On 23rd March 2022, the Chancellor delivered his Spring Statement to the House of Commons.
Whilst this is usually a light touch affair in which the Chancellor only makes significant tax or spending announcements, the government noted that this years’ Spring Statement took place against the backdrop of the war in Ukraine and that sanctions imposed on Russia by the UK “will inevitably have an adverse effect on the UK economy.”
Mr Sunak therefore delivered his statement in the context of higher inflation, including announcements relating to personal tax and fuel duty.
Here’s a roundup of the Spring Statement, including changes to the tax system, new spending commitments and policies to support households and businesses throughout the cost-of-living crisis.
- From July 2022, the primary threshold at which point people start to pay National Insurance Contributions (NICs) will increase from £9,880 to £12,570. In practise, this means that those earning less than around £35,000 a year (around 70% of all UK workers) will pay less National Insurance throughout the year.
This increase in the NICs threshold will remain unchanged until April 2026 as opposed to increasing annually with inflation.
- Class 2 NIC payments for lower earning self-employed individuals will also be reduced from April 2022. Those who are self-employed will no longer pay Class 2 NICs on profits between the Small Profits Threshold (£6,725) and the Lower Profits Limit (currently £9,880) but will still be able to build up National Insurance credits.
- From 2024, the government will cut the basic rate of income tax from 20% to 19%. This is estimated to reduce tax for over 30 million workers in the UK and sees each taxpayer gaining, on average, an extra £175.
- The maximum Employment Allowance, which allows eligible businesses to claim a reduction on their NIC payments, will increase from £4,000 to £5,000 in April 2022.
VAT and Indirect Taxes
- In a bid to encourage more households to invest in green energy and to help deal with rising costs, VAT on energy-saving equipment and materials such as solar panels will be temporarily cut from 5% to 0% for the next 5 years.
Effective from April 2022, the policy will include wind and water turbines, which were removed from the reduced rate in 2019.
- The rate of fuel duty will be temporarily reduced by 5p per litre from March 2022 until March 2023. This is the biggest cut, in cash terms, to have been applied across all fuel duty rates at once and is estimated to save the average car driver £100 over the next 12-months.
- As part of what Mr Sunak called a “new culture of enterprise”, the Research and Development (R&D) tax credit system will be reformed to include some cloud and data costs.
R&D tax credits are a government initiative designed to reward businesses for investing in innovation. Companies that spend money developing new products, processes or services are therefore eligible for R&D tax relief.
From April 2023:
- All cloud computing costs, including storage will be eligible for relief.
- Some overseas costs will be eligible for relief.
- The definition of R&D will be expanded to include “pure mathematics” as a qualifying cost.
- The chancellor announced a review of the Capital Allowance System in advance of the Autumn budget, the priority being to encourage the private sector to invest in capital assets over the coming years.
The 130% super deduction introduced in the Spring budget of 2021 is due to expire in March 2023 and so various potential options to enhance Capital Allowances are being considered.
Possibilities include the following:
- A permanent increase in the default level of the annual investment allowance.
- Increased Writing Down Allowances (WDA).
- The introduction of a first-year allowance regime.
An official announcement will be made during the 2022 Autumn Budget.
Alongside the Spring Statement, the government published a Tax Plan which is a three-part plan to strengthen the UK’s economy. It is said to support economic growth while ensuring that the proceeds are shared fairly. The three themes are as follows:
- Helping families with the cost of living – this part of the plan is largely enacted by the Spring Statement, with the above-mentioned tax cuts on incomes, fuel and energy as well as the rise of the primary National Insurance Threshold.
- Boost growth and productivity – This relates to Capital Allowance and enacting long-term reforms which will incentivise businesses to invest more in capital, people and ideas. The government will announce exactly how they plan to achieve this at the Autumn budget later this year.
- Let people keep more of what they earn – The cut in the basic rate of income tax, due to come into effect in April 2024, is estimated to result in a £5 billion tax cut for workers, savers and pensioners and will be the first cut to the basic rate in 16 years.
Need a Hand?
Understanding how the legislation brought into effect by the Spring Statement might affect you or your business can be challenging, but we’re here to help.
If you need professional advice or help with forecasting and budgeting, give one of our team a call today on 0117 379 0810.
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Categorised in: Industry News
This post was written by Steph Roffey