Spring Budget Statement 2022
The Chancellor of the Exchequer, Rishi Sunak, delivered his Spring Statement today with the focus centred around helping families with the cost of living, creating the conditions for private sector led growth, and sharing the proceeds of growth fairly with working people. With the cost of living rapidly rising and additional concerns over increasing inflation, the Chancellor published a “Tax Plan” for the remainder of the Parliament.
Below, we explore some of the announcements made today in more detail.
Increase of National Insurance Contribution Thresholds
The National Insurance (NI) thresholds will increase from £9,880 to £12,570 from 6 July 2022 – aligning the NI threshold with the income tax personal allowance. This will benefit both employed and self-employed individuals.
Increasing the threshold will slightly soften the blow that will come when the new health and social care levy comes in to effect on 6 April. Although it may seem odd to effectively increase the NI rate and the threshold in the same tax year, it is clearly targeted to help those on lower incomes, who are likely to feel the rate increase the most.
Reduction of Basic Rate Income Tax
From April 2024, the Government will be aiming to reduce the basic rate of income tax from 20% to 19%.
The reduction in the basic rate will not apply for Scottish taxpayers because the power to set these rates is entrusted to the Scottish Government.
There will be a three-year transitional period for Gift Aid relief to maintain the income tax basic rate relief at 20% until April 2027.
Employment Allowance
The employment allowance which is used to reduce the costs of Employers NICs will be increased from £4,000 per annum to £5,000 per annum from April 2022.
VAT Relief on Energy Saving Materials
The VAT rating for energy saving materials such as solar panels will be reduced to 0% for a limited time period from April 2022. The scope of qualifying materials will also be expanded to items such as wind and water turbines.
Business Rate Relief
Business rates reliefs previously announced have been brought forward by 12 months now coming into effect from April 2022.
Fuel Duty Relief
For those businesses that rely on the consumption of fuel there is a welcome temporary cut to fuel duty of 5p per litre effective from 6pm today for 12 months. HMRC suggests this cut is worth around £200 for an average van driver and £1,500 for an average haulier.
Apprenticeship Levy
The government will be reviewing whether further ‘intervention’ is required to encourage higher spending and investment in the training of staff including a review of the Apprenticeship Levy.
Innovation and R&D Tax Credit Reform
R&D tax reliefs will be reformed to include some cloud and data costs and to refocus support on R&D in the UK.
We will know more on the detail of what these new measures will look like in practice when we see the draft legislation due to be published in the following months.
In addition to improvements to the R&D reliefs available to businesses it was also announced in autumn 2021 and reiterated in the spring budget today that a new HMRC task force will be created to tackle abuse of R&D tax relief.
Capital investment
Capital investment by business is a key area of concern (and growth stimulation for the economy) for tax policy and with the end of the super deduction for qualifying capital expenditure and the temporary £1 million Annual Investment Allowance (“AIA”) due to end.
As announced in the autumn 2021 budget and confirmed again today the temporary increase AIA of £1 million will remain in place until 31 March 2023.
The government are now consulting on a number of other possibilities to ensure the UK is competitive in its capital investment incentives.
- Increase the permanent level of Annual Investment Allowances form £100k to say £500k.
- Increase the rate at which ‘writing down allowances’ for ‘main’ and ‘special’ rate assets from current levels of 18% and 6% respectively to 20% and 8%.
- Introduce a new ‘First Year Allowance’ of say 40% and 13% for ‘main’ and ‘special’ rate assets.
- Introduce enhanced ‘First Year Allowance’ of say an additional 20% on top of the 100% claim available.
- More drastically, and very unlikely, introduce full expensing of plant and machinery investment costs.
We will have to wait for a formal announcement before knowing exactly what the government’s plans are in this area.