Spring Statement 2022: What It Means For You

On 23 March 2022, Chancellor Rishi Sunak delivered the Spring Statement. Set against the backdrop of higher inflation, the Chancellor has sought to address the immediate concerns of individuals. For some businesses, they will have to wait until the Autumn Statement for announcements on changes in Capital Allowances and R&D.

Short-Term Measures for Lower Income Earners

With inflation expected to hit 7.4% on average for the year, combined with the possibility of interest rate hikes, short-term measures were put in place to target lower income earners.

Some of the measures that are intended to help with the cost-of-living crisis include:

  • Temporary 5 pence/litre cut in fuel tax for 12 months
  • Increased threshold at which NIC becomes payable to £12,750 to align it with income tax (from July 2022)
  • Household Support Fund doubled to £1 billion

Tax Incentives for Businesses

A new Tax Plan was announced to drive growth in the UK. With the Corporation Tax rate increasing to 25% from 1 April 2023, both the existing R&D and Capital Allowance regimes are being targeted to ensure they remain attractive.

R&D

The measures announced include increasing the rates of the existing R&D schemes and expanding the scope to include costs of pure mathematics research and data storage as qualifying expenditure.

Draft legislation covering changes to R&D schemes is expected over the summer and will be effective from April 2023.

Capital Allowances

The Super Deduction will end in 2023 and these new measures are being considered to further encourage future investment in capital expenditure:

  • The Annual Investment Allowance (AIA) has been proposed to be permanently set at £500k (previously £200k) per year from April 2023.
  • The Writing Down Allowances on main and special rate assets have been suggested to be increased to 20% and 8%, from 18% and 6%.
  • First Year Allowances have been suggested on expenditure in excess of the AIA to allow a deduction for 40% and 13% on qualifying expenditure on main and special rate assets.
  • First year allowances for enhanced capital allowances of 20% in the year of expenditure followed by further capital allowances for 100% of the cost of an asset over the first and subsequent years are also being considered.

Business groups will be consulted about the new measures to be announced in the Autumn Budget.

Indirect Taxes

The Chancellor used indirect taxes to ease the pressures being placed on household budgets.

  • Fuel duty cut of 5p per litre effective 23 March. This new cut will last for 12 months.
  • VAT on energy-saving materials has been cut from 5% to 0% for five years. This will take effect from April 2022

Personal Taxation

The planned 1.25 percentage point increase in national insurance for both employers and employees will go ahead in April to raise funds for the NHS. These new changes have been announced to mitigate the expected increase in cost for low and middle-income workers.

  • Increase in the NIC threshold by £3,000 to £12,570. This is intended to take effect from July 2022. There will also be a reduction in Class 2 NIC payments to support around 500,000 self-employed individuals.
  • Employment allowance will be increased further from April 2022. Eligible employers will be able to reduce their employer NIC bills by up to £5,000 per year, representing a £1,000-increase in allowance from last year.

If you have any questions regarding the changes in tax, get in touch with us today!

Want to grow your business? Our Free Resources will Help