Details
Late fines for Self-Assessment Tax Returns
The official Spring Statement document from the Treasury stated: “The government will increase late payment penalties for VAT taxpayers and income tax Self-Assessment taxpayers as they join Making Tax Digital, from April 2025 onwards.
“The new rates will be 3% of the tax outstanding where tax is overdue by 15 days, plus 3% where tax is overdue by 30 days, plus 10% per annum where tax is overdue by 31 days or more.”
About one million people failed to meet the 31 January Self-Assessment deadline this year.
Updates on Making Tax Digital (MTD)
HMRC Plans include:
- expanding MTD for Income Tax to sole traders and landlords with income over £20,000 from April 2028
- improving end-of-year processes by making MTD-compatible software the default for submitting end of year information and Final Declaration (The Tax Return)
- finalising the policy framework for MTD and penalty reform. One element of this will be a new power for HMRC to “cancel or reset late submission penalty points and to cancel associated financial penalties”. It gave the example of axing points in periods prior to insolvency.
- exempting or deferring certain taxpayer groups from MTD. These would be people who have a Power of Attorney; non-UK resident foreign entertainers and sportspeople who have no other income sources that count as qualifying income for MTD; taxpayers for “whom HMRC cannot provide a digital service”
Review of HMRC penalties for failures and inaccuracies
Alongside the Spring Statement, the Treasury released details of a new consultation which “explores options to simplify the ways in which penalties are calculated and applied and provide a stronger deterrent for those who deliberately avoid paying what they owe.”
Greater powers and investment boost for HMRC
In a section called ‘closing the tax gap’, the Spring Statement papers from the Treasury contained details of plans to give HMRC a boost with extra investment and greater powers.
This includes:
- £87 million extra investment over the next five years in HMRC’s existing partnerships with private sector debt collection agencies to collect more unpaid tax debts
- £114 million to recruit 600 extra HMRC debt management staff over five years
- £100 million over the next five years to recruit 500 more HMRC compliance staff
Tax evasion crackdown
The Government will invest in cutting edge technology and in the HMRC’s capacity to crack down. The aim is to increase the number of tax fraudsters who are charged by 20%,
The total figure of £7.5bn extra raised in taxes has been verified by the Office for Budget Responsibility (OBR), Ms Reeves stated.
Tax reliefs for entrepreneurs
The Spring Statement papers from the Treasury outlined the Government’s ambition to “ensure that the UK is the best place in the world to start and grow a business” with a “dynamic environment for entrepreneurs”.
It pledged to carry on speaking with top entrepreneurs and venture capital firms on policies and tax reliefs such as the Enterprise Management Incentives Scheme, the Enterprise Investment Scheme and the Venture Capital Trust Scheme.
Reforms to Business Rates
There will be policy details announced at the next Budget in Autumn 2025.
Tax rates: for 2025/26
As mentioned in the introduction, there were a number of areas where the Chancellor could have chosen to tweak tax changes announced in the last year Budget, but she didn’t.
National Insurance contributions for employers
The Government will not make a late U-turn on the rise planned for NI employers’ contributions.
So, from 6 April this year, employer NICs will rise from 13.8% to 15%.
And there will also be changes for the Secondary Threshold – the point at which employers become liable to pay NICs on employees’ earnings. This will go down to £5,000 a year from 6 April 2025 until 6 April 2028. That is a drop from the current rate of £9,100 a year. From 2028, it will increase in line with the Consumer Price Index (CPI).
Income Tax
Despite the enormous and rising pressures on the public finances, Ms Reeves refused to break her promise on freezing income tax. So, there will be no increase. This means that the rates and thresholds for 2025/26 will be as follows:
For the UK (except Scotland):
Basic tax rate: 20% (annual earnings up to £37,700)
Higher tax rate: 40% (from £37,701 to £125,140)
Additional tax rate: 45% (Above £125,140)
Income Tax thresholds
There had been speculation around income tax thresholds and allowances,
There was no mention of changes to the thresholds in either Ms Reeves’ statement or the documents released subsequently. This means that from 2028 income tax thresholds will be uprated again, in line with inflation.
VAT and NI for employees
Ms Reeves said in her first Budget that she would stick to the Labour manifesto commitments to avoid raising either VAT or National Insurance for employees. And with no changes announced today, both will remain at the existing levels for 2025/26.
Corporation Tax
Corporation Tax will remain at 25%. The small profits rate and marginal relief will also stay as they are. The existing capital allowances system, including permanent full expensing and the £1 million annual investment allowance, will also remain unchanged.
National Minimum Wage
The National Living Wage will rise by 6.7% to £12.21. The current rate stands at £11.44. The National Minimum Wage for 18-20 year-olds will rise 16.3% to £10 an hour.
Reform to tax on Carried Interest
CGT rates for carried interest will increase from 28% to 32% from April 2025, with further reform from April 2026.
Summary of other announcements
Sticking to fiscal rules amid global uncertainty
The Chancellor’s big pitch from the start was to position the statement in the context of the major conflicts happening in the world, especially the Russian invasion of Ukraine. She said the government’s task is to “secure Britain’s future in a world that is changing before our eyes”.
She said: “The global economy has become more uncertain ….and borrowing costs rise for many major economies.”
Much has been said about the so-called ‘fiscal rules’ which Ms Reeves has said she will not bend. Today she reiterated their importance, saying they are part of an “unwavering commitment to bring stability to the economy and bring security for working people”
The two key rules are:
- Balancing the budget by 2029/30, meaning day to day spending is paid for by tax receipts
- Debt must be reduced by the end of the forecast period to 2029/30.
Gloomy economic forecast
There was disappointing news on the economy. New forecasts showed an expected growth for this year of only 1%, rather than the previous forecast of 2%. She said she was determined to take action for growth by moving forward with projects such as the third runway at Heathrow Airport.
Inflation
Inflation fell in February – against expectations. Ms Reeves revealed that the OBR estimates CPI inflation will average 3.2% this year before falling to 2.1% in 2026. The target of 2% for inflation will be reached by 2027, the Chancellor told Parliament.
New social homes
There will be a £2 billion investment to build up to 18,000 new social and affordable homes.
Construction worker scheme
A programme has started to train 60,000 construction workers in shortages and to get more young people into jobs.
Welfare cuts
Cuts to the welfare budget will save £4.8bn.
Civil service spending
The cost of running government was also a focus of the cuts. Plans were announced to save £2bn by reducing costs by 15%.That will be accompanied by an investment of more than £3bn to reform how public services are delivered more efficiently and effectively.
Money for defence innovation
A protected budget of £400m within the Ministry of Defence will be created for “UK defence innovation with a clear mandate to bring innovative technology to the front line”.
Planning reforms
The OBR says the Government’s plans to reform the planning system will permanently increase GDP by 0.2% by 2029/30, which is worth £6.8bn, and increase GDP by 0.4% within 10 years. Ms Reeves claimed this is the “biggest positive growth impact that the OBR have ever reflected in their forecast”. There was a focus within this on new homes and the Government’s target of 1.5m new homes during this Parliament. The OBR says the planning reforms will enable 1.3m new builds over the coming 5 years, Ms Reeves stated.
Household spending
People will be over £500 better off on average under this Government. That’s according to the OBR, Ms Reeves said, adding this meant higher living standards.
UK Export Finance
The Government will provide £2bn worth of increased capacity for UK Export Finance. This will provide loans for overseas buyers of UK defence goods and services.
Spending Review
There will be a Government Spending Review in June.
|
