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Spring Statement 2022 - March 24th 2022

The Spring Statement was not meant to be a March mini-Budget, despite what many headlines in the days before suggested. Mr Sunak believes in the once-a-year approach to major tax and spending changes, unlike some of his predecessors. However, in 2022, as in 2020 and 2021, events conspired to put paid to that single Budget aspiration. Instead, on the day the inflation rate was announced as having reached 6.2%, the Chancellor announced a range of tax cuts aimed at countering the cost of living crisis.

Several key allowances, including the personal allowance and higher and additional tax thresholds, capital gains tax, inheritance tax and pensions were frozen. In the current inflationary context, these freezes are tantamount to tax increases.

  • There will be a temporary 12-month cut to duty on petrol and diesel of 5p per litre from 23 March 2022.
  • VAT relief for the installation of energy saving materials (ESMs) will be extended and there will be a time-limited zero rate for the installation of ESMs.
  • The primary threshold for Class 1 national insurance contributions (NICs) will increase from £9,880 a year to £12,570 a year from 6 July 2022, bringing it in line with the frozen personal allowance.
  • For company directors, who are subject to special rules, the equivalent annual amount from July will be £11,908. From 2023/24, all employees will share the same £12,570 annual threshold. The maximum potential Class 1 employee NICs saving in 2022/23 is £269.
  • For the self-employed, the lower profits limit will increase from £9,880 to £11,908 in 2022/23, rising to £12,570 in 2023/24. Class 2 NICs will not be payable if profits are below these limits. The maximum potential Class 4 NICs saving in 2022/23 is £208.
  • The employment allowance will be increased from £4,000 to £5,000 from April 2022.
  • From April 2022, the rate of tax dividends above the dividend allowance will rise by 1.25 percentage points.
  • As part of the reform of research and development tax reliefs, from April 2023, all cloud computing costs associated with R&D, including storage, will qualify for relief. Furthermore, some expenditure on overseas R&D activities will still be able to qualify, for example, clinical trials that cannot be conducted in UK.

Against a background of rising inflation, the global effects of the war in Ukraine and an increased cost of living crisis, the Chancellor’s Statement on 23 March was a mixed bag. While failing to heed the calls of some of his backbenchers to relieve pressure on households by rescinding the hike in National Insurance (NI) contributions, Mr Sunak instead pegged the NI threshold to the personal allowance and announced a cut at the end of his speech.  In an unusual pre-Budget unveiling of a specific tax move, the Chancellor announced that the basic rate of income tax will be cut from 20% to 19% from April 2024 for taxpayers in England, Wales and Northern Ireland.

Elsewhere the cut in fuel duty was welcomed, while measures to further alleviate the financial burden on individuals and businesses were also highlighted. As the new tax year dawns, and in the run up to a general election, there may be further surprises to come in the Chancellor’s Tax Plan when we face the next Budget in the Autumn.

If you have any questions about how the Spring Statement affects you or would like to discuss in more detail, please call us.