with going under.

Ofgem's decision to hike the price cap by 80%, meaning average household energy bills would rise to £3,549 in October, appeared to be the final straw for government. September saw the government intervene with packages of support for households and businesses. Here, we look at the energy support schemes.

Energy Price Guarantee plan caps household bills

Prime Minister Liz Truss announced the Energy Price Guarantee (EPG) for households on 8 September 2022 and it will apply from the start of October 2022. The EPG means that a typical household will pay no more than £2,500 per year for each of the next two years. It comes in addition to the £400 Energy Bill Support Scheme.

The EPG limits the price suppliers can charge customers for units of gas. This takes account of temporarily removing green levies, worth around £150, from household bills. The guarantee will supersede the existing energy price cap.

Under the plan, those households who do not pay directly for mains gas and electricity, such as those living in park homes or on heat networks, will be no worse off and receive support through a new fund.

Substantial benefits

The government estimates that the EPG will deliver substantial benefits to the economy - boosting growth and curbing inflation by four to five percentage points, which will in turn reduce the cost of servicing the national debt.

The government will provide energy suppliers with the difference between this new lower price, and what energy retailers would charge their customers if this were not in place. Schemes previously funded by green levies will also continue to be funded by the government during this two-year period to ensure the UK's investment in homegrown, secure renewable technologies continues.

Sigh of relief

Chancellor Kwasi Kwarteng said: 'Millions of families and businesses across the country can now breathe a massive sigh of relief, safe in the knowledge that the government is standing behind them this winter and the next.

'The price of inaction would have been far greater than the cost of this intervention. Not only can we provide urgent support now, but the beauty of our scheme is that it will also bring down inflation, helping tackle wider cost of living pressures.'

Help to cut energy bills for businesses

On 21 September 2022 the government announced the Government Energy Bill Relief Scheme. This is designed to cut energy prices for non-domestic energy customers, such as businesses, charities and public sector organisations. It also said that government work with suppliers will aid in reducing wholesale energy costs for UK businesses.

Through the Government Energy Bill Relief Scheme, the government will provide a discount on wholesale gas and electricity prices for all non-domestic customers, including businesses, charities and the public sector, whose gas and electricity prices have risen significantly. 

The scheme will apply to fixed contracts agreed on or after 1 April 2022 in addition to deemed, variable and flexible tariffs and contracts. Running for an initial six-month period, the scheme will apply to energy usage from 1 October 2022 to 31 March 2023. According to the government, savings will first be seen in businesses' October bills. 

No action required

Businesses are not required to take action or apply for the scheme - support will be automatically applied to bills. In order to administer the support, the government has set a Supported Wholesale Price which is a discounted price per unit of gas and electricity. These prices are expected to be set at £211 per MWh for electricity and £75 per MWh for gas. The level of price reduction for each business will vary depending on their contract type and circumstances, the government said. 

The government intends to conduct a review of the scheme to assess:

• how effective it has been in giving support to businesses
• which groups of non-domestic customers remain vulnerable to energy price rises; and 
• the extent to which the scheme could either be extended or further targeted.

At the Mini Budget, Mr Kwarteng announced that the two energy support packages would cost £60 billion for six months.

Unprecedented intervention

Kate Nicholls, CEO of UKHospitality, said: 'This intervention is unprecedented and it is extremely welcome that government has listened to hospitality businesses facing an uncertain winter. We particularly welcome its inclusiveness – from the smallest companies to the largest - all of which combine to provide a huge number of jobs, which are now much more secure.

'The government has recognised the vulnerability of hospitality as a sector, and we will continue to work with the government, to ensure that there is no cliff edge when these measures fall away.'

Although these packages ease the financial costs faced by businesses and households other economic headwinds persist. If you need advice on improving your cashflow please contact us.

The launch of a new scam-fighting plan by The Pensions Regulator (TPR) has highlighted the heightened dangers of fraud and scams during the cost-of-living crisis. The pressures caused by the crisis leave savers vulnerable while people's need to make the most of their money in the current climate can also create multiple opportunities for fraudsters.

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

Scam-fighting plan

The TPR launched its scam-fighting plan with a warning that the cost-of-living crisis may leave savers more vulnerable to scammers. The regulator says that some will be tempted to access their pension savings early to cover essential household bills or be attracted by fake investments offering high returns that never materialise.

In response the TPR is aiming to make savers aware of the risk of scams and encourage pension schemes to adopt higher standards of protection for savers' pots.

It also wants to secure the intelligence necessary to pursue and punish criminals. 

Pledge to combat pension scams

The TPR has already been running a pledge campaign since 2020. This has seen more than 500 organisations and schemes make the pledge or self-certify that they meet the campaign's scam-beating standards. 

TPR estimates that around 16 million pension pots are now better protected thanks to the campaign.

Protecting your pension

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.

Changing tactics

The issues around pensions scam also help shine a light on the need for people to protect themselves from fraud and scams in the current economic climate.

The fraud prevention body Cifas says fraudsters are using trends caused by the cost-of-living crisis to change their tactics. It has seen an increase in criminals posing as energy companies claiming they can offer a better deal, or as supermarkets offering money-off vouchers.

Scammers have also been using the energy rebate scheme to try and trick people into handing over their banking details.

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 both your pension and your personal details. If in any doubt, please do get in touch.

Although May's low unemployment figures were good news in some respects, they also showed over a million unfilled vacancies. These vacancies highlight how persistent labour and skills shortages are hitting growth and business investment while exacerbating the cost-of-living crisis.

This has led to business groups to demand the government takes action to tackle these labour shortages. Here, we look at what these groups are recommending, as well as the some of the help for employers that is already in place.

Rapid reform

The British Chambers of Commerce (BCC) says that rapid reform is needed to tackle the 'crippling staff shortages' that have created 1.3 million unfilled jobs in the UK economy.

The BCC's figures show that during the second quarter of the year 61% of firms were looking to find staff, but more than three quarters of firms continue to report recruitment difficulties. It says that construction; production and manufacturing; logistics; and hospitality are facing the greatest difficulties recruiting staff, but all sectors have significant issues.

Three-point plan

The BCC has proposed a three-point action plan to tackle the substantial number of unfilled vacancies.

Firstly, it says that firms must be encouraged to find new ways of unlocking pools of talent – by investing more in training their workforce, adopting more flexible working practises and expanding use of apprenticeships.

Secondly, it wants to government to help employers invest in training by reducing the upfront costs on business and providing training related tax breaks.

Finally, the BCC says the Shortage Occupation List (SOL) should be reformed to allow sectors facing urgent demand for skills to get what they need. The SOL governs immigration rules according to the demand for skills by both job type and region.

The skills the country needs

The BCC says the SOL is not currently fit for purpose and should be more flexible, so that it supports firms experiencing a national recruitment crisis. The Confederation of British Industry (CBI) agrees that the government should urgently update the SOL in parallel to developing genuine strategies for homegrown skills.

It says it is time to set out the skills the country needs, including identifying what talent can be developed at home, and then making smart use of immigration to plug the shortfall.

The Apprenticeship Levy

In addition, the CBI says the Apprenticeship Levy works well for some firms and sectors, but not for others. For many, it has become a psychological barrier to skills investment as well as a financial one.

The business group says the Levy should be reformed so that it can be deployed in a more flexible, modular way – enabling firms to target their most pressing skills, such as green and digital, to help with reskilling, as well as being an effective route to getting young people into the world of work.

Workforce for the future

The CBI says these steps will help the UK build a workforce for the future. It says that around nine in ten workers will need to add to their skills by 2030. Achieving net zero will require a major push on green skills and other skills associated with delivering major projects. Two-thirds of firms currently have digital skills vacancies.

The CBI concludes that the UK has labour shortages and skills shortages, and it is time to get serious about addressing them both.

Kickstarting training

The government has introduced some schemes to enable jobseekers to gain the skills they need to get jobs and provide targeted help for young people to get into work.

The Kickstart Scheme funds the direct creation of high-quality jobs for young people at the highest risk of long-term unemployment.

It is a £2 billion fund to create hundreds of thousands of high-quality six-month work placements aimed at those aged 16-24 who are on Universal Credit and are deemed to be at risk of long-term unemployment. Funding available for each job covers 100% of the relevant National Minimum Wage for 25 hours a week plus the associated employer national insurance contributions (NICs) and employer minimum automatic enrolment contributions.

Training and apprenticeships

The government is also funding high-quality traineeships for young people by paying employers who provide trainees with work experience £1,000 per trainee. 

Providing opportunities

Despite the current challenges, many businesses are looking to the future. They must invest wisely, using the available government support to develop a skilled, motivated workforce.

We are happy to advise in detail on the best approach to suit your circumstances. Please contact us for more information.

The UK's rate of inflation keeps rising, with each monthly update providing more disheartening news. Rising food and energy prices have contributed to the current squeeze on the cost of living, together with the Bank of England increasing interest rates to try to control inflation. May's increase in the consumer prices index (CPI) was modest by recent standards, but even so the rise from 9% to 9.1% was a new 40-year-high.

Unfortunately, this does not look to be the peak, with economists predicting inflation will trend upwards for the remainder of the year as the cost-of-living crisis continues. Here, we look at the causes of inflation and what it means for your money.

What is inflation?

Inflation is the term used to describe the increase in prices over time. The rate of inflation measures how quickly prices of goods and services are rising.

The inflation rate is a way of measuring the decline in the purchasing power of money over time.

The Office for National Statistics (ONS) measures the price of a 'basket' of goods and services every month. The overall price of this 'basket' is compared to the price one year ago, and the rate of inflation is calculated as the percentage change in price. 

Inflation hits 40-year high

UK inflation rose to 9.1% in May, according to the latest data from the ONS. The figure is a slight increase on the 9% figure of the previous month, which was driven upwards by April's unprecedented rise in the energy price cap, and is the highest since March 1982.

The ONS said rising prices for food and non-alcoholic drinks, compared with falls a year ago, pushed up the inflation rate.

In response to the figures, Chancellor Rishi Sunak said: 'I know that people are worried about the rising cost of living, which is why we have taken targeted action to help families, getting £1,200 to the eight million most vulnerable households.

'We are using all the tools at our disposal to bring inflation down and combat rising prices – we can build a stronger economy through independent monetary policy, responsible fiscal policy which doesn't add to inflationary pressures, and by boosting our long-term productivity and growth.'

CPI vs PPI

The government's preferred measurement of inflation is the CPI. This uses a basket of everyday goods and services, including food and drink, clothes and transport, utilities and larger items or luxuries, such as a car or a holiday. 

However, the Producer Price Index (PPI) is a measure of what is happening at an industry level. This includes the costs paid by companies for their fuel and raw materials, and the costs they are charging to their customers. It is an indicator of price pressures before they reach consumers.

According to the PPI, fuel and raw material prices were up by more than 22% year on year – the fastest rate since modern records began in 1985. The price of goods leaving factories are increasing at an annual rate of 15.7%, up from 14.7% in April.

The PPI suggests upward pressure on the CPI for some months to come. A leap of around 40% in the energy price cap is forecast to come into force in October and the likelihood is that the annual inflation rate will nudge 11% later this year.

How is inflation controlled in the UK?

The Bank of England uses interest rates as a tool to control inflation. Higher interest rates make it more expensive for people to borrow money and makes saving money more attractive. Both of these factors result in people spending less. 

In theory, prices are a function of supply and demand – if demand for products and services falls, this should result in prices rising less quickly, remaining the same or even falling.

The Bank of England has increased interest rates on five occasions since December, with the current base rate standing at 1.25%. It is expected to continue to raise interest rates this year to reduce inflation. 

Erosion of value

According to the latest Bank of England figures, the average interest rate on new savings accounts is 0.9%. With the current inflation rate of 9.0%, money in savings accounts is losing 7.4% in real terms each year.

Inflationary pressure

Rising inflation will continue to put pressure on both household and business finances this year. If you need advice on improving your cashflow, please contact us.

The use of cash has been declining for some years now, with electronic payments in multiple formats increasing to take its place. This was a trend accelerated by the COVID-19 pandemic, when health was added to the list of reasons not to use cash. Some predictions have suggested that the UK could become cashless in little over a decade. If this were to happen, nobody yet knows what it really means for consumers or for the UK economy. However, the government has now begun to take steps to protect access to cash.

Here, we look at the future of cash.

UK could go cashless

The Access to Cash Review was set up by ATM network provider Link to help understand how consumers use cash and how behaviours will change as we head into the 2030s. It predicted that society would be at the point of being 'virtually cashless' by 2035, with fewer than 10% of transactions being made in cash. Between March 2019 and March 2020, it found that 13% of free UK ATMs closed as they have become 'economically unviable'.

There are fears that these issues with the country's cash infrastructure will only get worse following the pandemic.

In addition, a growing number of retailers are 'going cashless' as they find the costs of banking cash rise, particularly as branches close making it more challenging to deposit their cash takings. This is already starting to exclude people.

Cash-free Covid

Data from the National Audit Office (NAO) shows how cash was used in 60% of transactions before 2010, but that number fell to less than 30% by 2019.

The data suggested that the Covid-19 outbreak may have accelerated this trend further, as market demand for notes and coins declined by 71% between early March and mid-April during the first lockdown of 2020.

Meanwhile, consumer group Which? found that over a third of UK consumers were blocked from paying for goods with cash during the pandemic.

Which? surveyed more than 2,000 people across the country in and found 34% had had cash as a means of payment refused.

Vulnerable people

The NAO has warned that without co-ordinated effort there is a risk that vulnerable people who rely on cash will be excluded from the economy.

This was also reflected by a report commissioned by the Royal Society of Arts (RSA). This suggested that millions of individuals in the UK would struggle if cash was phased out as a form of tender.

Despite just 17% of payments being made with notes and coins, the RSA said that ten million people would struggle to cope in a cashless society. An additional 15 million people stated that going cashless would make budgeting more challenging.

The report found that many individuals felt that they have been pushed into a world they're ill equipped for, despite millions making use of contactless and smartphone payments.

New laws

The Access to Cash Review, the NAO and the RSA have all called upon the government to take action to protect the use of cash in the UK. The government has responded with a provision in the Financial Services and Markets Bill, which will protect cash by ensuring continued access to cash facilities.

Under the new rules, the financial regulator – the Financial Conduct Authority (FCA) – will be granted new powers over the UK's largest banks and building societies, to ensure that cash withdrawal and deposit facilities are available in communities across the country.

The FCA's new powers will allow it to address cash access issues at both a national and local level. To support the FCA, the government will in due course set out its expectations for a reasonable distance for people to travel when depositing and withdrawing cash. This will reflect the existing spread of cash withdrawal and deposit facilities in the UK.

Economic Secretary to the Treasury, John Glen, said: 'Millions of people across the UK still rely on cash, particularly those in vulnerable groups, and today we are delivering on our promise to ensure that access to cash is protected in communities across the country. 

'I want to make sure that people are still able to use cash as part of their daily lives, and it's crucial to ensure that no person nor community across the UK is left behind as we embrace a more digital world.'