In my recent blog, I predicted that little may change when Rishi stood at the Despatch Box to deliver his 2022 Spring Statement. Whilst the outcomes were light touch compared to previous years, Rishi did have a few surprises up his sleeve.
The main part of Rishi’s speech revolved around his newly introduced ‘Tax Plan’, which is the Government’s masterplan “to reform and reduce taxes”. This plan sets out how they expect to reform and reduce taxes in three ways, being:
- Help families with the cost of living
- Boost productivity and growth by creating conditions for private sector investment, training and innovation
- Share the proceeds of growth fairly
So, what does this all mean? Well, below are my six takeaways from Rishi’s Tax Plan and statement with a focus on the corporate arena.
For a general update on all the measures, please take a look at our Spring Statement 2022 overview.
1. National Insurance Threshold Increase
In what was probably the biggest announcement of the day, from July 2022, the rate at which National Insurance starts to be paid by an employee will be increased by £3,000 to £12,570. This increase puts the National Insurance threshold in line with the Personal Allowance, meaning no one earning under £12,570 should pay a single penny in National Insurance or Income Tax.
This move will mean a typical employee will save over £330 a year, in a tax cut the Government says is worth over £6 billion.
Class 4 NIC’s, which are paid by those who are self-employed will also enjoy the same uplift.
It should be noted that the threshold increase does not take effect until July. Oddly, this is not aligned with the 5th April tax year, but this seems to be in place to give software houses chance to update their systems.
As predicted in yesterday’s blog, there was no movement on the Social & Healthcare levy which comes into force next month, but the rise in the threshold should go some way to help alleviate the 1.25% increase.
2. Reduction in Fuel Duty
As leaked prior to the speech, as of 6pm tonight, Fuel Duty rates will be cut by 5p per litre for a period of 12 months.
According to government figures, this represents a £5 billion saving worth around:
- £100 for the average car driver
- £200 for the average van driver
- £1,500 for the average haulier
3. Employment Allowance Increase
From April 2022, the Employment Allowance, which is a deduction against an Employer’s National Insurance bill, will rise from the current £4,000, by £1,000 to £5,000.
This allows an employer to employ four full-time employees on the National Living Wage without paying any employer NICs.
4. Research & Development Tax Credits Reform
As also predicted in my previous blog, reform seems to be around the corner for Research & Development Tax Credits.
On a positive note, it seems the Government has accepted views from the industry that overseas R&D is sometimes required and will legislate to make some overseas expenditure still claimable where environmental or regulatory requirements mean overseas R&D is unavoidable.
All cloud computing costs such as data storage associated with R&D will also qualify from April 2023, as well as R&D underpinned by ‘mathematical advances’.
However, the Government is now considering increasing the generosity of the large company Research & Development Expenditure Credit (RDEC) scheme as they see the return on investment as being much healthier under this scheme. There was no mention made if this will be to the detriment of the Small & Medium Enterprise (SME) scheme, so only time will tell.
5. Corporation Tax Rates
There was no movement at this stage in relation to the increase in Corporation Tax rates to 25% from next April. However, Rishi did note that there is a commitment to reduce taxes for businesses in the Autumn Statement, so an early Christmas present could be announced later this year.
A particular area of focus looks to be the Capital Allowances regime, as the Government is considering ways to make the UK as competitive as other countries around the world post April 2023 when the 130% Super Deduction comes to an end and the Annual Investment Allowances drops down to £200k, so watch out for changes in this area.
6. Income Tax – Basic Rate Reduction
And finally, Rishi has now committed to reducing the basic rate of Income Tax from the current 20% to 19% by the end of this Parliament (i.e. 2024).
This should put the average taxpayer in a better position by £175 a year, although there are clearly a few years to wait until this benefit takes effect.
