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Month: September 2022

Six-fold increase on late payment interest rates

Written by admin on . Posted in Income Tax, self-assessment, Tax. No Comments on Six-fold increase on late payment interest rates

HMRC late payment interest rates have now been raised six times during 2022 – from 2.6% at the start of the year to a current rate of 4.25%. However, at least there’s some good news, with an uplift to the tax repayment rate.

The charge for late payment is set at base plus 2.5%. So, with the Bank of England base rate going up from 1.25% to 1.75%, HMRC’s late payment rate has correspondingly gone up from 3.75% to 4.25%. The increased rate applies from 23 August and covers almost all taxes and duties – the exception being quarterly instalment payments of corporation tax, for which the rate has risen from 2.25% to 2.75% since 15 August.

Unfortunately, current predictions have the base rate peaking at 2.25% or 2.5% by the end of 2022, so further late payment interest rate hikes should be expected.

Get up to date

The latest late payment rate increase will hit taxpayers who are not up to date with their tax payments. Many will be struggling to pay outstanding taxes -–particularly the latest self-assessment payment on account due on 31 July – against the backdrop of rising living costs.

  • Banks and building societies have generally not passed on the latest 0.5% base rate increase to savers, so it makes sense to use savings to repay, or at least reduce, tax debt.
  • For a tax liability of, say, £15,000, the annual late payment interest cost has already risen by nearly £250 to almost £650 during 2022.


Repayment rate

The one piece of good news is that the repayment rate on overpaid tax has gone up by 0.25% to 0.75%, being the first increase in over a decade.

However, the still meagre repayment rate means there is little incentive for HMRC to make prompt repayments, with taxpayers often encountering significant delays.

HMRC interest rates for late and early payment can be found here.

Photo by Markus Spiske on Unsplash

Getting in touch: HMRC’s new email facility

Written by admin on . Posted in PAYE, Stamp Duty, Tax, VAT, Wills & Probate. No Comments on Getting in touch: HMRC’s new email facility

Although there is no general facility to contact HMRC by email, it is slowly moving into the 21st century by providing the option to receive an email response. But of course, this comes with a few conditions.

Dealing with HMRC by post can be a slow process. With resources having been spread more thinly than ever due to the Covid-19 pandemic and Brexit, HMRC has only recently been working its way through the built-up backlog of post.

Scam risks

Scammers can use fake HMRC emails as a way of obtaining personal information, although, with improved scam email detection, they have now largely switched to text messaging. Nevertheless, HMRC points out the risks associated with using email. Their guidance raises various concerns:

  • Emails sent may be intercepted and altered.
  • Attachments could contain a virus or malicious code.

To reduce the risk, HMRC will desensitise information, by, for example, only quoting part of a unique reference number.

Confirmation

Anyone who would like to be contacted by email has to confirm to HMRC in writing by post or email that:

  • They understand and accept the risks of using email;
  • They consent to financial information being sent by email;
  • Attachments can be used; and
  • Junk mail filters are not set to reject and/or automatically delete HMRC emails.

HMRC should also be sent the names and email addresses of all people to be contacted by email, such as business owners, staff and the business’s tax agent.

Confirmation will be held on file by HMRC and will apply to future email correspondence, with the agreement reviewed at regular intervals to make sure there are no changes. The use of email can be cancelled at any time by simply letting HMRC know.

HMRC publish a list of recent emails it has sent out to help people determine if an email is genuine. This list can be found here.

Photo by Brett Jordan on Unsplash

Energy Costs Statement – 8 September 2022

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After a prolonged period of speculation, the new Prime Minister Liz Truss has announced preliminary details of how the government plans to deal with the energy price crisis.

In late May this year, the then Chancellor, Rishi Sunak, announced a range of measures to reduce the impact of the anticipated October 2022 Ofgem utility price cap increase. Mr Sunak’s announcement followed an earlier assistance package revealed in February, ahead of the April 2022 Ofgem price cap increase from £1,277 to £1,971.

Sunak’s measures, which included a flat £400 off all consumers’ bills, were made at a time when the price cap was projected to rise to £2,800 a year for the October 2022 ­­– March 2023 period. Since then:

  • Ofgem has reduced the energy price cap review period from six months to three in an effort to bring more stability to energy markets.

 

  • The regulator has set a price cap for October ­– December 2022 of £3,549, an 80% rise on the current level.

 

  • Projections for the next cap reviews suggested the annual bill could exceed £6,500 by April 2023.

 

The problems created for the government by soaring gas prices are exacerbated by the fact that many businesses renew their fixed term energy contracts (typically for one or two years) in October.

The commercial sector does not benefit from any price cap and stories have emerged of small businesses seeing their utility costs jumping as much as tenfold or even being refused new contracts. Outside the commercial sector, there have been similar issues for schools and hospitals.

The Government plan

In yesterday’s announcement during a House of Commons General Debate on UK Energy Costs, the new Prime Minister announced that:

  • The government is introducing an Energy Price Guarantee (EPG) set at an annual £2,500 for the next two years from 1 October 2022. This will apply on the same basis as the existing Ofgem cap, i.e. a regional based limit on standing and unit charges in England, Wales and Scotland, not on total bills.

 

  • The £400 flat rate payment, spread over six months, announced in May will remain in place. This reduces October – December 2022 bills by £66 a month and January – March 2023 bills by £67 a month. Arguably this means the effective cap is £1,700 through to March and £2,500 thereafter.

 

  • Other assistance announced in May, such as the £300 additional payment for pensioners, remains in place.

 

  • Green levies are temporarily suspended, an adjustment included in the EPG.

 

  • Households using heating oil and LPG will receive discretionary payments.

 

  • The same level of support will be given to households in Northern Ireland.

 

  • The government ‘will also support all business, charities and public sector organisations with their energy costs this winter, offering an equivalent guarantee for six months’. After that period further support will be provided to vulnerable sectors, such as the hospitality sector.

 

Details of the funding for these measures will be announced by the Chancellor in his fiscal statement ‘later this month’, currently expected in the week of 19 September.

For more on the government’s announcements, see:

https://www.gov.uk/government/news/government-announces-energy-price-guarantee-for-families-and-businesses-while-urgently-taking-action-to-reform-broken-energy-market

Source: Ofgem, Cornwall Insights and DBEIS

Further information on different forms of assistance for households can be found at:

https://helpforhouseholds.campaign.gov.uk/

Confused on claiming residence band relief?

Written by admin on . Posted in Inheritance Tax, Lasting Will & Testaments, Wealth, Wills & Probate. No Comments on Confused on claiming residence band relief?

Working through inheritance tax (IHT) requirements come at a difficult time. The provisions of the residence nil rate band (RNRB), which can be passed on between deceased spouses and civil partners, has caused some confusion.

Any unused RNRB from the first death of a spouse or partner can be relieved on the death of the second individual. The claim is based on the value of the RNRB at second death, but some executors are mistakenly using the value at the date of first death.

The RNRB was introduced from 6 April 2017 at £100,000, increasing by £25,000 a year until reaching its current value of £175,000.

The claim for RNRB is made on IHT form IHT436, with the confusion coming from the entry at box 11: the value of the RNRB enhancement at the spouse or civil partner’s date of death. However, the actual claim is based on the value entered at box 14. This should be the value of the RNRB at the date of second death, although it is easy to see why mistakes are being made given the confusing wording used by HMRC.

HMRC does not seem to be picking up the error, so if a mistake has been made a correction will have to be made by writing to the Revenue.

Conditions and transfer

Unlike the normal IHT nil rate band, the RNRB comes with various conditions. It is only available:

  • At death (not against lifetime gifts).
  • Against the value of a home (only one property can qualify).
  • Where the home is inherited by direct descendants (including step, adopted and foster children).

Any unused RNRB can be transferred in the same way as the nil rate band, with a claim required within two years of second death. It doesn’t matter if first death was before the introduction of the RNRB on 6 April 2017.

The unused RNRB of more than one spouse or civil partner can be transferred, but the overall total cannot exceed one full RNRB (£175,000).

Detailed HMRC guidance on working out and applying the RNRB can be found here.

Photo by Joel Moysuh on Unsplash