UK Government Spring Statement

The UK Chancellor, Rishi Sunak, announced various measures in the Spring Statement on 23 March 2022 including:

National Insurance (NI) Thresholds Increased

The annual NI Primary Threshold for employees and the Lower Profits Limit for the self-employed, will increase from £9,880 to £12,570 from July 2022.

The UK Government believe that this will result in around 70% of people who currently make NI contributions paying less even after the introduction of the new Health and Social Care Levy.  As a result of this change around 2.2 million people will no longer require to pay Class 1 and Class 4 NI or the new Health and Social Care Levy.

The measure is being introduced from July 2022 to allow time for payroll software developers and employers to update their systems and implement the changes.

 Class 2 National Insurance (NI) to be reduced for low earners

From April 2022, self-employed people with profits between the Small Profits Threshold and Lower Profits Limit will not pay class 2 NI. This change will save lower earning self-employed taxpayers up to £165 per year.

Over the 2022/2023 tax year the Lower Profits Limit (the threshold below which self-employed people do not pay NI) will be equivalent to an annualised threshold of £9,880 between April 2022 to June 2022 and £12,570 from July 2022.

The UK Government’s aim is “to ensure that lower-earning self-employed people can keep more of what they earn while continuing to build up National Insurance credits.”

Employment Allowance Increased

The Employment Allowance will increase from £4,000 to £5,000 from April 2022 – a potential saving of £1,000 in Employer’s NI per employer for qualifying businesses and charities.

Basic Rate of Income Tax

The basic rate of income tax will be reduced from 20% to 19% from April 2024.

This will apply to the basic rate of non-savings and 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.

A three-year transition period for Gift Aid relief will apply to maintain the income tax basic rate relief at 20% until April 2027.

Basic rate tax relief on pension payments will decrease to 19% from April 2024.  As the devolved nations (Scotland and Wales) have the right to set their own rates of income tax, the rate of tax you pay will depend on where you live in the UK. This could potentially impact on any tax relief you get on pension contributions.

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. The Scottish Government  will be able to use this additional funding as they choose. For example they could reduce income tax and/or other taxes or increase spending.

Temporary Cut in Fuel Duty

The UK 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 2022 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.

VAT Relief for Energy Saving Materials (ESMs)

The government will reverse a Court of Justice of the European Union ruling that restricted the application of VAT relief on the installation of ESMs. Wind and water turbines will therefore be added to the list of ESMs and the complex eligibility conditions will be removed.

The UK 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.

Research & Development (R&D) Tax Relief Reform

From April 2023 all cloud computing costs associated with R&D including storage will qualify for relief.

The UK Government previously stated that it wants to refocus support towards innovation in the UK, ensuring that the UK more effectively captures the benefits of R&D funded by the reliefs. However, the UK Government recognise that there are some cases where it is necessary for the R&D to take place overseas. From April 2023 expenditure on overseas R&D activities can still qualify where there are:

• material factors such as geography, environment, population or other conditions that are not present in the UK and are required for the research – for example, deep ocean research
• regulatory or other legal requirements that activities must take place outside of the UK – for example, clinical trials

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.

 Additional Compliance Resources for HMRC

The UK Government will invest a further £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 perform compliance checks to ensure businesses pay the correct amount of tax.

Tax Credits – Addressing Error and Fraud

The government will invest  £12 million to help claimants keep their tax credit claims accurate through regular health-check calls, compliance activity, and the use of SMS nudges. This will help prevent or correct error and fraud, and in turn support a smooth transition to Universal Credit.

 Tackling Fraud

The UK Government  will provide funding of £48.8 million 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 will enable UK Government and enforcement agencies to step up their efforts to reduce fraud and error, bring fraudsters to justice, and will apparently recover millions of pounds.

 Levelling Up Fund Second Round

The UIK 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.

English Household Support Fund  Extended

The UK Government will provide an additional £500 million for the Household Support Fund in England from April 2022, on top of the £500 million already provided since October 2021, bringing total funding to £1 billion.

As a result of this the devolved administrations will receive an additional £79 million in funding through the Barnett formula.

 Green reliefs for Business Rates in England

In the 2021 Autumn Budget the UK Government announced the introduction 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 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 they will now take effect from April 2022.

Local Authorities will be compensated for the loss of income as a result of these measures and will receive new burdens funding for any administrative and IT costs. Business rates are England only and the devolved administrations will receive Barnett consequential funding in the usual way.

 Tax Plan for the UK

The UK Government’s aim is to reform and reduce taxes.  They will do this via a Tax Plan which contains three key priorities:-

1. taking action now to help families with the cost of living including some of the measures announced in the Spring Statement

2. cutting and reforming business taxes to create a new culture of enterprise and the conditions for private sector-led growth

3. sharing the proceeds of higher growth fairly with working people, through further tax cuts such as the planned cut to the basic rate of tax from April 2024. The government also intends to make the tax system simpler, fairer and more efficient through this Plan.

The Tax Plan is a key part of the UK Government’s aim of driving economic growth across the country, “while making sure the proceeds of growth are shared fairly.”

The UK Government will set out its plans for reform of the business tax system in the 2022 Budget later on this year  to ensure it supports businesses to invest and to scale up, and drives growth through investment in capital, people and ideas. The intention is for key changes to be brought in from April 2023.

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

Photo by Towfiqu barbhuiya on Unsplash

The information in this blog provides only an overview of HMRC guidance and legislation in force at the date of publication and no action should be taken without consulting the detailed HMRC guidance and legislation or seeking professional advice.  Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this blog can be accepted by the firm