Economic analysts have warned that the rate of inflation could keep rising in 2023 as a result of rising energy prices.

Think tank the Resolution Foundation stated that inflation could go above 15%, whilst investment bank Citi said that it is ‘entering the stratosphere’ and could reach 18.6%.

Predictions outlined by the Bank of England (BoE) have suggested that inflation could rise to over 13% later this year.

Commenting on the matter, James Smith, Research Director at the Resolution Foundation, said:

‘Inflation has hit double digits earlier than expected off the back of the highest food price inflation in over two decades, and is set to continue climbing as energy bills soar this winter.

‘There is no escaping this cost-of-living crisis, with pay packets shrinking at their fastest pace since 1977 and low-income households facing the prospect of cutting back ‘non-essential’ spending by 25% to cope with energy bills of over £4,000 from January.’

Internet link: Resolution Foundation website

HMRC has published more details on how Making Tax Digital for Income Tax (MTD for IT) will work for buy-to-let landlords and sole traders with qualifying income over £10,000.

The new income tax framework for MTD for IT will be mandatory from 6 April 2024. HMRC is now asking for users to sign up for the test phase.

The new system will replace self assessment tax returns for anyone who qualifies for MTD for IT as they will have to submit all non-qualifying income through the Personal Tax Account (PTA) system instead.

Anyone who qualifies will have to make quarterly submissions, and the new deadline for end of year statements will be 31 January after the end of each tax year.

HMRC will use data from self assessment tax returns to calculate qualifying income in the first instance and will contact all affected taxpayers directly to inform them that they fall under the mandatory MTD for IT rules.

HMRC states:

‘Your qualifying income is the combined income that you get in a tax year from self-employment and property income sources. We assess this before you deduct expenses (that is, your gross income or turnover).

‘All of your qualifying income must be reported through MTD compatible software.

‘All other sources of income reported through self assessment, such as income from employment, dividends or savings, do not count towards your qualifying income. You will need to report income from these sources using either your MTD compatible software (if it has the functionality) or HMRC online services account.’

Internet links: Using MTD for IT Check if you can sign up for MTD for IT

Average household energy bills will rise to £3,549 in October following the decision of energy regulator Ofgem to raise the price cap.

The record 80% hike will see a typical default tariff customer paying an extra £1,578. The rise follows a 54% increase in April, which saw average bills surge to £1,971 a year.

Ofgem Chief Executive, Jonathan Brearley, said:

‘We know the massive impact this price cap increase will have on households across Britain and the difficult decisions consumers will now have to make. I talk to customers regularly and I know that today’s news will be very worrying for many.

‘The government support package is delivering help right now, but it’s clear the new Prime Minister will need to act further to tackle the impact of the price rises that are coming in October and next year.

‘We are working with ministers, consumer groups and industry on a set of options for the incoming Prime Minister that will require urgent action.’

Internet links: Ofgem website

The Treasury Committee has urged the government to provide assurance that it is not ‘flying blind’ into a potential Emergency Budget this September.

In a letter sent to Chancellor Nadhim Zahawi, Mel Stride, Chair of the Treasury Committee, asked whether the Treasury is working with the Office for Budget Responsibility (OBR) on a forecast to be published with any potential Emergency Budget that may be announced.

The Treasury Committee has outlined to the Chancellor that an OBR forecast would need to include all changes to government policy and economic and fiscal data up to when the new Prime Minister takes office.

The government usually gives the OBR ten weeks’ notice of a fiscal event, such as a Budget, to allow officials to provide an independent forecast of the economy and the UK’s fiscal position.

In the letter, Mel Stride said:

‘As a committee, we expect the Treasury to be supporting and enabling the OBR to publish an independent forecast at the time of any significant fiscal event, especially where, unlike other recent fiscal interventions, this might include significant permanent tax cuts.

‘Whether such an event is actually called a Budget or not is immaterial. The reassurance of independent forecasting is vital in these economically turbulent times. To bring in significant tax cuts without a forecast would be ill advised. It is effectively ‘flying blind’.’

Internet link: Parliament website

The Institute of Directors (IoD) has called on the government to extend the capital allowances super-deduction.

Data published by the IoD found that the super-deduction has had ‘a positive and measurable impact’ since it was introduced at Budget 2021. The data showed that 13% of firms reported that the super-deduction had had a direct impact on their level of investment undertaken between 2021and 2023. For half of these businesses, it was entirely new investment as a direct result of the super-deduction.

Between 1 April 2021 and 31 March 2023, companies investing in qualifying new plant and machinery will benefit from new first year capital allowances.

Under this measure a company will be allowed to claim:

• a super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances
• a first year allowance of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances.

The relief is not available for unincorporated businesses.

The business group is urging the government to make the super-deduction permanent.

Kitty Ussher, Chief Economist at the IoD, said:

‘Our data shows the positive impact the super-deduction has already had in doing just that. We are therefore calling for the Chancellor to make it a permanent feature of doing business in Britain.

‘It is wrong to look at declining overall levels of business investment in recent months and conclude that the super-deduction has not worked. Instead, our data shows that even less investment would have taken place if the super-deduction did not exist.’

Internet link: IoD website