Author: Glenn

The economic outlook for the UK in 2025 presents a mixed picture, with expectations of modest growth tempered by persistent inflationary pressures.

Growth Projections

The Organisation for Economic Co-operation and Development (OECD) has revised its forecast for UK economic growth in 2025 upward to 1.7%, citing increased government spending as a key driver.

This adjustment reflects the UK's resilience amid global economic uncertainties and aligns with its broader strategy to stimulate growth through fiscal policies and structural reforms.

Inflation Concerns

Despite the positive growth outlook, inflation remains a significant concern. The OECD projects that UK inflation will average 2.7% in 2025, the highest among G7 nations. This is attributed to strong wage growth and elevated services inflation, indicating persistent domestic price pressures.

Monetary Policy

In response to these dynamics, the Bank of England (BoE) has begun adjusting its monetary policy. In November 2024, the BoE reduced its interest rate from 5% to 4.75%, marking the second cut since 2020. However, the BoE has signalled that future rate reductions will be gradual, given the rising inflation expectations.

Analysts anticipate that the BoE will continue to lower rates cautiously throughout 2025, potentially reaching 3.75% by year-end.

Fiscal Policy and Public Debt

The UK's fiscal policy is poised to play a pivotal role in shaping the economic landscape. The March 2024 budget introduced measures aimed at stimulating growth, including increased public spending and tax adjustments. However, these initiatives have raised concerns about fiscal sustainability, with public debt projected to rise to 92.8% of GDP in 2025.

The OECD warns that the UK's stretched public finances may limit its capacity to address potential economic shocks in the future.

Labour Market and Business Sentiment

The labour market is expected to experience moderate improvements, with businesses expressing cautious optimism. Surveys indicate that a significant proportion of firms anticipate revenue growth and increased hiring in 2025, supporting the government's efforts to revive economic growth.

However, challenges such as rising national insurance contributions and persistent inflation may temper this optimism.

Conclusion

In summary, the UK's economic outlook for 2025 suggests a period of modest growth accompanied by persistent inflationary pressures. The interplay between fiscal stimulus and monetary policy adjustments will be crucial in navigating these challenges. While increased government spending may bolster economic activity, concerns about inflation and public debt sustainability remain pertinent. Stakeholders, including policymakers and businesses, will need to balance these factors to foster a stable and sustainable economic environment in the coming year.

Advisory fuel rates for company cars help employers and employees manage fuel costs without triggering tax liabilities. Learn how to use these rates to avoid tax, especially car fuel benefit charges.

HMRC's fuel rates also known as advisory fuel rates are intended to reflect average fuel costs and are updated quarterly. These rates only apply to employees using a company car.

The rates can be used either by employers who reimburse employees for business travel in their company cars or where employees are required to repay the cost of fuel used for private travel.

HMRC will accept that there is no taxable profit and no Class 1A National Insurance on reimbursed travel expenses where employers pay a rate per mile for business travel no higher than the published advisory fuel rates.

Employees can also use the advisory fuel rates to repay the cost of fuel used for private travel. This is the easiest way to ensure that no fuel benefit charge (for private journeys in a company car) is payable. However, the fuel benefit charge will still be payable if it cannot be demonstrated to HMRC that the driver of the car has paid for all fuel used for private journeys, this includes commuting to and from work. To ensure that this does not occur employees will need to keep a log of private mileage.

Navigating VAT in the construction industry can feel like untangling scaffolding. Enter the VAT reverse charge—special rules that mean sub-contractors no longer charge VAT on services but contractors handle the tax instead. Here's how it works and who it affects.

There are special VAT reverse charge rules that can apply to certain construction businesses. When these rules apply, the supply of most construction services between construction or building businesses is subject to the domestic reverse charge. The reverse charge only applies to supplies of specified construction services to other businesses in the construction sector.

The charge applies to standard and reduced rate VAT services:

• for businesses who are registered for VAT in the UK; and that are
• reported within the Construction Industry Scheme.

This means that where the rules apply, sub-contractors no longer add VAT to their supplies to most building customers, instead, contractors are obliged to pay the deemed output VAT on behalf of their registered sub-contractor suppliers. However, the deemed output tax is also available as a deduction from VAT paid if it qualifies as input VAT according to the usual rules. In which case there is no cash flow penalty for contractors. 

The VAT domestic reverse charge applies to the following services:

• constructing, altering, repairing, extending, demolishing or dismantling buildings or structures (whether permanent or not), including offshore installation services;
• constructing, altering, repairing, extending, demolishing of any works forming, or planned to form, part of the land, including (in particular) walls, roadworks, power lines, electronic communications equipment, aircraft runways, railways, inland waterways, docks and harbours, pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence;
• installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building or structure;
• internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration;
• painting or decorating the inside or the external surfaces of any building or structure; and
• services which form an integral part of or are part of the preparation or completion of the services, including site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works.

For companies selling shares, the Substantial Shareholdings Exemption (SSE) can mean significant tax relief. Introduced in 2002 and simplified in 2017, this exemption allows qualifying gains on share disposals to go untaxed—provided key conditions are met.

The SSE regime provides that a gain on a disposal by a company of shares (or an interest in shares, or certain assets related to shares) will not normally be a chargeable gain. This is provided the following two conditions are met for disposals on or after 1 April 2017. 

1. The ‘investing company’ must have held shares in the ‘investee company’ in such number, and for such time, that the shareholding satisfies ‘the substantial shareholding requirement’.
2. The ‘investee company requirement’ must meet similar ‘trading’ conditions. An exception to this condition was introduced for investments held through an investor company which is itself owned by qualifying institutional investors (“QIIs”). Where 25% or more of the Ordinary Share Capital of the company holding the shares being disposed of is owned by QIIs, the investee company requirement does not apply to the disposal, leaving only the substantial shareholding requirement. 

However, the exemption does not apply if:

• the disposal is a no gain/no loss disposal, or
• the gain would not have been a chargeable gain because of some other provision, or
• the gain arises to an insurance company on a certain type of deemed disposal, or
• should an anti-avoidance rule apply.

No formal claim is needed. If the conditions for the relief are met, the gain is automatically exempt. However, a loss on a disposal where the conditions for the relief are met is not an allowable loss.

Reclaiming VAT on company cars isn’t as simple as it sounds. Generally, businesses can’t recover VAT unless the car is used exclusively for business purposes. But there are exceptions—like taxis, driving schools, and commercial vehicles. Here’s what you need to know.

There are complex VAT rules that determine how much VAT can be reclaimed when buying a new car. Generally, businesses cannot recover the VAT paid on a car purchase.

An exception occurs when the car is used exclusively for business purposes. This has been clarified through various legal cases, establishing that to qualify for VAT recovery, the car must not be available for personal use. This means that the car should only be accessible to employees during working hours and should never be used for personal trips. Businesses can reclaim VAT on a new car purchased for specific activities, such as for taxis, self-drive hire, or driving instruction.

If a business leases a qualifying car for business purposes, they can normally reclaim 50% of the VAT paid. The 50% block is to cover the private use of the car.

The rules are generally more straight forward for the purchase of commercial vehicles such as a van or lorry. VAT on a lorry, van or other commercial vehicle can be recovered if it is supplied to a registered person and is used for the purpose of their business or trade. HMRC usually ignores any incidental private use of most types of commercial vehicles.