The Chancellor delivered his Spring Statement on 23 March 2022. Mr Sunak attempted to strike the difficult balance between delivering measures which will ameliorate the current cost of living crisis at a time when economic uncertainty and increased security spending as a result of the war in Ukraine is adversely affecting the public purse. The key tax announcements in the Spring Statement are set out below.
NICs threshold increase
- The primary threshold for Class 1 NICs and Lower Profits Limit for Class 4 NICs will be increased to £12,570 with effect from 6 July 2022.
- Whilst the Conservative government has long had the ambition to align the national insurance contribution thresholds with the income tax personal allowance, this is a much bigger increase to the primary threshold than the expected April 2022 increase (a £9,880 threshold has already been legislated). Note that this is not a full alignment of rules; there does not seem to be any proposal to withdraw the benefit of the NICs allowance for those earning over £100,000, as is the case with the income tax personal allowance.
- The increased threshold will eliminate the effect of the 1.25% NICs increase for lower earners and mitigate the effect of this increase for middle earners. However, the increase in thresholds does not take effect until July 2022, whilst the increased NICs rates applies from April 2022, meaning that there will be 3 months of additional squeeze for those worst hit by the cost of living crisis.
- The basic rate of income tax will be cut from 20% to 19% from April 2024, but only if prudent headroom can be maintained against the fiscal rules (falling debt and no borrowing for day to day spending).
- No changes to the income tax personal allowance or higher / additional rate bands were announced; the income tax personal allowance and bands remain at their 2021-2022 amounts and are currently expected to be frozen until at least the 2025-26 tax year. With inflation in 2022 predicted to reach 7.4%, it could be expected that there will be taxpayers pushed into the 40% income tax band.
- Further reform of reliefs and allowances was announced in the Tax Plan published alongside the Spring Statement; there are no details at this stage as to the shape of this reform.
Temporary fuel duty cut
- A 5p per litre cut will be made to duty on petrol and diesel for 12 months from 6pm on 23 March 2022. Proportionate cuts to duty on other fuels will also be made for the same period.
Business friendly measures
- Employment Allowance: the Employment Allowance will be increased from £4,000 to £5,000 with effect from 6 April 2022. This measure will only benefit smaller businesses as only those businesses with NICs liabilities below £100,000 in the previous tax year qualify for Employment Allowance.
- Capital allowances reform: with the super-deduction due to end in April 2023, the government is considering options for capital allowances reform – for example, increases to the rate of writing down allowances or the introduction of a new first year allowance. Further details are expected to be published at the time of the Autumn Budget 2022.
- R&D relief reform: the government commenced its review of R&D reliefs in Spring 2021. In the Spring Statement 2022 it announced that relief for overseas R&D expenditure will be restricted unless there are material factors (e.g. geography) or regulatory reasons for carrying out the R&D activities overseas. It was also announced that all cloud computing costs associated with R&D and all mathematics underpinning R&D will qualify for R&D relief. These changes are expected to take effect from April 2023. Further announcements relating to R&D tax reliefs will be made in Autumn 2022.