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Month: August 2024

Opening the books – the government’s spending inheritance…

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The date of the next Budget has been announced, accompanied by the new Chancellor’s warning about government finances.

Chancellor Rachel Reeves’ first announcement on entering 11 Downing Street was the commissioning of a ‘spending inheritance’ review from the Treasury. Her decision to do so was questioned by the opposition (Conservatives), among others, who argued that the state of public finances had been made clear in the report from the Office of Budget Responsibility (OBR) in March. However, the OBR’s grim outlook was studiously ignored during the election campaign by both main parties, prompting the Institute for Fiscal Studies to complain of “a conspiracy of silence”.

Post-election, the new ministers were told to ‘bring out your dead’ – pull together their departments’ financial problems. The result was a steady flow of dire warnings on prisons, the NHS, universities, and more. This was followed by a welter of gloomy reports from the National Audit Office on 23 July, the publication of which had been delayed by the election.

Finally, on 29 July, Rachel Reeves bundled the bad news inside her Treasury-commissioned review and broke the IFS’s conspiracy of silence. In her words, “There were things that I did not know”, which in total represented a projected overspend of £22 billion in the current financial year. Two immediate actions she announced in response were to:

  • scrap the winter fuel allowance, other than for those on means-tested benefits; and
  • abandon the introduction of new capped social care funding rules in England, which had been due to start in October 2025.

Ms Reeves also revealed that her Autumn Budget would be on 30 October, later than had originally been expected. Her July statement made clear that there would be action on tax to fill the £22bn ‘black hole’, but reiterated Labour’s manifesto pledge that there would be no increases in national insurance, the basic, higher, or additional rates of income tax, or VAT. That points to capital gains tax, inheritance tax and tax reliefs as possible revenue-raising targets in the autumn.

If you are considering any financial planning in the near term – perhaps pension contributions of gifts to grandchildren – talk to us about the wisdom (or otherwise) of acting before 30 October.

Full details of the Chancellor’s statement can be found here.

Photo by Eduardo Casajús Gorostiaga on Unsplash

New tax plans target private schools and social care

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In her first detailed tax announcements as Chancellor, Rachel Reeves targeted both those starting off in life and those approaching the end of their lives.

School fees

From 1 January 2025, private school fees will be subject to the standard rate of 20% VAT for the cost of tuition and boarding, if provided. A private school is defined as one that provides full-time education for pupils who are of compulsory school age but under 19 years old. Nurseries will remain exempt.

While the additional cost may be a minor annoyance for parents who can afford to send a child to some of the elite private schools, it may affect others more:

  • Middle-class parents paying private school fees for two or three children at the average UK cost of £15,000 will see fees increase by around £3,000 per child annually.
  • Prepaying school fees to avoid the VAT charge will fail as fees invoiced or paid on or after 29 July 2024 (the day of the announcement) for school terms after 1 January 2025 will be subject to VAT.

The exact percentage fee increase will vary between schools. While schools will be able to offset costs through VAT-deductible goods and services, private schools that are charities will no longer qualify for charitable business rates relief.

The government’s technical note explaining how private school fees will be subject to VAT can be found here.

Social care cap

The Chancellor also announced the scrapping of the social care cap, which means those with savings over £23,250 will have to continue to pay the full cost of their care, even if bills run into six figures. The previous government planned to cap care costs at a lifetime limit of £86,000 from October 2025 after long delays to the plans.

The NHS website provides information on self-funding social care here.

Photo by Twinkl on Unsplash

Digital invoicing could prevent invoice fraud

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Companies without a digital invoice processing system in place are leaving themselves open to invoice fraud. Over the past year, nearly a third of businesses have been targeted.

Fake invoices often appear to be genuine and are easily processed by employees if the amount involved is below a company’s payment threshold.

Types of invoice fraud

Common types of invoice fraud include:

  • a false invoice for non-existent goods or services;
  • duplicate invoices; or
  • alteration of existing invoices, e.g. bank details are changed which could indicate email hacking has taken place.

Fake invoices can be harder to identify if they appear to be from a business that your company has previously dealt with.

The threat of invoice fraud is not always external. Companies also need to be wary of internal threats, which can be much more difficult to identify. Typically, a senior employee will swap the bank details on an invoice to divert payment to their own account. In a recent case involving a member of staff, a public limited company lost £660,000 due to 29 fake invoices in one month.

Invoice fraud is not just a case of suffering financially. It can also harm business relationships, brand reputation and impact staff morale, especially among the team that fell for the fraud.

Prevention

Updating to a digital processing system will mean that invoices are automatically compared with orders and payment information, preventing most types of fraud:

  • If all suppliers are required to use your digital system, potentially fraudulent traders are prevented from joining the trading network by carefully managing the onboarding process. There is then little scope for fake invoices.
  • You will also find that the benefits of digital invoicing extend well beyond fraud prevention. For example, invoice due dates will not be missed, the number of errors will be reduced and cash flow forecasting improved.

Updating to a digital system also means supplier invoices will be conveniently stored for easy retrieval in the future.

The British Business Bank’s guide to how to avoid invoice fraud can be found here.

Photo by Bermix Studio on Unsplash