Your guide to the Spring Statement
‘The Chancellor will not make significant tax or spending announcements at the Spring Statement, unless the economic circumstances require it.’
That was the idea when Spring Statements first appeared on the annual agenda, barely five years ago. Unsurprisingly, economic circumstances this year did indeed give rise to some significant announcements.
Fuel duty : There is a temporary 12-month cut to duty on petrol and diesel of 5p per litre, which came into effect on 23 March 2022. This is good news for business motoring, although with sharply rising costs, it may be prudent to review business motoring strategy. Unincorporated businesses, for example, might want to revisit any decision to claim flat-rate expenses rather than a percentage of total running costs in their accounts. Employer arrangements with employees may also need consideration. We are happy to advise further here.
Employment Allowance : Employment Allowance is a relief allowing eligible businesses and charities (including community amateur sports clubs) to reduce their employer Class 1 NICs. It is available, broadly, where employer Class 1 liabilities are below £100,000. It increases from 6 April 2022, to £5,000 (previously £4,000). We are always happy to advise in this area.
Zero rate of VAT for energy saving materials ( ESMs) : At present, only some ESMs attract reduced rate VAT treatment. The Spring Statement introduces a time-limited zero-rate of VAT for the installation of certain types of ESMs in residential accommodation in Great Britain until 31 March 2027. It also permanently brings wind and water turbines back into scope of the relief in Great Britain. It applies from 1 April 2022, and runs for five years, when the current 5% reduced rate of VAT will apply. We should be pleased to advise further if this is of relevance to you.
Northern Ireland is different
This particular provision in the Spring Statement does not directly affect Northern Ireland, because of the unique post-Brexit VAT rules applying there. In Northern Ireland, therefore, the list of qualifying goods and rate of VAT due on installations will remain unchanged, with adjustment to funding made to the Northern Ireland Executive.
Capital allowances regime: April 2023 sees the end of a particularly generous phase of tax relief. Both the super-deduction regime, which provides temporary enhanced first year capital allowances for companies, and the £1 million limit for the Annual Investment Allowance, will then finish. The Spring Statement suggests a variety of potential directions for future policy, so with change in the air, we would be pleased to advise on how best to future proof your plans for capital expenditure.
Research and development (R&D) : The definition of R&D for tax reliefs is expanded by clarifying that pure mathematics is a qualifying cost. Additionally, the government confirmed that all cloud computing costs associated with R&D, including storage, will qualify for relief, and gave some clarification on the position with regard to expenditure on overseas R&D activity. It is expected that these changes will take effect from April 2023. Considerable further detail is still forthcoming, however.
Personal tax matters
Income tax: The basic rate of income tax is set to fall to 19% from April 2024. It should be noted however, that with devolved powers, the position is different for Scottish taxpayers, and potentially also for Welsh taxpayers, depending on the next decisions of the Welsh Assembly.
There is a knock-on consequence for charitable gifts made under the Gift Aid scheme, reducing the amount that can be claimed back by recipient charities. The government therefore proposes a three-year transition period, during which income tax basic rate relief remains at 20% for charities. This will run until April 2027.
National Insurance: There is considerable change here. We cover the impact for employee and employer NICs on the front page. But there is also change for the self-employed, and company directors.
For the self-employed, there is an increase in what is called the Lower Profits Limit for Class 4 NICs. This will align it with the personal allowance for income tax, which is set at £12,570 pa. To put the headline figures from the Spring Statement in context, it will help to know that though NICs will change from 6 July 2022, Class 4 is calculated on an annual basis, so the full effect of the Chancellor’s announcement won’t be felt until the following tax year. For the year to 5 April 2023, the Lower Profits Limit is £11,908.
Self-employed Class 2 NICs will be reduced to nil on profits between the Small Profits Threshold and the Lower Profits Limit, though NI credits for state pension purposes will still accrue. This takes effect from 6 April 2022. Government figures suggest this is equivalent to a tax cut of up to £165 pa for around 500,000 individuals, though obviously this will only impact those with relatively low levels of self-employed income.
Company directors who have an annual pay period will have a Primary Class 1 Threshold of £11,908 for 2022/23 and £12,570 for 2023/24.
A regular review of your tax position can often prove beneficial, and we should be delighted to help you take stock of these or any other tax issues.