Spring Statement: Tax & business updates15 Mar 2020
On 23rd March, the Chancellor, Rishi Sunak, delivered the UK's Spring Statement for 2022. Given the outrageous fuel prices and the rising cost of living, the UK has been eagerly awaiting this statement in the hopes of hearing some positive news regarding tax reforms and relief. But, what do the latest announcements mean for small businesses and self-employed workers?
Here is a summary of the latest spring statement concerning tax and business updates.
Supporting the government's pandemic recovery strategy
The new tax year begins on 6th April, and each year, new tax changes precede it. This year is particularly significant, as the changes that begin in the coming months are directly related to covering the costs of responding to the pandemic.
These changes include:
The National Insurance rate being increased by 1.25% to pay for health and social care
Dividend tax to also increase by 1.25%
A freeze on personal allowance tax threshold - the amount of tax-free income you can earn will stay at £12,570 until 2026
With the Bank of England now raising interest rates to combat rising inflation and the soaring cost of living, the Chancellor was also under pressure to announce some much-needed relief.
Here is a breakdown of the key announcements made in favour of small businesses and self-employed workers.
National Insurance thresholds to increase
While the 1.25% increase to the current National Insurance rates will still go ahead, the Chancellor is also introducing a tax-cut that will benefit both employed and self-employed workers. In July 2022, National Insurance thresholds will increase by £3,000, bringing them in line with the personal allowance income tax threshold.
This increase will assist all workers by allowing them to earn more before they are obligated to start making National Insurance contributions (NIC). In July 2022, both the primary threshold for Class 1 NICs and the lower profits limit on Class 4 NICs will rise from £9,880 to £12,570.
From July, eligible businesses will be able to reduce their National Insurance contributions bill, with the Employment Allowance for National Insurance rising by £1,000 to £5,000.
According to the Spring Statement, this will benefit approximately 495,000 businesses, including 3% of all businesses (around 50,000) that will no longer be obligated to pay any NIC and Health and Social Care Levy.
These changes will also benefit lower-income earners in the self-employed category. If self-employed profits fall between the small profits threshold of £6,725 and the lower profits limit, there will be no requirement to pay Class 2 NICs, yet the National Insurance credits will still accumulate.
Much-needed fuel duty cuts
The cost of fuel is currently a contentious issue, and if you do a lot of driving for work, it has undoubtedly impacted your bottom line of late.
As of 6 pm on 23rd March 2022, the announced fuel duty cut of 5p per litre came into effect, and will stay in place until March 2023.
This announcement represents the largest fuel duty rate cut ever issued. Fuel duty is incorporated into the price of petrol and has remained at 57.95p per litre since 2011. According to the Statement, this cut should result in approximate savings of £200 for the average van driver and £1,500 for the average haulier.
Of course, these savings will only come to fruition as long as retailers reduce their prices and don't see the cut as an opportunity to keep their profits higher. Many hoped that the VAT on fuel would be reduced to ensure that the savings go directly to the consumer regardless, but instead, the fuel duty cut has left it in the retailer's hands. Hopefully, most will do the decent thing and pass the savings on.
Green technology exemption rates brought forward
As of April 2022, green technology, such as solar panels and heat pumps, will be exempt from business rates. Over the next five years, this move is forecast to be worth approximately £170m in support of building decarbonisation, saving businesses an additional £35m in the 2022-23 tax year.
The VAT on energy savings materials (ESM) is also being reduced from 5% to zero, in a bid to further incentivise property owners to purchase ESMs from businesses as part of a broader set of government measures targeting the improvement of energy efficiency.
No new announcements on business rates
Despite a call for business rate reforms to assist in the safeguarding of jobs and businesses moving forwards, no new announcements were made.
However, a review of the current system was published in October 2021, and the government has said that it intends to outline its plans for a business rate reform in the Autumn Budget 2022.
In the meantime, the previously announced discount scheme for business rates in the retail, leisure, and hospitality sectors begins in April. This scheme will provide a 50% rate relief, with the current 66% discount ending on 31st March. The business rates multiplier will also remain frozen for 2022-23.
Driving innovation through R&D tax credits
The Chancellor announced his ongoing commitment to improving R&D tax credits, with draft legislation set to be published this summer. The UK is a world leader in the robotics, AI, manufacturing, and design sectors, and the upcoming legislation aims to boost these sectors.
Plans in the pipeline to encourage business investment
The government will consider a series of potential policy changes to the UK's current capital allowance regime ahead of April 2023. These proposed changes will aim to drive productivity growth forwards after the super-deduction ends by encouraging business investment. The government will be engaging with interested parties and business organisations between now and Autumn.
New tax reforms on the horizon
The Chancellor also announced that he wants to reduce and reform the current taxation model during this Parliament, but we will have to wait and see precisely what this will entail. However, he did specify that, by the end of this Parliament in 2024, he intends to reduce the basic rate of income tax by one percent, taking it from 20% down to 19%.
The Chancellor explained that such tax cuts must be paid for, and that it would not be responsible to make that move during economic uncertainty.
Staying up to date with all the new and upcoming changes can be complicated and time-consuming. Our team of small business accountants and solicitors are highly-experienced in helping small businesses navigate business, finances and taxes.
Get in touch with us today for further advice on 0207 043 4000 or firstname.lastname@example.org. You can also get an instant accounting quote here.