Our thoughts on
The Spring Statement
In his Spring Statement, the Chancellor announced a cut in fuel duty for petrol and diesel as he sought to ease the impact of rising prices for households and businesses.
The Chancellor will lift the starting thresholds for National Insurance contributions (NICs). He also pledged a cut to income tax in 2024. However, the Health and Social Care Levy will still be implemented in April 2022.
For businesses, there is an increase to the Employment Allowance, as well as relief from business rates on a range of green technologies and help with training and the adoption of digital technology. We're grateful to our partners at Wheawill and Sudworth for their input into this.
The highlights
Increase in the National Insurance threshold and Lower Profit Limit
Chancellor Rishi Sunak announced an increase in the annual National Insurance Primary Threshold and the Lower Profits Limit in his 2022 Spring Statement. Primary Class 1 contributions are paid by employees. To align the starting thresholds for income tax and National Insurance contributions (NICs) the threshold will increase from 6 July 2022 from £9,880 to £12,570.
The Lower Profits Limit is the point where the profits of the self employed become subject to Class 4 NICs. From 6 April 2022 the Lower Profits Limit is increased to £11,908 and from 6 April 2023 the limit is increased further to £12,570. In addition, there will be no Class 2 NICs on profits between £6,725 and £11,908. £3.15 per week is payable where profits are over £11,908.
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Temporary increase in National Insurance rates
From April 2022, there will be a temporary increase in the rates of NICs payable for employees, employers and the self-employed as a transitional provision in readiness for the introduction of the Health and Social Care Levy from April 2023. With the increase to the thresholds announced in the Spring Statement, from 6 July 2022 employees earning between £242 (£190 from 6 April to 5 July 2022) and £967 per week will pay NICs at 13.25%.
Earnings over £967 will attract a 3.25% charge. Employers will pay 15.05% on their employees’ earnings over £175 per week. Although employees’ NICs only become payable once earnings exceed £242 per week, any earnings between £123 and £242 per week protect an entitlement to basic state retirement benefits without incurring a liability to NICs.
For the self-employed, where their profits exceed £11,908 per annum, they will pay 10.25% on the profits up to £50,270 and 3.25% on profits over that upper profits limit.
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Income tax reduction
The Chancellor announced the reduction in the basic rate of income tax for non-savings, non-dividend income for taxpayers in England, Wales and Northern Ireland to 19% from April 2024. This reduction will not apply for Scottish taxpayers because the power to set these rates is devolved to the Scottish Government. The change will be implemented in a future Finance Bill.
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Fuel duty
In a measure announced in the Spring Statement to help all motorists – individuals, small businesses and hauliers – fuel duty for petrol and diesel is cut by 5 pence per litre across the whole of the UK. This measure took effect from 6pm on 23 March 2022 and is in place for 12 months.
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Increased employment allowance
Employers are able to claim the Employment Allowance which reduces their employer Class 1 NICs each year. In the Spring Statement, the Chancellor announced an increase from April 2022 of £1,000 for eligible employers to reduce their employer NICs by up to £5,000 per year. The allowance can be claimed against only one PAYE scheme, even if the business runs multiple schemes. Connected businesses, such as companies under the control of the same person or persons, are only entitled to one Employment Allowance between them.
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VAT on energy saving materials
The Chancellor announced a UK wide, time-limited zero rate of VAT from April 2022 for the installation of energy saving materials. This will apply to installations such as rooftop solar panels. This is in addition to the extension of the VAT relief to include additional technologies and the removal of complex eligibility conditions.
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Green reliefs for business rates
The government is introducing targeted business rates exemptions 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. It was announced in the Spring Statement, that these measures will now take effect from April 2022, a year earlier than previously planned.
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Personal tax
The UK personal allowance, tax rates and bands for the tax year 2022/23 were announced by the Chancellor in the October 2021 Budget. Here's a reminder.
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The personal allowance
The personal allowance is currently £12,570 and will be frozen for the tax years to 2025/26. There is a reduction in the personal allowance for those with ‘adjusted net income’ over £100,000. The reduction is £1 for every £2 of income above £100,000. So there is no personal allowance where adjusted net income exceeds £125,140.
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The marriage allowance
The marriage allowance permits certain couples, where neither party pays tax in the tax year at a rate other than the basic rate, to transfer £1,260 of their personal allowance to their spouse or civil partner.
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Comment
The marriage allowance reduces the recipient’s tax bill by up to approximately £250 a year. To benefit from the marriage allowance one spouse or civil partner must normally have no income or income below the personal allowance for the year. The marriage allowance was first introduced for 2015/16 and there are couples who are entitled to claim but have not yet done so. It is possible to claim for the four years back to 2018/19 where the entitlement conditions are met. The total tax saving for all years up until 2022/23 could be over £1,000. A claim for 2018/19 will need to be made by 5 April 2023.
Tax bands and rates
The basic rate of tax is 20%. In 2022/23 the band of income taxable at this rate is £37,700 so that the threshold at which the 40% band applies is £50,270 for those who are entitled to the full personal allowance. The bands of tax are also frozen for the tax years to 2025/26. Individuals pay tax at 45% on their income over £150,000.
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Tax on savings income
Savings income is income such as bank and building society interest. The Savings Allowance applies to savings income and the available allowance in a tax year depends on the individual’s marginal rate of income tax. Broadly, individuals taxed at up to the basic rate of tax have an allowance of £1,000. For higher rate taxpayers the allowance is £500. No allowance is due to additional rate taxpayers. Some individuals qualify for a 0% starting rate of tax on savings income up to £5,000. However, the rate is not available if taxable non-savings income exceeds £5,000.
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Tax on dividends
The first £2,000 of dividends are chargeable to tax at 0% (the Dividend Allowance). For 2022/23 and subsequent tax years the rate at which dividends received above the Dividend Allowance are taxed has increased across all rates by 1.25% to the following rates:
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8.75% for basic rate taxpayers
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33.75% for higher rate taxpayers
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39.35% for additional rate taxpayers.
Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the Dividend Allowance. To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.
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Business tax
Making tax digital for businesses: VAT
April 2022 sees the final phase of the introduction of the Making Tax Digital (MTD) for VAT regime. All VAT registered businesses, regardless of turnover, will enter MTD for VAT from their first VAT return period starting on or after 1 April 2022. Businesses must keep digital records for VAT purposes and provide their VAT return information to HMRC using MTD functional compatible software.
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Comment
Keeping digital records will not mean businesses are mandated to use digital invoices and receipts but the actual recording of supplies made and received must be digital. It is likely that third party commercial software will be required. Software is not available from HMRC. The use of spreadsheets will be allowed, but they will have to be combined with add-on software to meet HMRC’s requirements. HMRC is looking at a scenario where income tax updates are made quarterly and digitally under the MTD for Income Tax Self Assessment (ITSA) from April 2024.
Corporation tax rates
The main rate of CT is 19% for the Financial Year (FY) beginning 1 April 2022. This rate will increase to 25% for the FY beginning on 1 April 2023. If a company’s accounting period straddles more than one FY, the amount of profits for that accounting period must be apportioned to arrive at the tax rate charged.
A small profits rate will be introduced for qualifying companies with no associated companies in the accounting period and profits of £50,000 or less so that they will continue to pay CT at 19%. Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief providing a gradual increase in the effective CT rate.
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Employment taxes
Employer provided cars
The scale of charges for working out the taxable benefit for an employee who has use of an employer provided car are normally announced well in advance. Most cars are taxed by reference to bands of CO2 emissions multiplied by the original list price of the vehicle. The list price is reduced for capital contributions made by the employee up to £5,000.
For fully diesel cars generally add a 4% supplement unless the car is registered on or after 1 September 2017 and meets the Euro 6d emissions standard. The maximum charge irrespective of the fuel, is capped at 37% of the list price of the car. The rates announced for 2022/23 will remain frozen until 2024/25.
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Employer provided fuel benefit
From 6 April 2022 the figure used as the basis for calculating the benefit for employees who receive free private fuel from their employers for company cars is increased to £25,300.
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Employer provided vans and fuel
For 2022/23 the benefit increases to £3,600 per van and the van fuel benefit charge where fuel is provided for private use increases to £688. Changes to the van benefit charge from April 2021 means that if the van cannot in any circumstances emit CO2 by being driven the cash equivalent is nil.
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National Insurance contributions
In September 2021 the government published its proposals for new investment in health and social care in England. The proposals will lead to a permanent increase in spending not only in England but also by the devolved governments. To fund the investment the government will introduce a UK-wide 1.25% Health and Social Care Levy based on the NIC system but ring fenced for health and social care.
From April 2022 the Health and Social Care Levy Act provides for a temporary 1.25% increase to both the main and additional rates of Class 1, Class 1A, Class 1B and Class 4 NICs for 2022/23. From April 2023 onwards, the NIC rates will revert back to 2021/22 levels and will be replaced by a new 1.25% Health and Social Care Levy.
Broadly, the new Health and Social Care Levy will be subject to the same reliefs, thresholds and requirements as NIC. However the Levy (as opposed to the temporary increase in NICs for 2022/23) will also apply to those above State Pension age who are still in employment or are self-employed.
Existing reliefs for NICs to support employers will apply to the Levy. Companies employing apprentices under the age of 25, all people under the age of 21, veterans and employers in Freeports will not pay the Levy for these employees as long as their yearly gross earnings are less than £50,270, or £25,000 for new Freeport employees.
The Employment Allowance, which reduces employers’ Class 1 NICs by up to £5,000, will also be available for the employers’ liability to the Levy.
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Capital taxes
Capital Gains Tax (CGT) rates
The current rates of CGT are 10%, to the extent that any income tax basic rate band is available, and 20% thereafter. Higher rates of 18% and 28% apply for certain gains; mainly chargeable gains on residential properties with the exception of any element that qualifies for private residence relief.
There are two specific types of disposal which potentially qualify for a 10% rate:
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Business Asset Disposal Relief (BADR) which was formerly known as Entrepreneurs’ Relief. This is targeted at working directors and employees of companies who own at least 5% of the ordinary share capital in the company and the owners of unincorporated businesses. BADR has a lifetime limit of £1 million for each individual.
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Investors’ Relief. The main beneficiaries of this relief are external investors in unquoted trading companies who have newly subscribed shares. This has a lifetime limit of £10 million for each individual.
And The CGT annual exemption is £12,300 for 2022/23 and will remain frozen until April 2026.
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Inheritance Tax (IHT) nil rate bands
The nil rate band has remained at £325,000 since April 2009 and is set to remain frozen at this amount until April 2026. The residence nil rate band (RNRB) was introduced in 2017, meaning that the family home can be passed more easily to direct descendants on death.
The rate of the RNRB is £175,000 for 2022/23. There are a number of conditions that must be met in order to obtain the RNRB. For many married couples and registered civil partnerships the relief which is available following the second death can effectively be doubled as each individual has a main nil rate band and a residence nil rate band which passes on the death of the surviving spouse.
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PLEASE NOTE
This guide is for information only and should not be seen as advice or a recommendation to act. Please note that investments can go down as well as up and you may not get back the original amount invested