On 23 March, a few weeks ahead of the start of the new tax year, Chancellor Rishi Sunak delivered his Spring Statement 2022 speech.
What was intended to be a low-key economic update developed into slightly more than that, in response to cost-of-living pressures felt by businesses and households across the country.
Some of the key announcements of the speech included:
- The basic rate of income tax will be cut from 20% to 19% in April 2024.
- The thresholds at which employed and self-employed people start paying National Insurance will be raised to £12,570 from July 2022.
- The employment allowance has increased for 2022/23, from £4,000 to £5,000.
- Fuel duty has been cut temporarily by 5p per litre for 12 months from 23 March 2022.
- VAT is now temporarily zero-rated on energy saving materials such as solar panels, heat pumps and insulation.
Beyond those headlines, we’ve dug into some of the details to see how the Spring Statement affects our clients: SMEs, medical professionals and charities.
What was in the spring statement for SMEs?
While some of the measures announced in the statement were welcomed by small business groups, the general consensus on the day seemed to be that more could have been done to support businesses as costs surge.
The increase to the employment allowance was arguably the most beneficial measure for SME owners, helping to lessen the burden of NICs as the increase to these kicks in.
The employment allowance allows businesses with NICs liabilities of less than £100,000 in the previous tax year to reduce the amount of NICs they pay. Raising the amount to £5,000 should benefit around 495,000 businesses according to the Treasury, 50,000 of which will be taken out of paying NICs altogether.
The cut to fuel duty will also reduce some costs for businesses that regularly use vehicles, with the Treasury anticipating it should save £100 for the average car driver, £200 for the average van driver, and £1,500 for the average haulier.
The British Chambers of Commerce called this “a drop in the ocean”, however, compared to rising costs due to inflation.
Shevaun Haviland, director general of the BCC, said the statement was “a missed opportunity to rebuild and renew the economy and ensure business has the resilience to weather the uncertain and volatile times ahead”.
What was in the spring statement for medical professionals?
Professionals in the medical and care sector will have largely been glad to hear the plans for the health and social care levy are going ahead.
Government estimates suggest the 1.25 percentage point increase to NICs, which will apply from April this year then convert to a new tax next year, is set to raise some £39 billion for the health and social care sector over the next few years.
No increases or decreases to health spending were announced, however, and there was little else in the way of sector-specific support.
The announcement of updates to R&D tax relief that broaden its scope to include pure mathematics, and make data and cloud computing costs a qualifying expense, might benefit clinical academics involved in innovative research projects.
What was in the spring statement for charities?
The announcement of a reduction to the income tax basic rate may have raised some alarm bells among charities, due to its knock-on effect for gift aid.
The Government confirmed a 3-year transition period will apply, however, maintaining the relief at its current level of 20% until April 2027.
Richard Bray, chair of Charity Tax Group, said the transitional relief will “safeguard over £250m of charity income”.
Besides this, there were again few substantial announcements to support charities and their beneficiaries through challenging economic times.
Caron Bradshaw, CEO of Charity Finance Group, said the support announced was welcome but the Chancellor “failed to seize the opportunity to go further and avoid deepening inequality”.
“At the very time the Government is rightly working to level up, those on the lowest incomes face a significant cut to their living standards … Many are likely to be plunged into poverty in 2022.
“As ever, charities and social change organisations will support their communities, but they too face the daunting prospect of another 12 months of juggling increasing demands on services with an increase in operating costs.”
Get in touch for advice on how the Spring Statement affects you.