The Spring Statement was not meant to be a March mini-Budget, despite what many headlines in the days before suggested. Mr Sunak believes in the once-a-year approach to major tax and spending changes, unlike some of his predecessors. However, in 2022, as in 2020 and 2021, events conspired to put paid to that single Budget aspiration. Instead, on the day the inflation rate was announced as having reached 6.2%, the Chancellor announced a range of tax cuts aimed at countering the cost of living crisis.
- There will be a temporary 12-month cut to duty on petrol and diesel of 5p per litre from 23 March 2022.
- VAT relief for the installation of energy saving materials (ESMs) will be extended and there will be a time-limited zero rate for the installation of ESMs.
- The primary threshold for Class 1 national insurance contributions (NICs) will increase from £9,880 a year to £12,570 a year from 6 July 2022, bringing it in line with the frozen personal allowance.
- For company directors, who are subject to special rules, the equivalent annual amount from July will be £11,908. From 2023/24, all employees will share the same £12,570 annual threshold. The maximum potential Class 1 employee NICs saving in 2022/23 is £269.
- For the self-employed, the lower profits limit will increase from £9,880 to £11,908 in 2022/23, rising to £12,570 in 2023/24. Class 2 NICs will not be payable if profits are below these limits. The maximum potential Class 4 NICs saving in 2022/23 is £208.
- The employment allowance will be increased to £5,000 from April 2022.
- As part of the reform of research and development tax reliefs, from April 2023, all cloud computing costs associated with R&D, including storage, will qualify for relief. Furthermore, some expenditure on overseas R&D activities will still be able to qualify, for example, clinical trials that cannot be conducted in UK.
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National insurance contributions
The primary threshold for Class 1 national insurance contributions (NICs) will increase from £190 a week (£9,880 a year) to £242 a week (£12,570 a year) from 6 July 2022, bringing it in line with the frozen personal allowance.
For company directors, who are subject to special rules, the equivalent annual amount from July will be £11,908. From 2023/24, all employees will share the same £12,570 annual threshold. The maximum potential Class 1 employee NICs saving in 2022/23 is £269.
For the self-employed, the lower profits limit will increase from £9,880 to £11,908 in 2022/23, rising to £12,570 in 2023/24. Class 2 NICs will not be payable if profits are below these limits. The maximum potential Class 4 NICs saving in 2022/23 is £208.
There is no change to the Class 1 secondary threshold (employer), but the employment allowance will be raised from £4,000 to £5,000 for 2022/23 onwards.
The rate of fuel duty on petrol and diesel is reduced by 5p a litre for 12 months from 6pm on 23 March.
Basic rate tax
The basic rate of income tax will be reduced to 19% from 2024/25. The cut will apply to non-savings, non-dividend income for taxpayers in England, Wales and Northern Ireland and also to the savings basic rate, which applies to savings income for taxpayers across the UK.
Scotland sets its own basic rate of tax on non-savings, non-dividend income and will receive corresponding funds under the Barnett formula.
VAT on energy saving
Eligibility for VAT relief on energy saving materials will be expanded and the VAT rate reduced to zero for five years from 1 April 2022. These changes do not apply to Northern Ireland.
Research & development tax credits
From April 2023, all data, cloud computing and pure maths costs associated with research and development (R&D) will qualify for R&D relief.
Green relief for business rates
The Autumn 2021 Budget introduced targeted business rates exemptions from 1 April 2023 until 31 March 2035 for eligible plant and machinery used in onsite renewable energy generation and storage, and a 100% relief for eligible low-carbon heat networks with their own rates bill. The implementation of these measures will now take effect from April 2022.
The Chancellor announced a ‘Tax Plan’ alongside the Spring Statement, setting a basis for consultation ahead of measures in the Autumn 2022 Budget. The plan echoes themes in Mr Sunak’s recent Mais lecture at the Bayes Business School and focuses on three areas:
- Capital The Chancellor wants to reform the tax incentives for investment from April 2023, when the 130% super-deduction will end and the main corporation tax rate is due to rise to 25%.
- People In his speech Mr Sunak said that he wanted to ‘consider whether the current tax system, including the operation of the apprenticeship levy, is doing enough to incentivise businesses to invest in the right kinds of training’.
- Ideas R&D expenditure in the UK is half the OECD average, but the UK spends more than many other countries on R&D tax relief. The Chancellor plans to reform R&D tax credits, potentially making some R&D expenditure credits more generous.