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March 24th 2022

Spring Statement 2022: key points

Cost of living

With inflation at 6.2% and forecast to go much higher in the coming months, and soaring energy bills, the Government has been under pressure to alleviate cost pressures on business and households. Reaction to the Spring Statement 2022 has been "mixed". Here are the key points...

From 6pm on 23 March 2022, duty on petrol and diesel is cut by 5p/ litre for a period of 12 months. The Government claims that over the next year this will save the average car driver £100, van driver £200 or haulier £1,500.

The VAT rate paid by homeowners who instal energy-saving devices - including wind and water turbines - is to be reduced from 5% to 0% for the next five years.

The household support fund budget is to double to £1bn from April 2022.

Further details are available in the Government's Cost of living factsheet and Fuel duty factsheet.

Personal tax

Despite pressure from both sides of the House, the 1.25% "Health and Social Care Levy" will go ahead from April 2022, as will the increases to dividend income tax rates and the "section 455 charge" which were first announced in the Autumn 2021 Budget.

However, from July 2022 the NIC primary threshold and lower profits limits will increase by £2,690 to £12,570, in line with the income tax personal allowance for 2022-23. This will benefit employees and the self-employed; the Chancellor suggests that the threshold increases will mean that approximately 70% of workers will pay less NIC overall.

Because the change in thresholds only takes effect in July 2022, rather than from April 2022, the effective annual threshold for NIC in 2022/23 will end up being £11,908 rather than £12,570.

The NIC changes apply across the UK, including in Scotland, but Scottish taxpayers with income under £27,850 will for the time being pay less than their counterparts elsewhere in the UK, because different income tax rates and thresholds apply in Scotland.

Mr Sunak also announced that the basic rate of income tax in England, Wales and Northern Ireland will fall from 20% to 19% from April 2024, but we have yet to see how the Scottish Government will respond. Currently the Scottish rates of income tax on non-dividend income are 19%, 20%, and 21% on income below the higher rate threshold.

The income tax personal allowance for 2022/23 is frozen at the 2021/22 level, £12,570, as are the income tax bands for non-Scottish taxpayers. The capital gains tax anual exempt amount is also frozen at £12,300 for 2022/23.

The Government has published a Personal tax factsheet with further details of the above and other measures.

Business tax

The employment allowance, which reduces employer NIC costs for eligible businesses, increases from £4,000 to £5,000 for 2022/23. The Government estimates that around 495,000 businesses will benefit from the increase, with 50,000 businesses being taken out of paying NICs altogether.

Reform of the R&D tax credits system has been on the cards for a while. In the Spring Statement Mr Sunak indicated that a broader range of costs would be eligible for relief, including costs incurred on data storage and "pure maths". Restrictions announced in November 2021 which limited allowable costs on sub-contracted R&D and costs on external workers to work carried out in the UK/ by workers on a UK payroll will also be relaxed in some circumstances. Legislation is expected this summer.

The Government also reaffirmed its commitment to review the capital allowance regime ahead of the end of the "super deduction" regime on 31 March 2023, with a view to encouraging business investment and productivity growth. Consultations with the business community about policy in this area will carry on through to the autumn.

The Government's Business support factsheet contains further details.

Fiscal drag

It is interesting to reflect on the wide range of tax thresholds that remain "frozen" at historic levels. The phenomenon of "fiscal drag" can result in increasing numbers of taxpayers paying more tax, even when tax rates do not increase - especially in inflationary times when incomes and asset values are increasing rapidly. Here are a few examples:

Income tax - personal allowance of £12,570 frozen for 2022/23; non-dividend bands frozen for 2022/23 (E&W)

VAT - registration threshold of £85,000 frozen until at least April 2024;

IHT - nil rate band of £325,000 frozen until at least April 2026; residence nil rate band frozen at £175,000 until at least April 2026;

Pensions - lifetime limit of £1,073,100 frozen until at least April 2026;

Business asset disposal relief - lifetime limit frozen at £1m.

The Government may come under pressure to revisit its stance on some of these points if inflation remains at current levels for any length of time, as the impact of fiscal drag in these circumstances will be more visible.

Contact us to discuss any of the points in this article.

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