Spring Statement 2022
Earlier this week, Chancellor Rishi Sunak revealed his Spring Statement 2022 in the House of Commons. There were some interesting inclusions aimed at dealing with rising inflation and energy prices. According to the Office of Budgetary Responsibility, growth for this year is projected at 3.8%, which is considerably less than the previous prediction of 6%. Annual inflation is expected to increase to an average of 7.4% for the year, peaking at 8.7% in the last quarter of 2022.
Some of the announcements will impact a great many people's lives, so it's important to have an understanding of the new measures. Let's take a look at the key issues from the statement that relate to people's lives and accounts.
Rise in the national insurance thresholds
As a method of providing some relief from the cost of living crisis, Sunak announced a plan to increase the threshold for national insurance by a substantial £2,690.
From 6 July 2022, the national insurance threshold will rise from £9,880 to £12,570, meaning NIC and income tax thresholds are equal for the first time ever. This may indicate a future move to merge income tax and NICs into a single threshold.
This threshold increase will provide the average worker with a tax cut of approximately £330, balancing out the incoming social care levy that comes into effect from 6 April. Self-employed individuals whose profits rank between the Small Profits Threshold and Lower Profits limit will also benefit. These people will continue amassing National Insurance credits without paying any Class 2 NICs.
Increasing employment allowance by 20%
In order to provide additional support to businesses, Sunak announced the employment allowance will rise by 20% in the new tax year. This means it will increase from £4,000 to £5,000 as of 6 April 2022.
Eligible employers are any that have secondary Class 1 NICs to pay, and from 2024-25 health and social care levy liabilities less than £100,000 in the previous tax year. This will enable businesses to employ up to four full-time employees on the national living wage without having to pay employer NICs. It is believed this will benefit around 495,000 businesses, around 50,000 of which will be completely taken out of having to pay NICs and the social care levy.
Thus, as of April 2022, there will be 670,000 total businesses that do not have to pay NICs or the health and social care levy.
Income tax cut from 20% to 19%
The Chancellor also announced that in 2024, the basic rate of income tax will be reduced to 19%. This tax cut will affect around 30 million people as this basic rate of tax applies to employment income and income not from savings or dividends in England, Wales and Northern Ireland.
With regards to Gift Aid relief, there will be a three-year transition to maintain the income tax basic rate relief at 20% until2027. This will be around £300 million in total, affecting almost 70,000 charities.
This 1p cut to income tax is projected to reduce tax by around £5.3 billion in 2024-25, rising to £6 billion in 2025-26 and around £5.9 billion in 2026-27. This is the first cut to the basic rate since 2008-09. However, there is a stipulation that the change will be implemented provided that the fiscal principles listed above are met in future. Thus, plans for reform to allowances and reliefs cannot be confirmed before they are implemented.
Removing VAT from solar panels
To help address the energy crisis, the Chancellor plans to remove VAT from the equation for anyone investing in solar panels and heat pumps. There was no mention of offering grants at this stage. This zero rate of VAT will be in place for the next 5 years, and there will also be a zero rate for all investments in wind and water turbines.
The current rate of VAT for household energy-saving materials is 5%. The planned VAT relief scheme will start on 1 April and remain in place until March 2027. It will mean that a typical family purchasing rooftop solar panels for their home will save in excess of £1,000 in total on the installation. This will be followed by a saving of roughly £300 per year on their energy bills.
Wind and water turbines were previously not included in the scope of the VAT relief, but from April 2022 they will be.
Moving forward with green reliefs for business rates
The government had plans to come into effect in April 2023. They were for targeted business rates exemptions for eligible plant and machinery used for onsite renewable energy generation and storage. They would also offer 100% relief for eligible low-carbon heat networks with their own rates bill.
In the Spring Statement, Rishi Sunak announced that these measures would be brought forward by a year to take effect from April 2022.
Fuel duty cut
To combat the record-high fuel prices seen in recent weeks, the Chancellor temporarily cut fuel duty for petrol and diesel by 5 pence per litre throughout the UK. This came into effect from 6 pm on 23 March and is set to remain in place for a period of 12 months.
In a time of rising inflation and high prices for things like fuel and energy, the cost of living in the UK is threatening to plunge many households into financial difficulty. The emphasis on the Spring Statement 2022 was on the need for government intervention to mitigate and alleviate the strain on households and businesses all around the UK.
For this reason, the announcements revolve around measures aimed at protecting those at the lower end of the economic scale. For individuals and businesses who need greater clarity on what impact these announcements will have on them, Tax Care Accountancy are available to advise and offer guidance.
This is particularly important for businesses and self-employed individuals who may be affected by the announcements, and if you are uncertain about anything then please don't hesitate to contact us.