Spring Statement 2022

Spring Tax Briefing

Spring Statement – What does it mean for you?

Although the Spring Statement did not turn into a mini-Budget like some had predicted, there was several significant announcements to support households through the current "cost of living" crises.

The headline announcement was clearly the reduction to fuel duty and increase to the national insurance thresholds, but what else was announced?

Income Tax

In somewhat of a surprise, the chancellor announced that as from April 2024, the basic rate of income tax will reduce from 20% to 19%, the first reduction in 16 years.

Although not introduced until April 2024, it is a welcome surprise.

It should be noted that the basic rate of dividend tax will not be affected by this reduction.

National Insurance

It was hoped that the 1.25% NIC rise (as part of the health and social care reform) would be scrapped. However, this will go ahead as planned as from April 2022. However, the threshold at which NIC begins to be paid is being increased to £12,570, in line with the tax-free personal allowance. The current threshold is £9,568, so a significant increase that the Government believe will result in 70% of workers being better off, even after considering the 1.25% increase.

The self-employed will also benefit from the rise, as the Class 4 NIC threshold will also increase.

A further welcome for the self-employed is that Class 2 NIC (of £3.15 per week) will not be paid unless profits exceed the £12,570 personal allowance. To ensure the self-employed continue to build up their NIC record (e.g., State Pension entitlement), individuals with profits between the small profit's threshold and the lower profits limit will continue to build up NIC credits, despite not physically paying Class 2 NIC. This is welcome news and is like the position for directors with salaries within these limits.

Unfortunately for employers, the threshold at which employers start to pay employers NIC has only seen a small increase to £9,100. The 1.25% NIC increase will still go ahead as planned for employers NIC, from April 2022.

However, the employment allowance will be increase from April 2022 from £4,000 to £5,000. This therefore means the first £5,000 of employers NIC will be covered by the allowance.

A point to note – the increase in NIC thresholds will not apply until 6 July 2022, to allow software developers to update their software accordingly.

VAT

The VAT registration threshold will remain at £85,000, with the de-registration threshold remaining at £83,000.

VAT on Energy Saving Materials

The VAT rate on certain energy saving materials will be reduced from 5% to 0%, for five years starting 1 April 2022. This includes insulation, solar panels, wind turbines, etc.

VAT in the Hospitality & Tourism Sector

A reminder that the temporary reduced VAT rate will cease as of 1 April 2022 and revert to the standard rate applicable.

Fuel Duty

One of the headline announcements, and certainly welcome news, the fuel duty will be cut by 5p/litre from 6pm on 23 March 2022. The reduction will remain in place for 1 year.

With the rising fuel costs, this puts the average fuel price to around where it was 10 days earlier – still much higher than previous levels, but certainly the reduction was welcome news.

Business Rates

The business rates multiplier will be frozen for 2022/23, which is a cut for ratepayers for the next five years.

Eligible retail, hospitality and leisure businesses will benefit from a temporary 50% Business Rates Relief.

Capital Allowances

The £1m annual investment allowance has been extended to 31 March 2023.

The government will also consider alternative options to replace the "super-deduction" when it expires in April 2023.

If you want to know how the Spring Statement affects you, get in touch with one of our tax advisers, who will be happy to assist.

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Wednesday, 25 May 2022

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