Spring Statement 2022 – Does it go far enough?

First published on 24 March 2022 by Alastair
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Businesses, individuals and tax advisers were holding their breaths wondering if the Spring Statement would help with the escalating cost of living we are all experiencing.  The Chancellor’s announcement on Wednesday will bring a small amount of relief to those in work who are struggling, but with literally nothing provided for the most vulnerable in society, it left many wondering why they didn’t do more.

Although this was not an extended Spring Statement, it does provide assistance to taxpayers facing increased costs now and for small and medium businesses to recover and expand post pandemic.

We have pulled together some of the most relevant points:

National Insurance and Employment Taxes

In September 2021 it was announced that from April 2022 National Insurances rates for employees, employers and self-employed would be increased by 1.25% for 1 year, which would then be replaced by a 1.25% a Health and Social Care Levy.   Despite calls for this to be delayed, rather than lose face Wednesday’s statement confirmed that this will still go ahead.

However, it was announced that the thresholds for which employees and the self-employed begin to pay National Insurance will increase from £9,880 to £12,570, which is line with the personal allowance for income tax purposes. This will be effective from July 2022. Why July?  This is how long the government believes payroll software providers will need to implement the change at short notice. 

For the self-employed, the chancellor announced that from April 2022, any profits earned between Class 2 NIC’s will no longer be payable on profits between the small profits threshold (£6,725) and lower profits limit (£12,570) will still continue to be used to build up to National Insurance credits. For Class 4 NIC, the threshold will also increase from £9,880 to £12,570 from 6 July 2022 albeit on a pro-rata basis for the tax year ending 5 April 2022. This will mean that Class 4 NIC is not paid on the first £11,908 of taxable profits.

The employment allowance will be increased to £5,000, which will mean a reduction of £1,000 in eligible employers NIC bills and go some way to offset against the increase in cost for employers resulting from the 1.25% increase for smaller employers.

Personal Tax

No immediate changes were announced with regards to income tax rates and bands.  Meaning, as previously announced, the personal allowance will remain at £12,570, the UK basic rate band remaining at £37,700 and the higher rate band still £50,270, These levels are frozen until April 2026.

In line with the rise in NIC, the dividend rates will increase by 1.25% from April 2022, with the basic rate becoming 8.75%, 33.75 for the higher rate and additional rate of 39.35%.  The tax-free level of £2,000 is unchanged.

However, looking ahead, it was announced that from April 2024 the UK basic rate band will be reduced from 20% to 19%, although this will only apply to taxpayers in England, Wales and Northern Ireland. 

For Scottish taxpayers, this will reduce the tax rate on their savings income, but the tax rates on regular income will continue to be set by the Scottish Government.  To compensate, additional funding of £350 million for the 2025 tax year will be provided to the Scottish Government which can used for similar tax cuts or additional spending.

No changes either to capital gains tax, inheritance tax, ISA limits or pension allowances.

Fuel

With fuel prices soaring, a fuel duty cut of 5p per litre of petrol and diesel, was widely expected and has been delivered.  This is already in effect (from 6pm on 23 March 2022) and will be in place for 12 months.  This cut will be welcomed by taxpayers and business owners alike.

Business Taxes

Business Rates for the retail, hospitality and leisure industries in England will be reduced by 50% and the business rate multiplier will be frozen in 2022/23, which will a reduce cost for a smaller business over the next several years.  The devolved administrations will each receive consequential funding to allow them to assist the businesses recovery from the pandemic.

In England, business rates exemptions will apply from April 2022 for businesses investing in eligible plant and machinery used in onsite renewable energy generation and storage, with 100% relief for eligible low-carbon heat networks.  The devolved administrations will receive equivalent funding.

Capital Allowances

The annual investment allowance of £1,000,000 has been extended to 31 March 2023, which should assist businesses to invest and grow.

It was also announced that to help businesses adopt new digital technology, with Help to Grow: Digital, which is offering SME’s a 50% discount on approved software worth up to £5,000.

As part of the Tax Plan announced, there will also be a review of tax reliefs for capital expenditure on existing areas that already qualify for relief, to make them more generous. More details are likely in the Autumn Budget.

Value Added Tax (VAT)

The Chancellor announced time-limited zero VAT rate for the installation of Energy Saving Material (ESM) such as roof top solar panels, which effect from April 2022.  This will significantly reduce the initial cost to the individual, which should allow more to benefit from the reductions in their annual energy bills that come with this.

HMRC Funding

The Chancellor announced that HMRC will receive a further £161 million in funding over the next 5 years to increase its compliance and debt management capability.  This will fund additional HMRC staff to provide more support to taxpayers who wish to pay their tax debts and ensuring that mid-sized and large businesses pay the tax they are due.  It is expected that this additional funding will help bring in more than £3 billion in tax revenue.

 

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