Summary of the Spring statement 2022

SPRING STATEMENT 2022

by Nick Antoniou, FCCA of NA Associates LLP, Chartered Certified Accountants.

 

Introduction

 

Spring loaded Solutions or half-measures?

Two years to the day after the commencement of the first UK lockdown in response to the surge of COVID-19 cases throughout the country, Chancellor Rishi Sunak delivered his Spring Statement to Parliament.

While the Government has essentially declared victory over the pandemic, the public finances still don’t appear all that positive – even when you keep in mind that 2020 marked the largest annual fall in GDP recorded in the UK in 300 years (9.9%).

The following report summarises some of the main announcements made by Chancellor on 23 March 2022.

 

Main announcements

Income tax to 19% from 2024

In the biggest surprise announcement of the day, the Chancellor announced that the basic rate of income tax will be slashed from 20% to 19% as of 2024.

While heralding the move as a “tax cut for workers, pensioners, and savers”, he emphasised the fact that this will also represent the first time in 16 years that the basic rate has been cut.

NICs threshold increase

Despite confirming that the 1.25% increase to NICs will go ahead as planned in April, the Chancellor also announced that the threshold at which people have to start paying NICs will rise by £3,000 from the 2021/22 level.

The new NICs threshold will be £12,570 and will come into effect from July, bringing the NICs and income tax threshold in line.

There are also changes to the threshold levels for NICs that self-employed people will have to pay. As the changes do not take effect until 6 July in the 2022/23 tax year, an apportioned annual threshold has been calculated so that the benefit received by the self-employed is in line with employees. By 2023/24, the threshold at which employed and self-employed people start paying NICs and income tax will be aligned at £12,570.

Fuel duty cut

After much speculation in recent days over whether or not the Chancellor would cut fuel duty in an attempt to combat the astronomical increase in the cost of both petrol and diesel, Sunak announced his intention to cut fuel by “not 1, not 2, but by 5p per litre”.

The fuel duty cut, which applies to both petrol and diesel fuels, will knock about £3.30 off the cost of filling a typical 55-litre family car, according to the RAC. The new duty will come into effect from 6pm on Wednesday 23 March.

But, while that may be seen as a marginal gain by motorists across the UK, the OBR commented:

“Higher global oil prices have already raised fuel prices, which contribute almost 0.9 percentage points to inflation in the second quarter of 2022, even after incorporating the impact of the cut in fuel duty announced in the Spring Statement”.

VAT on energy-efficient home improvements

One way households can keep their energy usage, and therefore their energy bills, down is to put in place energy-saving instalments, like solar panels, heat pumps or insulation.

In 2019, the scope of the VAT reduced rate for energy saving materials (5%) was restricted to comply with EU law as the UK rules were found to go beyond what was permitted.

For the next five years, however, as the Chancellor set out in the Spring Statement, homeowners installing such materials will pay no VAT at all.

He added that the Government would overturn the EU’s decision to take water and wind turbines out of the scope for reduced VAT so that they will also benefit from no VAT.

Employment allowance increase

Finally, the Government is expanding support to small businesses by increasing the employment allowance from £4,000 to £5,000 per year, which will save employers an extra £1,000 in NICs.

 

Upcoming changes

As part of the Chancellor’s speech, Sunak announced several reforms and measures coming in the near future, with details of the changes we can expect to be revealed in the Autumn Budget.

 

Business investment tax reform

In light of economic pressures on businesses, and with the current super deduction due to end in April 2023, the Government is looking at potential tax reforms to encourage business investment.

Any changes will be announced in the Autumn Budget 2022 following consultation with businesses, but the main options under consideration are:

  • increase the annual investment allowance permanently, for example to £500,000
  • increase writing down allowances for main and special rate assets from 18% to 20%, and from 6% to 8%
  • introduce a first-year allowance of, for example, a deduction of 40% and 13% in the first year of expenditure, with standard writing down rates applying after that
  • introduce an additional first-year allowance of 20% in the first year, on top of standard writing-down allowances on 100% of the initial cost over subsequent years.
  • introduce full expensing, allowing businesses to write off the costs of qualifying investment in one go.

 

R&D tax relief

Following a paper published in autumn 2021, the Government has confirmed its plans to reform R&D tax relief.

From April 2023, all cloud computing costs associated with R&D, including storage, will qualify for relief.

The relief has also been focused on work carried out in the UK, although expenditure on overseas R&D activities can still qualify.

The definition of R&D for the purposes of tax relief will also be expanded, as pure mathematics will be included as a qualifying cost.

Training and the apprenticeship levy

In his speech, the Chancellor noted the need for improvements to adult technical skills, as UK employers spend “just half the European average on training their employees”.

The Government said it “recognises that employers have frustrations” with the current apprenticeship levy system and is looking at how “more flexible apprenticeship training models can be supported”.

It will also consider whether further intervention is needed to encourage

employers to offer training, including assessing the current tax system and the apprenticeship levy.

The £1,000 increase allows employers to save more and will benefit around 495,000 businesses, including 50,000 that will be taken out of paying NICs and the health and social care levy entirely.

In total, the Government expects 670,000 businesses to pay no NICs and the health and social care levy because of the employment allowance.

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