The Chancellor of the Exchequer, Rishi Sunak, delivered his Spring Statement on Wednesday 23 March 2022.
To find out how these announcements will impact you and your business in a simple easy to understand way, check out our updates.
National insurance contribution (NICs) increases
National insurance contributions paid by employees, employers and the self-employed are increasing by 1.25% from April 2022.
This is to provide additional funds for health and social care.
National insurance threshold increases
It’s not all bad news though…some new measures have been announced in an attempt to reduce the effect of the increase, at least partially and that’s the increase in the starting NIC threshold for individuals.
The annual level at which employees and the self-employed start to pay NICs was due to increase from £9,568 to £9,880 from 6 April 2022.
This increase will go ahead but be further uplifted to £12,570 from 6 July 2022, effectively aligning the point at which an individual starts to pay NICs with the £12,570 income tax personal allowance.
In the tax year to 5 April 2023, this is a NIC cut worth £267 for most employees and £207 for most self-employed individuals.
Importantly, this will more than negate the impact of the 1.25% NIC increase for most workers with employment earnings of less than £34,000, providing them with a small contribution to the increased cost of living.
The starting NIC threshold for the self-employed and company directors is computed on an annual basis and so will be set at a pro-rata sum of £11,908 for the whole of the tax year to 5 April 2023, before increasing to £12,570 in the tax year to 5 April 2024.
Class 2 NIC liabilities of the self-employed
For the self-employed, some individuals will find that they no longer need to pay Class 2 NICs from April 2022. The small profits threshold will be set at £6,725 as planned, but the requirement to pay Class 2 NIC will only apply to those with self-employed profits over £11,908.
This will benefit approximately 500,000 self-employed individuals by saving them £165 a year.
From 6 April 2023, Class 2 NIC will only be payable by those with profits over £12,570.
What about employers?
No changes have been made to the annual level at which employers’ NIC start to apply; namely £9,100 for most employees in the tax year to 5 April 2023.
However, the Employment Allowance, which allows eligible businesses to reduce their employer NIC cost, will increase from £4,000 to £5,000 for the tax year to 5 April 2023.
It is expected that 495,000 businesses will benefit from this increase, with most saving £150 in the tax year to 5 April 2023.
If we operate your director payroll look out for an email from us in due course that will identify the new tax optimum salary for April 2023 onwards.
Dividend tax rates are changing
From April 2021 the dividend tax rates are increasing by 1.25% in line with the increase to national insurance contributions.
Your first £2,000 of dividends remain tax free.
Dividends under the basic rate threshold of £50,270 will be taxed at 8.75%.
Dividends within the higher rate threshold of between £50,271 and £150,000 will be taxed at 33.75%.
Dividends over the additional rate threshold of £150,001 will be taxed at 39.35%.
The Chancellor has committed to reduce the basic rate of income tax from 20% to 19%, but not until 6 April 2024.
It is estimated that this will save 30 million individuals an average of £175 per year.
The main rate rises to 25% from 19% from April 2023 – so a 6% increase. Businesses with profits below £50k will still pay 19% and there will be a taper for businesses with profits between £50k and £250k.
VAT registration threshold
No changes to the VAT registration threshold. You must register for VAT if your sales go over the current registration threshold in a rolling 12-month period. This is not a fixed period like the tax year or the calendar year – it could be any period, for example the start of June to the end of May.
National Minimum/Living Wage increases
The NLW and NMW rates from 1 April 2022 are:
|Rate from April 2022||Current rate (April 2021 to March 2022)||Increase|
|National Living Wage||£9.50||£8.91||6.6%|
|21-22 Year Old Rate||£9.18||£8.36||9.8%|
|18-20 Year Old Rate||£6.83||£6.56||4.1%|
|16-17 Year Old Rate||£4.81||£4.62||4.1%|
Business Tax Relief for Capital Investment
In preparation for the 130% ‘super-deduction’ for companies coming to an end on 31 March 2023, other alternatives are being considered in an attempt to continue encouraging investment from April 2023.
In the meantime, the reliefs potentially available (to companies and non-corporates) for expenditure on plant and machinery includes:
- A £1million annual investment allowance;
- 130% and 50% super-deductions;
- 100% first-year allowances (including on electric cars); and
- 18% and 6% writing down allowances.
The date of acquisition of capital assets can make a difference to the tax relief you can claim so do speak to us before your next sizeable investment but remember we will automatically review any reliefs for capital investments as part of the work we do on your accounts.
Fuel duty has been cut by 5p per litre for 12 months from 6pm on 23 March 2022.
The Treasury report that this will save the average car driver £100 a year and the average van driver £200 a year.
GIFT AID YOUR DONATIONS TO HELP UKRAINE
For individuals and businesses wanting to donate money to help to support those suffering in Ukraine, there are a number of charities providing humanitarian relief. Ideally, this should be done via the Disasters Emergency Committee (DEC) Appeal at www.dec.org.uk/.
Individual UK taxpayers should make sure to tick the Gift Aid box as that will increase their donation by 25%. It should also be remembered that, like pension contributions, higher and additional rate taxpayers are able to obtain even more tax relief. For example, a £40 donation only costs £30 after higher rate tax relief.
Household Support Fund
The Household Support Fund will be doubled to £1billion from April 2022. The Fund will help households with the cost of essentials such as food, clothing and utilities.
Green technology, including solar panels and heat pumps, will be exempt from business rates in England from April 2022, a year earlier than originally planned.
VAT on Energy Saving Materials (ESMs) installed in residential accommodation will be reduced from 5% to 0% from this April in Great Britain. The 0% rate will apply until 31 March 2027.
A 100% relief for eligible low-carbon heat networks which have their own rates bill will also be available.
VAT Rates in the Leisure and Hospitality Sector
No extension has been granted to the leisure and hospitality sector for use of the reduced 12.5% VAT rate on eligible supplies including food, non-alcoholic beverages and hotel and holiday accommodation. The VAT rate applied to these supplies will revert to 20% from 1 April 2022 as planned.
Research and Development (R&D)
The R&D tax relief schemes for companies will be enhanced from April 2023 but we have to wait until this summer for more details.
We do know the reform is set to boost sectors where the UK is a world-leader, including artificial intelligence, robotics, manufacturing, and design.
Capital Gains Tax
No changes to rates, no major changes to allowances/exemptions. Annual exemption frozen.
No changes to rates, no major changes to allowances/exemptions. Nil Rate Bands frozen.