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.
Some of the important points were:
• 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.
• 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 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.
At the end of his speech, in an unusual pre-Budget unveiling of a specific tax move, the Chancellor announced that the basic rate of income tax will be cut from 20% to 19% from April 2024 for taxpayers in England, Wales and Northern Ireland. He did not make any changes to the planned corporation tax and dividend tax rate increases. We would remind you that the corporation tax rate will increase from 19% to 25% from 1 April 2023 and dividend tax rates will increase by 1.25% from 6 April 2022.
Finally, the Chancellor has confirmed that UK business investment currently lags behind the average among OECD member countries, accounting for 10% of UK GDP compared to 14% on average across the OECD. During the Summer the government will consider options for reforming business tax on capital expenditure with a view to further incentivising business investment and replacing the current super-deduction for plant and machinery that is due to end in April 2023. We will have to wait until the Autumn Budget to understand the nature of these reforms. In the interim the super-deduction of up to 130% tax relief is available to companies investing in qualifying new plant and machinery between 1 April 2021 and 31 March 2023.
Please download the detailed information on tax rates and allowances below: