Spring Statement 2022
The Chancellor of the Exchequer’s Spring Statement was intended to be a low-key affair, with the main fiscal event of the year due to be held in the Autumn. Against the backdrop of the war in Ukraine and the effects it has had in exacerbating the cost-of-living crisis, however, there were demands on the Chancellor to take more action than he perhaps originally intended. While this was not quite a mini-budget, several significant measures were announced.
Some key points:
- A reduction in fuel duty from 6pm today;
- An increase in the National Insurance Contributions (NIC) thresholds for employees and self-employed individuals from this year;
- An increase in the Employment Allowance from this year;
- A reduction in the basic rate of income tax from 2024;
- Changes to capital allowances and research and development (R&D) tax relief on the horizon.
Individuals
The measures that will be of greatest interest to the greatest number of people are intended to help working people regarding in particular levels of inflation that have not been seen for many years.
In view of rising fuel costs, the government announced last month a package of measures to help households with energy bills, including an upfront discount worth £200 to take effect later this year. Today, the Chancellor cut the duty on petrol and diesel by 5p per litre for 12 months, meaning that, all things being equal, there will be an immediate fall in the price of filling up a car of about 3-4%.
The Health and Social Care Levy is still due to be introduced – as an increase in – in April 2022. This will increase each of the rates of Class 1 NICs (for employees and employers) and Class 4 NICs (for self-employed individuals) by 1.25%. The Chancellor was clear of the need for this levy and the fact that it will not be reversed.
The Chancellor did, however, announce that the threshold at which workers start paying NICs will increase from an annual amount of £9,880 to £12,570 from 6 July 2022 (with the three-month delay from the start of the tax year giving employers a chance to ensure their software has been updated). The new threshold of £12,570 will align with the income tax personal allowance and will apply for both employees and self-employed individuals (although, as NICs for self-employed individuals are calculated on an annual basis, the threshold for the 2022/23 tax year will be a blended amount of £11,908).
In addition, Class 2 NICs (the flat-rate contributory NICs paid by self-employed individuals) will from 2022/23 only be payable when profits are in excess of the lower profits threshold (that is, £9,880 from 6 April 2022 and then £12,570 from 6 July 2022). Where profits are in excess of the small profits threshold (that is, £6,725 from 6 April 2022), the individual will be treated as having made contributions, and so will continue to build up NI credits.
From April 2022, there will be an increase in the Employment Allowance from £4,000 to £5,000, meaning that eligible businesses and charities – essentially those with an employer’s NIC liability of no more than £100,000 in the prior year – will be able to reduce their annual employer National Insurance bill by £1,000 more than was previously the case.
In a surprise announcement, the Chancellor pledged to cut the basic rate of income tax from 20% to 19% from April 2024. The personal allowance is not due to be increased between now and April 2024, and time will tell the extent to which this will offset the effects of fiscal drag as more individuals fall into the tax net. A three-year transition period will apply to the Gift Aid regime, meaning that charities will continue to benefit from an effective 20% tax relief on donations until April 2027.
Lastly, the government aims to make the installation of energy-saving materials (such as solar panels) more affordable by ensuring these are zero-rated for VAT purposes for five years from April 2022. As part of this, it will also include additional technologies (such as wind and water turbines) within the definition, and reduce some of the eligibility conditions.
Businesses
As far as business is concerned, the government stated that it wants to create the conditions that will allow the private sector to “invest more, train more and innovate more”.
The capital allowances super-deduction – which gives business a 130% tax deduction for expenditure on qualifying plant and machinery – was announced last year and is in place until March 2023. The government is now looking to ensure that, once the super-deduction has come to an end, the UK regime remains competitive.
It is considering such measures as increasing the amount of expenditure that can be covered by the 100% Annual Investment Allowance (currently due to be £200,000 from April 2023), introducing a new range of first-year allowances (with a rate of 40% being mentioned in the documents published today), or simply increasing the rates of annual writing-down allowances. We expect an announcement on this in the Autumn.
The government is also looking at how it incentivises businesses to invest in training; it is making changes to how it supports apprenticeships and will consider whether it needs to do more – possibly through the tax system – to encourage employers to offer high-quality training.
On innovation, the government is currently engaged in reforms to R&D tax reliefs. From April 2023, certain additional costs (licence payments for data sets and cloud computing costs) will qualify for relief; at the same time, the relief will be refocused towards innovation in the UK (subject to exceptions where the government recognises it is necessary for the R&D to take place overseas).
The Chancellor announced today that the definition of R&D will be expanded to include pure mathematics. The government will also consider further changes to the regime in the future to ensure it works as effectively – and delivers as much value for taxpayers – as possible. This might include increasing the R&D expenditure credit that is most widely used by large companies and introducing further measures to tackle abuse. Again, we expect further announcements later in the year.
The Chancellor published a “Tax Plan” along with the other Spring Statement documents. This was not the sort of detailed “roadmap” that many would have been hoping for but it does indicate that today’s speech should be seen as part of a longer-term plan, the next stage of which will be uncovered in the Autumn.