UK economy exits recession as interest rates held

The UK economy grew by 0.6% between January and March, according to figures from the Office for National Statistics (ONS).

It means that the country has officially emerged from recession with growth led by the services sector.

Production also grew while the construction sector shrank.

It follows the Bank of England’s decision to hold interest rates at 5.25% for the sixth month in a row.

The Bank signalled that rate cuts should follow later this year.

Ben Jones, Lead Economist at the Confederation of British Industry, said: ‘Back-to-back increases in output over the first months of this year suggest the UK is now on the road to recovery. With falling inflation boosting households’ spending power, as well as opening the way for a reduction in interest rates in the months ahead, the economy should be able to sustain some momentum through the year.

‘But a consumer-led recovery could prove short-lived without more determined action to tackle the long-standing problem of weak productivity growth, which ultimately sets the UK’s economic speed limit. 

‘Firms want to see action that could help support investment and cut costs which, includes extending full expensing to leased and rented assets, and a business tax roadmap to give firms the certainty and confidence they need to plan ahead and invest in a vibrant UK economy.’

For more information, visit our website at www.nhllp.com

300,000 file tax returns in the first week of the tax year

Almost 300,000 self assessment taxpayers filed their return in the first week of the new tax year, HMRC has revealed.

The early filers were almost 10 months ahead of the 31 January 2025 deadline.

Almost 70,000 people filed their return on the opening day of 6 April this year.

HMRC is encouraging people to file early and avoid the stress of last-minute filing.

The tax authority says early filing can also help with budgeting. A budget payment plan helps spread the cost of tax bills with weekly or monthly payments.

In addition, refunds of overpaid tax will be paid as soon as the return has been processed.

Myrtle Lloyd, HMRC’s Director General for Customer Services, said: ‘Filing your self assessment early means people can spend more time growing their business and doing the things they love, rather than worrying about their tax return.

‘You too can join the thousands of customers who have already done their tax return for the 2023-24 tax year by searching ‘self assessment’ on GOV.UK and get started today.’

For more information, visit our website at www.nhllp.com

HMRC error means self-employed workers could lose out on state pension

An HMRC error could mean that some low-income, self-employed workers lose out on their entitlement to National Insurance-related benefits like the state pension, warns the Low Incomes Tax Reform Group (LITRG).

The issue centres around the payment of voluntary Class 2 National Insurance contributions (NICs) that can be made by self-employed taxpayers with profits under £6,725.1

These voluntary contributions are usually paid by taxpayers as part of their self assessment return and must reach HMRC by the 31 January following the end of the tax year.

HMRC then automatically transfer the NICs to the taxpayer’s National Insurance record to be counted towards their entitlement to benefits.

However, it appears that HMRC did not initiate the transfer until after the 31 January deadline for the 2022/23 tax year.

In the absence of any action, this could mean that taxpayers miss a qualifying year of NICs.

Antonia Stokes, LITRG Technical Officer, said: ‘The issue is unique to the year in question, and our advice to those who might be affected is to first check to see whether they have received a refund from HMRC.

‘We would also like to see HMRC acknowledge the error and proactively offer help to those taxpayers who have been affected, in line with HMRC’s own charter commitments. However, until they do so, there are practical steps that taxpayers can take to maintain their entitlement to National Insurance-related benefits.’

For more information, visit our website at www.nhllp.com

New customs rules cause confusion and uncertainty

The new customs checks and charges that came into force on 1 May are causing confusion and uncertainty for business, warns the British Chambers of Commerce (BCC).

The second phase of the UK’s Border Target Operating Model introduced charges of up to £145 for imports of plant and animal products. 

It is the first time for decades that firms will have to pay such fees for EU imports of goods arriving in Great Britain.

There is uncertainty around which consignments are subject to checks, due to issues with border computer systems.

Government figures show the UK imports just under 30% of all the food it consumes from the EU. 

William Bain, Head of Trade Policy at the BCC, said: ‘Firms face mounting confusion and uncertainty about exactly how and when the borders checks and costs will be fully implemented. It is crucial for business and trade that the government gives clarity on what is happening.

‘The government should immediately exclude firms in the trusted trader scheme from these charges which would give many smaller businesses some relief. But in the long-term, these checks and costs should be done away with by reaching an agri-food deal with the EU, something we have consistently called for. 

‘With interest rates still high, inflation well above its 2% target and supply chain disruption continuing to build, these costs and uncertainty are the last thing firms need.’

For more information, visit our website at www.nhllp.com

UK economy will see slowest growth in G7 next year

The UK will see the slowest growth of the G7 nations next year, the Organisation for Economic Co-operation and Development (OECD) has warned.

OECD forecasts show that UK GDP will rise by just 1% in 2025, well below predictions for other G7 nations.

The OECD said that economic growth in the UK will also be ‘sluggish’ this year.

It expects the UK economy to grow by 0.4% this year, downgraded from its previous prediction of 0.7%. According to the OECD, only Germany will see slower economic growth this year.

Certain measures ‘could help to lower fiscal pressure’, the OECD said, outlining the government cuts to National Insurance and its Tax-Free Childcare (TFC) scheme as being potentially beneficial.

However, the OECD said that any increase in public spending should happen only after interest rates have been lowered. It predicted that the Bank of England will reduce the cost of borrowing from 5.25% to 3.75% by the end of next year.

The OECD report said: ‘Fiscal prudence is required as inflation remains above target, and spending is to be directed towards supply enhancing investment, including infrastructure, the National Health Service, and adult skills

‘Proceeding with the childcare reform will help tackle economic inactivity, but requires contingent planning to address potential bottlenecks, in particular likely staff shortages.’

For more information, visit our website at www.nhllp.com

Business leaders’ economic confidence rose in April, data shows

Optimism amongst UK business leaders in regard to the UK economy rose in April 2024, data published by the Institute of Directors (IoD) has revealed.

The IoD’s Directors’ Economic Confidence Index showed that optimism in prospects for the UK economy rose to -10 in April 2024 from -12 in March.

The business group said that the latest figure ‘sustains the leap upwards that the Index experienced in March’, and ‘continues its steady recovery from its recent low point of -31 in June 2023’.

Optimism regarding businesses’ net investment plans for the upcoming year also increased from +18 in March to +21 in April.

Dr Roger Barker, Director of Policy at the IoD, said: ‘It remains the case that business leaders are, on balance, pessimistic about UK economic prospects. However, since March, the pessimists have been in retreat. Confidence has been edging upwards and is now within striking distance of a more neutral perspective.

‘According to IoD members, the fundamentals are in place for some kind of UK economic recovery.’ 

For more information, visit our website at www.nhllp.com

Business group ‘concerned’ over impact of new customs charges on small firms

The British Chambers of Commerce (BCC) is concerned over the impact of new customs checks and charges on small firms in the UK.

The new checks came into force on 30 April, and introduced charges of up to £145 for imports of plant and animal products. The BCC said the introduction of the new fee marks the first time in decades that firms will be required to pay for EU imports of goods arriving in Great Britain.

Costs are highly likely to be passed on to consumers, the business group warned, and there is also mounting uncertainty around which consignments will be subject to the new checks and fees due to issues with border computer systems.

Commenting on the matter, William Bain, Head of Trade Policy at the BCC, said: ‘Firms face mounting confusion and uncertainty about exactly how and when the borders checks and costs will be fully implemented. It is crucial for business and trade that the government gives clarity on what is happening. 

‘While the government did consult on the new charges being introduced it chose not to listen. The size of these costs shows scant regard to the interests of either businesses or consumers.’

For more information, visit our website at www.nhllp.com

HMRC launches online voluntary national insurance payment service

The government stated that the new service, which is available from 29 April, will make it ‘easier for customers to check for and fill any gaps in their national insurance record to help increase their State Pension’.

It also said that the new Check your State Pension service has been enhanced to include an end-to-end digital solution. The service shows customers by how much their State Pension could increase and outlines the voluntary national insurance contributions (NICs) they would need to pay to achieve this.

The service also allows people under the State Pension age to view gaps in their national insurance record and pay voluntary contributions to fill the gaps.

Nigel Huddleston, Financial Secretary to the Treasury, said: ‘Having peace of mind when planning for retirement is crucial to ensure people can enjoy later life. That’s why HMRC has launched this new online service today, making a real difference for thousands of pensioners in their retirement while providing certainty to those in their middle years and those still planning ahead.’

The Check your State Pension forecast tool can be found here. 

For more information, visit our website at www.nhllp.com

UK borrowing £7.6 billion lower than last year, data shows

Figures have shown that UK borrowing over the last financial year was £7.6 billion lower when compared to the year before.

The Office for National Statistics (ONS) data also showed that borrowing was £120.7 billion in the year to March – £6.6 billion more than the Office for Budget Responsibility (OBR) previously predicted.

The figures revealed that the UK has a moderate current deficit of 3.0%. Debt levels are at their highest, however, at 89.4%.

Cara Pacitti, Senior Economist at the Resolution Foundation, commented: ‘Last year was one of high but falling inflation and rising interest rates, causing both spending and tax receipts to rise in nominal terms compared to the year before.

‘While lower than last year, borrowing is already £6.6 billion higher than forecast at the Spring Budget last month. So far there are no signs of any new fiscal wriggle room emerging that might allow the Chancellor to announce another pre-election Budget in the Autumn.’ 

For more information, visit our website at www.nhllp.com

Inheritance tax receipts hit a record high of £7.5 billion

Data published by HMRC has revealed that inheritance tax (IHT) receipts rose to a record high of £7.5 billion in the 2023/24 tax year.

The latest figure is £400 million higher than in the same period last year. Experts have predicted that IHT receipts could hit £9.5 billion before the end of the decade.

Chancellor Jeremy Hunt was previously under pressure to abolish IHT altogether, but opted for national insurance cuts in fiscal events instead.

IHT receipts have risen partly due to the threshold at which the tax is payable having been frozen at £325,000, preventing it from rising with inflation and bringing more families into its scope. 

Ruth Gregory, Deputy Chief UK Economist at Capital Economics, commented: ‘If the Chancellor was hoping March’s figures would provide more scope for tax cuts at a fiscal event later this year, he will have been disappointed.

‘Just based on the larger-than-expected budget deficit and the recent shift up in market interest rates, he may have even less fiscal ‘headroom’ (perhaps about £5 billion) for tax cuts than the £8.9 billion left over in March.’

For more information, visit our website at www.nhllp.com