The Spring Budget 2022 could be summarised as short but sweet, loud yet silent and did not measure up to its customary hype. Despite much fanfare, only a handful of new tax measures were announced.  It seems with this statement the Chancellor giveth with one hand and taketh with the other.  For instance, whilst a cut in fuel duty will be welcomed by many it may fall short of satisfying the soaring costs of household energy bills.

 

The two central announcements – cut in Basic Rate of income tax in 2024 and increase to National Insurance Primary Threshold for employees – will undoubtedly be welcomed by many, however, once again these changes will not make a material difference to most taxpayers when rising costs of inflation and freezing of the income tax thresholds and Personal Allowances are factored in.  A tax cut appears to be a panacea to disgruntled voters, but once frozen thresholds and Personal Allowances are taken into consideration the scheduled 1% tax cut to the Basic Tax Rate appears paltry.  A 1% tax cut scheduled for 2024 – conveniently timed with the next election – may not excite the average voter a great deal.

 

Whilst smaller employers will benefit from an increase to the Employment Allowance from £4,000 to £5,000, these tax cuts are designed to reduce the tax burden of the Health and Social Care Levy for employees.

 

Furthermore, Sunak’s Spring Statement offered very little imagination or innovation to inspire British business and entrepreneurs and felt like a repetition of previous announcements.

 

Summary of Tax Announcements for Businesses

Cutting fuel duty on petrol and diesel by 5p per litre for 12 months

  • The cut takes effect from 6pm (today!) 23 March 2022

 

Increasing the Employment Allowance from £4,000 to £5,000

  • Around 495,000 businesses (30% of all businesses) will benefit from this increase, including around 50,000 businesses (3% of all businesses) which will be taken out of paying NICs and the Health and Social Care Levy entirely
  • In total, this means that from April, 670,000 businesses will not pay NICs and the Health and Social Care Levy due to the Employment Allowance

 

Bringing forward an exemption on business rates for green technology

  • Making green technology, including solar panels and heat pumps, exempt from business rates from April 2022 will save businesses an extra £35 million in 2022-23, and is expected to be worth around £170m over the next five years to support the decarbonisation of buildings
  • A 100% relief for eligible low-carbon heat networks which have their own rates bill will also be available
  • This is on top of reducing the VAT on energy savings materials (ESM) from 5% to 0%, further incentivising homeowners to buy ESMs from businesses as part of a wider package of Government measures targeted at improving energy efficiency

 

Reforming R&D tax credits to help drive innovation

  • From April 2023, business will be able to claim relief on the storage of their vital data and pure maths research
  • Draft legislation will be published this summer

 

Planning to encourage greater business investment once the super-deduction ends in 2023:

  • No news yet but potential policy changes are under review
  • Increasing AIA to £1 million (extends temporary extension)

 

Also:

  • Extending the transitional relief for business rates and supporting small business schemes for 2022-23, which will restrict bill increases from between 15% to 25% for SMEs.
  • Establishing Help to Grow, which is giving SMEs the tools they need to innovate, grow, and help drive our economic recovery.

 

Summary of Tax Announcements for Individuals

 

From April 2024 Basic Rate of Income Tax cut from 20% to 19%

  • It appears that the IT cut applies to basic rate only
  • The cut will apply to the basic rate which applies to non-savings, non-dividend income for taxpayers in England, Wales and Northern Ireland; the savings basic rate which applies to savings income for taxpayers across the UK; and the default basic rate which applies to a very limited category of income taxpayers made up primarily of trustees and non-residents.
  • The cut is designed to show Tories’ commitment to tax cuts and will take place by the end of this parliament (i.e. in time for next election!!!)
  • It is the first cut to income tax in 16 years
  • There will be a three-year transition period for Gift Aid relief to maintain the income tax basic rate relief at 20% until April 2027

 

Reduction of Class 2 NICs payments for Lower Earning Self Employed Individuals

  • From April 2022 self-employed individuals will not pay Class 2 NICs on profits between the Small Profits Threshold (£6,725) and Lower Profits Limit, but they will continue to be able to build up National Insurance credits.

 

Increase of National Insurance Contributions Primary Threshold (PT) and Lower Profits Limit (LPL)

  • Primary Threshold (limit at which employees begin to pay Class 1 NICs) and Lower Profits Limit (employees do not pay NICs but get the benefits of paying e.g. pension, etc) increased to same rate as Personal Allowance.
  • This is £12,570 for 2022/23 tax year
  • Seen as a means of appeasing critics of new Health and Social Care levy and rising costs of living

 

How will the increase to NICs thresholds work?

To allow employers and payroll software providers sufficient time to update their systems, the increase will be implemented from July 2022.

 

What this means for employees

  • Between 6 April and 5 July 2022, employees will be able to earn £190 a week without paying Class 1 NICs and the Levy.
  • Between 6 July 2022 and 5 April 2023, this weekly threshold will increase to £242.
  • From April 2023 onwards, employees will be able to earn £242 each week, equivalent to £12,570 a year, without paying Class 1 NICs or the Levy.
  • The PT will then remain aligned with the income tax personal allowance.
  • Employees entitlement to contributory benefits are unaffected by this measure.

 

What this means for the self-employed

  • The self-employed pay NICs on an annual basis, and at the end of the tax year. For the 2022-23 tax year, the self-employed will be able to earn £11,908 before paying Class 4 NICs and the Levy. The annual figure for the self-employed is £11,908, because this accounts for 13 weeks of £9,880 and 39 weeks of £12,570. That means the benefit the self-employed receive in 2022-23 is in line with employees.
  • From April 2023 onwards, the self-employed will be able to earn £12,570 before paying any NICs.
  • The LPL will then remain aligned with the income tax personal allowance.
  • Further, for 2022-23, the point at which the self-employed start paying Class 2 NICs will increase to £11,908. This means that those with profits between the Small Profits Threshold (£6,725) and the LPL (£11,908) will not need to pay Class 2 NICs from April 2022, but will still be able to access entitlement to contributory benefits.

 

The Statement was loud on its proclamations of tax reductions but fell short of addressing the cost of living crisis, soaring costs of energy and rising inflation which is hitting average household income hard.

Download our Spring Statement Briefing Sheet here:

Robson Laidler Spring Statement 2022

Reviewed by Kerrianne Naylor-Wood, tax Consultant in Robson Laidler’s the tax advisory team.

If you would like further detail on how these announcements may affect you and your business please contact the tax advisory team directly: taxteam@robson-laidler.co.uk