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Spring Statement 2022

Yesterday’s spring economic and fiscal forecast came as the UK faces rising inflation which has been accelerated due to higher than usual uncertainty, following the invasion of Ukraine, and higher than expected global energy and goods prices that have already led to an increase in the cost of living in the UK.

Slightly better than expected UK economic recovery in 2021 (7.5% GDP growth) gave the Chancellor a little leeway to provide assistance. The resulting tax plan – with its focus on 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 – was claimed as the biggest net cut to personal taxes in 25 years.

With the reduction in the basic rate of income tax due from April 2024, charities will be pleased to note the three-year transition period for Gift Aid relief to maintain the income tax basic rate relief at 20% until April 2027.

Despite some calls for a windfall tax, there was no further help with steeply rising energy costs, with the statement claiming that most households will be protected until the autumn by the OFGEM energy price cap.

Although the rising cost of living was a frequent reference, many of the measures focused on workers and homeowners, with limited assistance for those out of work, whether due to job loss, health or disability or retirement. The Resolution Foundation claims more than 1.3 million people will not be able to afford basic necessities next year.

Addressing the statement in detail, the announcements included:

Increasing National Insurance thresholds – The annual National Insurance Primary Threshold and Lower Profits Limit, for employees and the self-employed respectively, will increase from £9,880 to £12,570 from July 2022. (Paragraph 3.6) This aligns NI thresholds with the income tax personal allowance (and these thresholds will remain aligned). (Paragraph 2.11)

Reducing Class 2 NICs payments for low earners – From April, self-employed individuals with profits between the Small Profits Threshold and Lower Profits Limit will not pay class 2 NICs, meaning lower-earning self-employed people can keep more of what they earn while continuing to build up National Insurance credits. Over the year as a whole, the Lower Profits Limit, the threshold below which self-employed people do not pay National Insurance, is equivalent to an annualised threshold of £9,880 between April to June, and £12,570 from July. (Paragraph 3.7)

Increasing the Employment Allowance – The Employment Allowance will increase from April 2022, meaning eligible employers will be able to reduce their employer NIC bills by up to £5,000 per year – a tax cut worth up to £1,000 per employer. As a result, businesses will be able to employ four full-time employees on the National Living Wage without paying any employer NICs. This measure will benefit around 495,000 businesses, including around 50,000 businesses which will be taken out of paying NICs and the Health and Social Care Levy entirely.  In total, this means that from April 2022, up to 670,000 businesses will not pay NICs or the Health and Social Care Levy due to the Employment Allowance. (Paragraph 3.8)

Reduction in basic rate of income tax – the basic rate of income tax will be cut to 19% from April 2024. This is a tax cut of over £5 billion a year and represents the first cut in the basic rate of income tax in 16 years. This will apply to the basic rate of non-savings, non-dividend income for taxpayers in England, Wales and Northern Ireland; the savings basic rate which applies to savings income for taxpayers across the UK; and the default basic rate which applies to a very limited category of income taxpayers made up primarily of trustees and non-residents.

The change will be implemented in a future Finance Bill. A three-year transition period for Gift Aid relief will apply, to maintain the income tax basic rate relief at 20% until April 2027. The reduction in the basic rate for non-savings-non-dividend income will not apply for Scottish taxpayers because the power to set these rates is devolved to the Scottish Government. Under the agreed Fiscal Framework, the Scottish Government will receive additional funding, worth around £350 million in 2024-25. It is for the Scottish Government to use this additional funding as they choose, including reductions in income tax or other taxes, or increased spending. (Paragraph 3.9)

Temporary cut to fuel duty – The government will cut the duty on petrol and diesel by 5p per litre for 12 months. This will take effect from 6pm on 23 March on a UK-wide basis. Where practical, a proportionate cut will also apply to fuel duty rates which are lower than the main rates for petrol and diesel, including red diesel. (Paragraph 3.10)

Extending the Household Support Fund – To help households with the cost of essentials such as food, clothing and utilities, the government is providing an additional £500 million for the Household Support Fund from April, on top of the £500 million already provided since October 2021, bringing total funding to £1 billion. In England, the Government says that local authorities are best placed to help those in their areas who need it most.  They will receive an additional £421 million, whilst the devolved administrations will receive an additional £79 million in funding through the Barnett Formula. (Paragraph 3.11)

VAT relief for energy saving materials (ESMs) – The Government will reverse a Court of Justice of the European Union ruling that it says restricted the application of VAT relief on the installation of ESMs. This will mean wind and water turbines will be added to the list of ESMs and the complex eligibility conditions will be removed. The Government will also increase the relief further by introducing a time-limited zero rate for the installation of ESMs. The changes will take effect from April 2022. The Northern Ireland Executive will receive a Barnett share of the value of this relief until it can be introduced UK-wide. (Paragraph 3.12)

Green reliefs for Business Rates – At Autumn Budget 2021 the government announced the introduction (in England) of targeted business rate exemptions from 1 April 2023 until 31 March 2035 for eligible plant and machinery used in onsite renewable energy generation and storage, and a 100% relief for eligible low-carbon heat networks with their own rates bill, to support the decarbonisation of non-domestic buildings. The government is bringing forward the implementation of these measures and is announcing that they will now take effect from April 2022. (Paragraph 3.13)

R&D tax relief reform – Following consultation with stakeholders the Government has confirmed that from April 2023, all cloud computing costs associated with R&D, including storage, will qualify for relief. The government says it remains committed to refocus support towards innovation in the UK, ensuring that the UK more effectively captures the benefits of R&D funded by the reliefs. The Government recognises that there are some cases where it is necessary for the R&D to take place overseas. To support the growing volume of R&D underpinned by mathematical advances, the definition of R&D for tax reliefs will be expanded by clarifying that pure mathematics is a qualifying cost. (Paragraph 3.14)

Additional compliance resource for HMRC – The Government is investing £161 million over the next five years to increase compliance and debt management capacity in HMRC. This investment is forecast to bring in more than £3 billion of additional tax revenues over the next five years, by funding additional HMRC staff to provide greater support to taxpayers seeking to pay off accrued tax debts, and to tackle the most complex tax risks, ensuring large and mid-sized businesses pay the tax they owe. (Paragraph 3.15)

Tackling Fraud – The Government is providing £48.8 million of funding over three years to support the creation of a new Public Sector Fraud Authority and enhance counter-fraud work across the British Business Bank and the National Intelligence Service. The investment enables government and enforcement agencies to step up their efforts to reduce fraud and error, bring fraudsters to justice, and will recover millions of pounds. (Paragraph 3.18)

Second Round of Levelling Up Fund – The Government is launching the second round of the Levelling Up Fund and publishes a refreshed Prospectus, inviting bids to come forward from all eligible organisations across the UK. This Fund provides £4.8 billion for local infrastructure projects, with £1.7 billion already allocated to 105 successful projects from the first round. (Paragraph 3.19)

Additional funds for Changing Places Fund – The government previously made £30 million available to local authorities in England to install life-enhancing Changing Places toilets in existing buildings. The Spring Statement is allocating £25.3 million of the Fund to install over 500 life-enhancing Changing Places toilets, in public places and tourist attractions where users want them the most. This will dramatically increase accessibility for thousands of severely disabled people who need specialised facilities. An additional £6.5 million will be allocated to areas where there is little or no provision. (Paragraph 3.20)

Announcement of Tax Plan which contains three key priorities: helping families with the cost of living; cuts and reform of business taxes, to create a new culture of enterprise and the conditions for private sector-led growth; sharing the proceeds of higher growth fairly with working people, through further tax cuts. The government also intends to make the tax system simpler, fairer and more efficient through this plan. (Paragraph 4.5)

HM Treasury document can be seen at this link:

https://www.gov.uk/government/publications/spring-statement-2022-documents

Please note: This bulletin is published as a general guide to the 2022 Spring Statement and not intended to replace specific professional advice from, for example, a solicitor or accountant. You should always refer to the official websites shown above for further information. Craigmyle consultants take no responsibility for the correctness or completeness of information or interpretation given here.

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Yesterday’s spring economic and fiscal forecast came as the UK faces rising inflation which has been accelerated due to higher than usual uncertainty, following the invasion of Ukraine, and higher than expected global energy and goods prices that have already led to an increase in the cost of living in the UK.

Slightly better than expected UK economic recovery in 2021 (7.5% GDP growth) gave the Chancellor a little leeway to provide assistance. The resulting tax plan – with its focus on 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 – was claimed as the biggest net cut to personal taxes in 25 years.

With the reduction in the basic rate of income tax due from April 2024, charities will be pleased to note the three-year transition period for Gift Aid relief to maintain the income tax basic rate relief at 20% until April 2027.

Despite some calls for a windfall tax, there was no further help with steeply rising energy costs, with the statement claiming that most households will be protected until the autumn by the OFGEM energy price cap.

Although the rising cost of living was a frequent reference, many of the measures focused on workers and homeowners, with limited assistance for those out of work, whether due to job loss, health or disability or retirement. The Resolution Foundation claims more than 1.3 million people will not be able to afford basic necessities next year.

Addressing the statement in detail, the announcements included:

Increasing National Insurance thresholds – The annual National Insurance Primary Threshold and Lower Profits Limit, for employees and the self-employed respectively, will increase from £9,880 to £12,570 from July 2022. (Paragraph 3.6) This aligns NI thresholds with the income tax personal allowance (and these thresholds will remain aligned). (Paragraph 2.11)

Reducing Class 2 NICs payments for low earners – From April, self-employed individuals with profits between the Small Profits Threshold and Lower Profits Limit will not pay class 2 NICs, meaning lower-earning self-employed people can keep more of what they earn while continuing to build up National Insurance credits. Over the year as a whole, the Lower Profits Limit, the threshold below which self-employed people do not pay National Insurance, is equivalent to an annualised threshold of £9,880 between April to June, and £12,570 from July. (Paragraph 3.7)

Increasing the Employment Allowance – The Employment Allowance will increase from April 2022, meaning eligible employers will be able to reduce their employer NIC bills by up to £5,000 per year – a tax cut worth up to £1,000 per employer. As a result, businesses will be able to employ four full-time employees on the National Living Wage without paying any employer NICs. This measure will benefit around 495,000 businesses, including around 50,000 businesses which will be taken out of paying NICs and the Health and Social Care Levy entirely.  In total, this means that from April 2022, up to 670,000 businesses will not pay NICs or the Health and Social Care Levy due to the Employment Allowance. (Paragraph 3.8)

Reduction in basic rate of income tax – the basic rate of income tax will be cut to 19% from April 2024. This is a tax cut of over £5 billion a year and represents the first cut in the basic rate of income tax in 16 years. This will apply to the basic rate of non-savings, non-dividend income for taxpayers in England, Wales and Northern Ireland; the savings basic rate which applies to savings income for taxpayers across the UK; and the default basic rate which applies to a very limited category of income taxpayers made up primarily of trustees and non-residents.

The change will be implemented in a future Finance Bill. A three-year transition period for Gift Aid relief will apply, to maintain the income tax basic rate relief at 20% until April 2027. The reduction in the basic rate for non-savings-non-dividend income will not apply for Scottish taxpayers because the power to set these rates is devolved to the Scottish Government. Under the agreed Fiscal Framework, the Scottish Government will receive additional funding, worth around £350 million in 2024-25. It is for the Scottish Government to use this additional funding as they choose, including reductions in income tax or other taxes, or increased spending. (Paragraph 3.9)

Temporary cut to fuel duty – The government will cut the duty on petrol and diesel by 5p per litre for 12 months. This will take effect from 6pm on 23 March on a UK-wide basis. Where practical, a proportionate cut will also apply to fuel duty rates which are lower than the main rates for petrol and diesel, including red diesel. (Paragraph 3.10)

Extending the Household Support Fund – To help households with the cost of essentials such as food, clothing and utilities, the government is providing an additional £500 million for the Household Support Fund from April, on top of the £500 million already provided since October 2021, bringing total funding to £1 billion. In England, the Government says that local authorities are best placed to help those in their areas who need it most.  They will receive an additional £421 million, whilst the devolved administrations will receive an additional £79 million in funding through the Barnett Formula. (Paragraph 3.11)

VAT relief for energy saving materials (ESMs) – The Government will reverse a Court of Justice of the European Union ruling that it says restricted the application of VAT relief on the installation of ESMs. This will mean wind and water turbines will be added to the list of ESMs and the complex eligibility conditions will be removed. The Government will also increase the relief further by introducing a time-limited zero rate for the installation of ESMs. The changes will take effect from April 2022. The Northern Ireland Executive will receive a Barnett share of the value of this relief until it can be introduced UK-wide. (Paragraph 3.12)

Green reliefs for Business Rates – At Autumn Budget 2021 the government announced the introduction (in England) of targeted business rate exemptions from 1 April 2023 until 31 March 2035 for eligible plant and machinery used in onsite renewable energy generation and storage, and a 100% relief for eligible low-carbon heat networks with their own rates bill, to support the decarbonisation of non-domestic buildings. The government is bringing forward the implementation of these measures and is announcing that they will now take effect from April 2022. (Paragraph 3.13)

R&D tax relief reform – Following consultation with stakeholders the Government has confirmed that from April 2023, all cloud computing costs associated with R&D, including storage, will qualify for relief. The government says it remains committed to refocus support towards innovation in the UK, ensuring that the UK more effectively captures the benefits of R&D funded by the reliefs. The Government recognises that there are some cases where it is necessary for the R&D to take place overseas. To support the growing volume of R&D underpinned by mathematical advances, the definition of R&D for tax reliefs will be expanded by clarifying that pure mathematics is a qualifying cost. (Paragraph 3.14)

Additional compliance resource for HMRC – The Government is investing £161 million over the next five years to increase compliance and debt management capacity in HMRC. This investment is forecast to bring in more than £3 billion of additional tax revenues over the next five years, by funding additional HMRC staff to provide greater support to taxpayers seeking to pay off accrued tax debts, and to tackle the most complex tax risks, ensuring large and mid-sized businesses pay the tax they owe. (Paragraph 3.15)

Tackling Fraud – The Government is providing £48.8 million of funding over three years to support the creation of a new Public Sector Fraud Authority and enhance counter-fraud work across the British Business Bank and the National Intelligence Service. The investment enables government and enforcement agencies to step up their efforts to reduce fraud and error, bring fraudsters to justice, and will recover millions of pounds. (Paragraph 3.18)

Second Round of Levelling Up Fund – The Government is launching the second round of the Levelling Up Fund and publishes a refreshed Prospectus, inviting bids to come forward from all eligible organisations across the UK. This Fund provides £4.8 billion for local infrastructure projects, with £1.7 billion already allocated to 105 successful projects from the first round. (Paragraph 3.19)

Additional funds for Changing Places Fund – The government previously made £30 million available to local authorities in England to install life-enhancing Changing Places toilets in existing buildings. The Spring Statement is allocating £25.3 million of the Fund to install over 500 life-enhancing Changing Places toilets, in public places and tourist attractions where users want them the most. This will dramatically increase accessibility for thousands of severely disabled people who need specialised facilities. An additional £6.5 million will be allocated to areas where there is little or no provision. (Paragraph 3.20)

Announcement of Tax Plan which contains three key priorities: helping families with the cost of living; cuts and reform of business taxes, to create a new culture of enterprise and the conditions for private sector-led growth; sharing the proceeds of higher growth fairly with working people, through further tax cuts. The government also intends to make the tax system simpler, fairer and more efficient through this plan. (Paragraph 4.5)

HM Treasury document can be seen at this link:

https://www.gov.uk/government/publications/spring-statement-2022-documents

Please note: This bulletin is published as a general guide to the 2022 Spring Statement and not intended to replace specific professional advice from, for example, a solicitor or accountant. You should always refer to the official websites shown above for further information. Craigmyle consultants take no responsibility for the correctness or completeness of information or interpretation given here.