The Chancellor’s Spring Statement – what does it all mean for you?

Spring Statement Breakdown

At TAG Accountants, we recognise the importance of keeping our clients fully informed about the latest developments that could affect them and/or their business. Hence, we have provided a summary of the announcements made by Rishi Sunak on 23rd March in his Spring Statement, delivered against the backdrop of the growing cost of living crisis and the recent Russian invasion of Ukraine, which are creating further uncertainty in the domestic and global economy.

National Insurance contributions (NICs)

The Chancellor did not remove the 1.25% increase in NICs due to come into effect this April for providing funding for the NHS and Social Care.

On the plus side, he did try to soften the blow by announcing a significant increase in the National Insurance Threshold from £9,880 to £12,570. This increase will align the Primary Threshold (PT) for Class 1 NICs and Lower Profits Limit (LPL) for Class 4 NICs with the personal allowance of £12,570 from 6 July 2022. Note also, that going forward, the thresholds will remain aligned. This should mean that around 70% of employees will pay less NICs, even accounting for the introduction of the Health and Social Care Levy.

The existing PT and LPL thresholds will remain at £9,880 (as previously announced) between 6 April 2022 and 5 July 2022. To provide time to all payroll software developers and employers to update their systems and implement the necessary changes, unusually, tax rates will therefore change during a tax year as there was too little time to effect the change from the start of the 2022/23 tax year. For the 2022/23 tax year, the LPL will be £11,908 which is equivalent to 13 weeks of the threshold at £9,880 and 39 weeks at £12,570.

These changes mean that the first £12570 an individual earns will be completely tax free.

Class 2 NICs payments reduced for low earners

From April 2022, the self-employed will see Class 2 NICs liabilities reduced to nil on profits between the Small Profits Threshold (SPT) and LPL. Consequently, whilst no one with earnings between the SPT and LPL will pay any Class 2 NICs, these individuals will continue to build up National Insurance credits, representing a tax cut for around 500,000 self-employed people, each saving up to £165 per year.

Employment Allowance

From April 2022, the Employment Allowance for employers will increase by £1,000 to £5,000, representing a tax boost for around 495,000 small businesses that can then claim an increased reduction in their NIC liabilities or potentially reduce their employer NICs bills to zero.

Consequently, from April 2022, around 670,000 businesses will not pay NICs and the Health and Social Care Levy due to the Employment Allowance.

Please note that the Employment Allowance is available only to employers with employer NIC liabilities less than £100,000 in the previous tax year. Connected employers or those with multiple PAYE schemes will have contributions aggregated to assess eligibility.

Fuel duty cut from 6 pm on 23 March 2022

The Chancellor has announced a 12-month UK-wide 5p per litre cut in fuel duty on petrol and diesel. This saving is worth around £100 for the average car driver, £200 for the average van driver, and £1500 for the average haulier. This represents total savings for households and businesses worth around £2.4 billion in 2022/23 and is only the second cut in fuel duty over the last 20 years.

VAT

The scope of VAT relief available for energy saving materials (ESMs) will be expanded by reducing VAT from 5% to 0% from 1 April 2022 until 31 March 2027. Thus, households installing energy saving materials like solar panels, heat pumps, or insulation will pay no VAT.

The government will also include additional technologies and remove the complex eligibility conditions, reversing a Court of Justice of the European Union ruling that restricted the application of the relief. A typical family will save more than £1,000 in total on the installation of rooftop solar panels, and £300 annually on energy bills. 

Just a reminder on VAT that the reduction to 12.5% for hospitality will end on 31 March 2022 and will return to 20% from 1 April 2022.

Household Support Fund

The government launched a £500 million package of support for vulnerable households in England in October 2021. The money is distributed by local councils which use the funding to provide discretionary support including using small grants to meet daily needs such as food, clothing, and utilities. 

As part of his Spring Statement, the Chancellor announced that from April 2022 the government will provide an additional £500 million for the Household Support Fund.

R&D tax relief reform

From April 2023, all cloud computing costs associated with R&D, including storage, will qualify for relief, which will boost sectors where the UK is already a world leader, including AI, robotics, manufacturing, and design. Further changes may also be announced later this year as part of the Budget.

There will also be a crackdown on potentially fraudulent claims and attempts will be made to eke out dishonourable R&D tax credit providers.

Income Tax basic rate

The Chancellor confirmed that from April 2024 there will be a reduction in the basic rate of Income Tax to 19%. This will apply to the basic rate of non-savings, non-dividend income for taxpayers in England, Wales, and Northern Ireland, and to the savings basic rate which applies to savings income for taxpayers across the UK. 

The reduction in the basic rate for non-savings-non-dividend income will not apply to Scottish taxpayers as the power to set these rates in Scotland was devolved to the Scottish Government. That said, they will receive additional funding to be used as they see fit, such as reducing Income Tax or other taxes, or even increasing spending.

Other taxes

There was no mention of changes in other tax areas such as capital gains tax and inheritance tax. It is believed reforms to both taxes remain high on the Chancellor’s agenda but nothing concrete has been announced thus far.

TAG Accountants Group, your local tax advisors

Overall, not a bad set of announcements which was inevitable with the cost of living and Ukraine crisis in full flow.

As ever, if you need to discuss the impact of any of these changes on you or your business, the TAG Accountants team is here to help and as one of our clients, we will provide you with all the support you need.

To get started, please call 01902 783172 to discover more about how our specialist tax experts can help you and/or your business, or alternatively just click HERE to email us via our website and we will call you back to arrange a convenient time for a confidential, no-obligation chat.

We very much look forward to helping you.