Given this was a Spring Statement and not a full Budget there were more announcements than expected which was clearly driven by recent developments across the globe and the rate of inflation at home.
There were stark warnings that we should be prepared for things to get worse and that the cost of borrowing is still going to rise, but that said there were some clear announcements and targeted tweaks to some taxes that will provide a small amount of help to many.
The Chancellor published his three-step ‘Tax Plan’ for the remainder of the current Parliament:
- Step 1 covers the increase to National Insurance thresholds and immediate VAT and fuel duty cuts
- Step 2 covers proposals from April 2023 to reform R&D incentives and boost investment through Capital Allowances reforms
- Step 3 covers the proposed drop in basic rate Income Tax from 20% to 19% from April 2024, subject to fiscal rules being met at that time
Step 1
National Insurance
There was a huge call on the Chancellor to scrap the planned 1.25% National Insurance rise ahead of the Spring Statement, which he did not do. However, he has looked to sort a long standing anomaly in the thresholds at which National Insurance starts to be paid, by aligning it with Income Tax.
Currently, personal Income Tax allowance is £12,570, therefore the threshold for National Insurance Contributions (NICs) will increase to £2,690. Most people earning this amount or less will not have tax or NIC’s deducted from their pay at all. This is due to be implemented from 6 July 2022 to allow time to implement the change.
Overall, from July 6 2022, despite an increase in the NIC rate by 1.25%,, the new threshold means that unless you earn more than £38,500 in salary, the NICs you pay will be lower – for example, a full-time employee on living wage will see a reduction of almost £250 per annum.
The Chancellor also provided similar support for the self-employed, with no Class 2 or Class 4 NICs due until profits reach the same threshold of £12,570. Accordingly, self-employed individuals could also see their NIC bill reduce by up to £429.
One point to note is that Class 2 National Insurance remains relevant to contributions for qualifying years for State Pension, and while whilst not compulsory to pay it, they may wish to consider checking their entitlement to certain state benefits and potentially paying it voluntarily.
Employment Allowance
The increase in the Employment Allowance from £4,000 to £5,000 from April 2022 enables eligible businesses to reduce their employer National Insurance (NIC) bills by an additional £1,000 in a tax year. This may take up to 3% of businesses out of the requirement to pay employer NICs altogether.
Whilst the increase in the allowance looks good on the surface, it is only available to those with employers NIC liabilities of less than £100,000 (and so will not benefit larger employers). With the increase in the rate of employer contributions from 13.8% to 15.05%, and no mention of an increase to the Employer NIC thresholds announced, small and mid-size companies may find themselves without the allowance at all.
5p per litre reduction to Fuel Duty
One of the big early announcements was the temporary 12-month cut to duty on petrol and diesel of 5p per litre.
The average price of a litre of petrol has risen more than 40p a litre since last year’s Spring Statement. This means the government is getting an extra 7p per litre in VAT alone so giving a 5p reduction looks to be an affordable mechanism hence the announcement.
This measure will affect individuals and businesses alike and HM Treasury suggest it will apparently save the average UK car driver around £100, van driver around £200 and haulier around £1,500.
Some will argue that this will not encourage the switch to green technology in line with climate change pledges, but as a short term measure it will undoubtedly have its desired effect.
Reduction to VAT on the Installation of Energy Saving Materials
Leaving the European Union has given the UK more freedom in relation to VAT rates. With effect from 1 April 2022 (and staying in place until 31 March 2027) households installing energy saving materials such as thermal insulation, solar panels and wind and water turbines pay 0% VAT, helping to improve energy efficiency and keep heating bills down.
HM Treasury predict a typical family having rooftop solar panels installed will save more than £1,000 in total on installation and then save on ongoing bills.
The big question will come with the availability of materials and suppliers to carry out the work, with a larger demand and increasing material costs this may push prices up and counteract the measure, however it will surely encourage some to commit to installing such systems.
If you have any questions for our Tax experts as a result of these announcements, please contact us on 01242 776000 or tax@randall-payne.co.uk.
