By David Watkinson – WatkinsonBlack
The Chancellor will deliver his Autumn Statement On November 22nd . Local accountants WatkinsonBlack look at what is happening within the economy.
Firstly, inflation seems to be slowing down. The published figure for August shows that The Consumer Prices Index unexpectedly fell from the July level of 6.8% per annum to 6.7% per annum. This fall was largely the result of slowing increases in food prices. It is thought that inflation will continue to fall for the rest of the year although the recent uplift in oil prices may cause the fall to be less than otherwise.
It is important to realise that what we are talking about here is not an actual fall in prices. Prices will still increase. However, the increase will be slower than earlier in the year This has affected, and will affect people in the near future in a number of ways.
Pensions and Other Benefits
For a number of years, with the exception of last year, the annual increase in state pensions and benefits has been calculated using the “Triple Lock”. Last year, the government suspended it but committed to maintaining it for this year. That commitment has been repeated since, although rumours are circulating that they will try to recover some of it by restricting the Winter Fuel payments. We can only wait and see.
The Triple Lock means that pensions and other benefits increase by the greater of:
• the rate of inflation,
• the rate of increase in average wages, or
We think that we can safely ignore the third option this year. Therefore, if the rate of inflation is greater than the increase in average wages then the recent drop in the rate of inflation will result in the increase in pensions and benefits being less than perhaps anticipated a few months ago.
Due primarily to the drop in the rate of inflation the Monetary Policy Committee of the Bank of England decided not to increase Base Rate of Interest at 5.25%. This follows a period of 14 successive increases in base rates. This means that the interest rates charged by banks, etc on mortgages, loans and overdrafts should remain unchanged. Similarly, the interest paid by those same institutions to savers will remain at current levels. However, this sustained period over which the interest earned on savings has increased may have an unwelcome effect on an increasing number of people.
Tax on Savings Income Received
Each taxpayer has a “Personal Savings Allowance” which is an amount of interest that can be received in each tax year without paying tax. Currently, the allowance is:
• £1,000 for basic rate taxpayers
• £500 for higher rate taxpayers
• £Nil for additional rate taxpayers
This allowance has not increased since it was introduced many years ago, and similarly the government has frozen personal tax allowances and tax rate bands for this year and several years into the future. This means that more taxpayers may be drawn into tax on their savings income and, therefore, into the self assessment tax regime.
For example, in the bad old days when savings earned interest in the region of 0.25% per annum a basic rate taxpayer would need to have savings in excess of £400,000 before being drawn into tax. However, it is now not uncommon for savinngs to earn interest of 4.5%. At that rate, a basic rate taxpayer will have to pay tax on savings over about £20,000!
This makes tax planning more important than ever. For instance, people should ensure that they are taking full advantage of the amounts that can be invested in a Cash ISA, the interest from which, although possibly at a lower rate than that received from non-ISA accounts, is received free of all tax.
WatkinsonBlack have considerable experience in all areas of taxation and business services. This includes providing a very cost-effective payroll bureau service, as well as assisting to ensure compliance with the latest Making Tax Digital legislation. If you are employed or self-employed either as a sole trader, partnership or limited company and want to arrange a no-obligation initial meeting on any taxation or accounting matter then please contact us by telephone on 01925 413210 or by e-mail to [email protected].
Please note that these ideas are intended to inform rather than advise and you should always obtain professional advice before taking any action.