Chancellor Rishi Sunak has delivered his Spring Statement to the Parliament at 12.30pm on Wednesday 23rd March 2022.
Our specialist Personal and Corporate Tax Teams have summarised the key announcements below.
KEY POINTS
INCOME TAX TO 19% FROM 2024
In the biggest surprise announcement of the day, the Chancellor announced that the basic rate of income tax will be slashed from 20% to 19% as of 2024.
While heralding the move as a “tax cut for workers, pensioners, and savers”, he emphasised the fact that this will also represent the first time in 16 years that the basic rate has been cut.
Under the new basic rate, the average taxpayer will be £175 a year better off before the end of this parliament, according to the Chancellor’s tax plan, representing a £5bn total tax cut overall.
The logic and tangible impact of cutting income tax, however, while continuing to raise the rate of NICs as planned, is already being questioned by some.
NICS THRESHOLD INCREASE
Despite confirming that the 1.25% increase to NICs will go ahead as planned in April, the Chancellor also announced that the threshold at which people have to start paying NICs will rise by £3,000 from the 2021/22 level.
The new NICs threshold will be £12,570 and will come into effect from July, bringing the NICs and income tax threshold in line.
The Chancellor referred to this as a £6bn personal tax cut for 30 million people across the UK, worth over £330 a year for an employee, pointing to it as the “largest increase in a basic rate threshold ever, and the single largest personal tax cut in a decade.”
There are also changes to the threshold levels for NICs that self-employed people will have to pay . As the changes do not take effect until 6 July in the 2022/23 tax year, an apportioned annual threshold has been calculated so that the benefit received by the self-employed is in line with employees. By 2023/24, the threshold at which employed and self-employed people start paying NICs and income tax will be aligned at £12,570.
FUEL DUTY CUT
After much speculation in recent days over whether or not the Chancellor would cut fuel duty in an attempt to combat the astronomical increase in the cost of both petrol and diesel, Sunak announced his intention to cut fuel by “not 1, not 2, but by 5p per litre”.
The fuel duty cut, which applies to both petrol and diesel fuels, will knock about £3.30 off the cost of filling a typical 55-litre family car, according to the RAC. The new duty will come into effect from 6pm on Wednesday 23 March.
But, while that may be seen as a marginal gain by motorists across the UK, the OBR commented:
“Higher global oil prices have already raised fuel prices, which contribute almost 0.9 percentage points to inflation in the second quarter of 2022, even after incorporating the impact of the cut in fuel duty announced in the Spring Statement”.
VAT ON ENERGY-EFFICIENT HOME IMPROVEMENTS
One way households can keep their energy usage, and therefore their energy bills, down is to put in place energy-saving instalments, like solar panels, heat pumps or insulation.
In 2019, the scope of the VAT reduced rate for energy saving materials (5%) was restricted to comply with EU law as the UK rules were found to go beyond what was permitted.
For the next five years, however, as the Chancellor set out in the Spring Statement, homeowners installing such materials will pay no VAT at all.
He added that the Government would overturn the EU’s decision to take water and wind turbines out of the scope for reduced VAT so that they will also benefit from no VAT.
EMPLOYMENT ALLOWANCE INCREASE
Finally, the Government is expanding support to small businesses by increasing the employment allowance from £4,000 to £5,000 per year, which will save employers an extra £1,000 in NICs.
The £1,000 increase allows employers to save more and will benefit around 495,000 businesses, including 50,000 that will be taken out of paying NICs and the health and social care levy entirely.
In April 2020, the Government increased the employment allowance from £3,000 to £4,000.
In total, the Government expects 670,000 businesses to pay no NICs and the health and social care levy because of the employment allowance.
This summary is generally based on Press Releases and Reports issued immediately after the Spring Statement on 24th March 2022. These proposals may be amended. Whilst every care has been taken in the preparation of this article, it may contain errors and/or omissions. Some announcement may be subject to state aid approval. Always seek professional advice before taking any action.
