In the midst of a very cloudy economic and political environment, with the Russian invasion of Ukraine and the sanctions imposed by the UK, the Chancellor Rishi Sunak presented his first Spring Statement on Wednesday March 23.
He highlighted that such factors will have an adverse impact on the ever-rising inflation rates, especially with the increases in energy and motor fuel we have all witnessed in recent months.
With that in mind, the Chancellor made a number of significant announcements which were centered around improving the ‘cost of living’ for households and businesses that have been facing the recent unexpected rising prices.
The key tax announcements were as follows:
A cut in fuel duty on petrol and diesel by 5p per litre for the next year.
The threshold at which employees start paying National Insurance contributions (NICs) will rise from £9,880 to £12,570 from July 6 to align with the starting threshold for income tax. The starting threshold for employers’ NIC will be unaffected.
Similarly, the lower profits limit, which is the point where the profits of the self-employed become subject to Class 4 NICs, will increase to £11,908 for the 2022/23 tax year and to £12,570 from April 6, 2023. In addition, there will be no Class 2 NICs (normally £3.15 per week) on profits up to £11,908 for 2022/23 (previously the limit was £6,725).
No change to the planned 1.25 percentage points increase on NIC and dividend tax rates from April 2022 to fund the new Health & Social Care Levy.
Similarly, employers will see an increase in the Employment Allowance, which gives relief to smaller businesses’ NI payments, from £4,000 to £5,000 from April 2022.
A reduction in the basic rate of income tax from 20% to 19% from April 2024.
The rate of VAT for the installation of energy efficient materials such as solar panels, heat pumps or insulation, has been cut from 5% to zero.
A review of the capital allowances regime with rule changes expected in 2023.
Changes to R&D tax relief with more announcements expected in the autumn.
The introduction of a Residential Property Developer Tax on the largest property developers.
With tax cuts and raising the National Insurance Contributions (NIC) thresholds, it is estimated that the measures that were announced in March will offset roughly around a third of the rise in living costs. The aim of this is to lift the burden of the rapid increase of prices on households and businesses.
One way in which the Chancellor noted this will happen was by the increase of the NIC threshold – the level at which employees will start to pay NIC – by a whopping £3,000. This significant increase is in line with the annual Personal Allowance which simplifies tax calculations in addition to reducing costs on approximately 70% of workers, who will pay less NIC when this change is taken into place.
Dalia Qarawi, Tax Supervisor at Hawsons said: “Whilst this is positive news, this has to be balanced against the 1.25% increase to National Insurance contributions which commenced on 6 April, 2022.”
Employers will also benefit from recent proposed announcements including the Chancellor announcing that the employment allowance will increase by an additional £1,000. This, in return, will reduce the NIC liability for employers from April 2022.
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