The Chancellor, Rishi Sunak’s, Spring Statement provided much anticipation especially against the rising cost of living and the shock of the Ukraine War.

In the House of Commons, The Chancellor shared that the invasion of Ukraine by Russia was causing a lot of uncertainty on the global economy as well as huge disruption to the food supply-chain, and the energy market.

Prior to Mr. Sunak’s Spring Statement announcement, that morning the Office for National Statistics (ONS) revealed that the Consumer Price Index rate of inflation increased to 6.2%, putting even further pressure on the Chancellor to act. It is expected that the average rate of inflation this year is set to rise to 7.4%, according to The Office for Budget Responsibility (OBR).

So, what have we learnt from the Spring Statement?

 

  1. National Insurance contributions (NICs)

The most highly anticipated announcement of the day was regarding the rise in NICs. Though Mr. Sunak did not remove the 1.25% increase in NICs (which is due to come into effect this April to help fund the NHS and Social Care sectors), he did reveal a significant increase in the NIC threshold from £9,880 to £12,570.

This increase sees the alignment of the Primary Threshold (PT) for Class 1 NICs and Lower Profits Limit (LPL) for Class 4 NICs with the personal allowance of £12,570 from 6th July of this year. Furthermore, it was confirmed that the thresholds will remain aligned going forward.

What does this mean?

It means that 70% of employees will pay less NICs now, even with the introduction of the Health and Social Care Levy.

Until 6th July though, the PT and LPL will still be £9,880 as previously announced. Normally, it is very unusual for tax rates to change during a tax year, but there was an enormous amount of pressure on the Chancellor to make changes.

Why the 3-month delay?

Well, it allows payroll software developers and employers to update their systems to implement the changes. This therefore means that the LPL will be £11,908 for the 2022-23 tax year, when you combine the 13 weeks of the £9,880 and 39 weeks of the £12,570 thresholds.

 

  1. Reducing Class 2 NICs payments for low earners

There are more changes to NICs as we see the Class 2 NICs liabilities for self-employed people change. The NICs liabilities will reduce to nil on profits between the Small Profits Threshold (SPT) and LPL. This makes sure that no one earning between the SPT, and LPL will pay any Class 2 NICs, all the while allowing for individuals to contribute and build up NIC credits.

What does this mean?

A tax cut for half a million self-employed people, worth up to £165 per year.

 

  1. Employment Allowance

The Chancellor also announced that the Employment Allowance would increase from £1,000 to £5,000 from April 2022. This means a tax boost for close to 500,000 small businesses who can claim an additional increase in the reduction in their NIC liabilities, and for some, even reduce their bills to zero.

What does this mean?

Collectively, this means that from April 2022 there will be 670,000 businesses not paying NICs and the Health and Social Care Levy. The Employment Allowance now is only available to employers with employer NIC liabilities under £100k in the previous tax year. Those with multiple PAYE schemes or connected employers will have their contributions collected to assess for the eligibility for the allowance.

 

  1. Fuel duty cut

Close behind the NIC announcement, one thing on many people’s mind would be changes to the cost of fuel. The Chancellor announced that there would be a temporary UK-wide 5p per litre cut in fuel duty on diesel and petrol. This came into effect almost immediately, and as of 6pm on 23rd March the fuel duty cut will be here for 12 months.

What does this mean?

The saving will see around £100 for the average car driver, £200 for the average van diver, and £1500 for the average haulier a year. Collectively, the fuel duty cut sees savings for households and businesses worth £2.4 billion for 2022-23, and this is only the second time we’ve seen a fuel duty cut in 20 years!

 

  1. VAT

To help with energy saving, the Chancellor announced that the government will expand the scope of VAT relief available for energy saving materials (EMS) by reducing VAT from 5% to 0% from April 2022 to March 2027. The idea behind this being that households can get energy saving materials like solar panels, insulation, or heat pumps and not have to pay VAT on the costs.

To speed things up, the government also said that they will include further technologies and get rid of the complicated eligibility conditions, therefore reversing a Court of Justice of the European Union ruling that previously restricted the application for the relief.

What does that mean?

Your average family having roof solar panels installed could save more than £1,000 in total for the cost of installation, and furthermore get a saving of £300 annually on their energy bills.

 

  1. Household Support Fund

Back in October 2021, the government launched its household support fund, this is a £500 million support package for vulnerable households. The money is distributed by councils, for them to provide discretionary support to the most vulnerable.

In his Spring Statement, the Chancellor announced that a further £500 million will be made available for the Household Support Fund from April 2022.

 

  1. R&D tax relief reform

R&D, or Research and Development, will qualify for relief from April 2023. The change will see all cloud computing, including storage, be eligible for the relief. This shift will enhance sectors where the UK is a world-leader, including AI, robotics, manufacturing, and design. Further changes to the relief are due to be announced later this year as part of the Budget.

 

  1. Income Tax basic rate

Finally, Mr. Sunak announced that though no immediate changes to the Income Tax basic rate is due, he did confirm that the government will reduce the basic rate of Income Tax to 19% from April 2024.

What does this mean?

This is the first time in 16 years we’ve seen a reduction in the basic rate of Income Tax, and it will apply to the basic rate of non-savings, non-dividend income for taxpayers in England, Wales, and Northern Ireland and to the savings basic rate that applies to savings income for taxpayers across the UK.

As always, there’s a lot to digest with Budget’s and financial statements like this, so if you need any assistance de-coding how these changes will affect your business, please contact our Sheffield based Chartered Accountants on 0114 213 4731 or hello@velocityas.co.uk