Spring Statement 2022: At a glance
Chancellor Rishi Sunak had signaled in the run-up to the Spring Statement that it would be a relatively uneventful affair, consisting primarily of presenting the latest forecasts from the Office for Budget Responsibility (OBR).
However, amidst the invasion of Ukraine, the lingering impact of Covid and a sharp spike in inflation, the Chancellor, in the event, announced a number of significant measures.
The OBR’s economic forecasts:
- Inflation is expected to rise to 7.4 per cent this year before reducing again to be under control by 2024.
- Growth will be lower than previously expected but will still be 3.8 per cent over the next three years.
- Unemployment is still expected to remain well below five per cent for the foreseeable future.
- Temporary 5p a litre cut in fuel duty from 6pm on 23 March 2022 for one year.
- Increase in the employee National Insurance threshold to align with the threshold for Income Tax at £12,570 per annum, saving most employees around £300 a year from July 2022.
- Employers’ National Insurance thresholds will not increase and will remain at the previously announced level of £9,100 a year for 2022-23. However, some small and medium businesses will benefit from an increase in the Employment Allowance for the 2022/23 tax year of £1,000 to £5,000.
- There will be no Class 2 National Insurance Contributions on profits between £6,725 and £9,880 from April 2022 for self-employed individuals, but they will still accrue National Insurance credits.
- The 1.25 per cent Health and Social Care Levy will be introduced as planned from April 2022 through increases in National Insurance for employees and employers, as well as an increase in Dividend Tax.
- Pledge to reduce the basic rate of Income Tax from 20 per cent to 19 per cent in April 2024.
Research and Development tax relief
- From April 2023, all cloud accounting costs associated with Research and Development, including storage, will qualify for reliefs.
- Expenditure will also qualify where there are material factors such as geography, environment, population or other conditions that are not present in the UK and required for the research.
- The definition of Research and Development for tax reliefs will also be extended to include pure mathematics as a qualifying cost.
- The planned rise in VAT for hospitality back to 20 per cent will take place on 1 April, the Chancellor confirmed.
- However, the 50 per cent business rates relief for some smaller hospitality businesses has been extended.
The Spring Statement was a classic example of the Chancellor managing expectations downwards and then exceeding them.
In this case, what had been billed as a rather vanilla financial statement containing little by way of substantive change transpired to include not only increases in the National Insurance thresholds for employees and the self-employed and cuts to fuel duty, but also plans to cut the basic rate of income tax in two years’ time.
While this will be good news for the finances of many individuals, notwithstanding the forecast that inflation will reach a peak of 8.7 per cent in the autumn, employers and business owners might be hoping there will be more for them at the Autumn Budget 2022.
Later in the week, we will send you a more detailed summary of the Spring Statement.
If you have any immediate queries about the implications of the announcements contained in the Spring Statement, please contact you usual WMT tax advisor.