Insights

Against a backdrop of soaring inflation, expected to peak at 8.7% in Q4 2022, and surging interest on government borrowing, at £8.2bn in February 2022 up from £5.4bn a year earlier, the Chancellor delivered his annual Spring Statement speech yesterday where he set out the Government’s tax plan to support the UK economy, businesses and families in both the short and the medium term.

We set out below a summary of the main announcements but in the meantime please speak to your usual Statura contact should you wish to discuss the content of this document in more detail or indeed the way in which the Autumn Budget and Spending Review might affect your personal circumstances.

Rates and allowances

The government have pledged to reduce the basic rate of income tax from 20% to 19% from April 2024. This is a tax cut of over £5 billion a year, and represents the first cut in the basic rate of income tax in 16 years.

National Insurance Contributions rates and thresholds

With effect from 6 July 2022 the National Insurance Primary Threshold for Class 1 NICs (employees) and the Lower Profits Limit for Class 4 NICs (self-employed), i.e. the income threshold at which point people start paying National Insurance, will be increased to align them with the equivalent income tax personal allowance which is set at £12,570 per annum (previously £9,880).

With effect from April 2022, self-employed individuals with profits between the Small Profits Threshold (SPT) and the Lower Profit Limit will not pay Class 2 NICs, while allowing individuals to be able to continue to build National Insurance credits

The government had already legislated for a 1.25% increase in the relevant NIC rates for one year except for those over the State Pension Age. Similarly, from 6 April 2023 a 1.25% Health and Social Care Levy (HSCL) will be levied, to fund investment in the NHS and social care. It will apply to all income to which Class 1, Class 1A and Class 1B, Class 4 NIC is charged as well as to employment income of those over the State Pension Age.

Employment Allowance

The Employment Allowance will increase by £1,000 from April 2022, meaning eligible employers will be able to reduce their employer NICs bills by up to £5,000 per year.

Capital allowances

Capital allowances allow businesses to write-off their costs of qualifying capital investments against their taxable profits over time. In March 2021, the government had announced a temporary enhanced first year capital allowances (the “super-deduction”) that will end in April 2023.

Once the super-deduction has ended, the UK’s capital allowances regime will include:

• An Increase the permanent level of the Annual Investment Allowance from £200,000 to potentially £500,000. The Annual Investment Allowance, which allows businesses to deduct in-year the full value (100%) of qualifying plant and machinery investment (excluding cars), had been temporarily increased to £1m and was due to revert back to the default permanent amount of £200,000 from April 2023.
• An increase in the Standard Writing Down Allowances for main rate assets (e.g., plant and machinery, fixtures and fittings) and special rate assets (e.g., integral features of buildings) from their current levels of 18% and 6% to 20% and 8% (the 2018 levels).
• The introduction of a First Year Allowance for main and special rate assets where firms can deduct, for example, 40% and 13% in the first year, with the remaining expenditure written down at standard Writing Down Allowances.
• The introduction of an Additional First Year Allowance, to bring the overall amount that can be claimed to greater than 100% of the initial cost. This would result in an additional capital allowance of 20% in the first year, on top of standard Writing Down Allowances on the initial cost across the first and subsequent years.

Research & Development

The Chancellor has confirmed that from April 2023, all cloud computing costs associated with R&D, including storage, will qualify for relief.

The government had also recognised that there are cases where it is necessary for the R&D to take place overseas and will, therefore, legislate so that expenditure on overseas R&D activities can still qualify where there are:

• material factors such as geography, environment, population or other conditions that are not present in the UK and are required for the research – for example, deep ocean research regulatory or other legal requirements that activities must take place outside of the UK – for example, clinical trials

To support the growing volume of R&D underpinned by mathematical advances, the definition of R&D for tax reliefs will be expanded by clarifying that pure mathematics is a qualifying cost.

VAT rate reduction for the installation of energy saving materials (ESM)

With effect from 1 April 2022 until 31 March 2027, a temporary zero rate will be introduced to cover the installation of ESMs in Great Britain – a reduction from the current 20% and 5% rate on some ESMs.

Fuel duty

The chancellor has announced an immediate reduction in duty on diesel and petrol from 23 March 2022, by 5 pence per litre, for 12 months.