The Chancellor has used the Spring Statement to provide further support for businesses and individuals, as we all face the challenge of increasing inflation from rising fuel prices and the impact of the war in Ukraine.
As the Bank of England predicts inflation hitting 8% this year, resulting in a squeeze on income for all, Rishi Sunak has focused on providing a sustainable tax plan but has made the following announcements, in addition to the measures previously announced.
- Fuel duty will be cut by 5p per litre from 6pm today and will remain in place until March 2023;
- NI thresholds for employees and the self-employed will increase to £12,570 from July 2022, reducing employees’ NIC cost by about £30 per month;
- The Employment Allowance will increase to £5,000 from April 2022;
- VAT reduced to 0% on energy-saving materials for five years from April 2022;
- Basic Rate Income Tax is to be cut from 20% to 19% from April 2024;
- Household Support Fund has a further £500m to support vulnerable households with the costs of essentials, and the fund is operated by Local Authorities;
- The Government is also consulting on how R&D allowances and Capital Allowances can increase investment in research and machinery and equipment from April 2023.
The measures previously announced that come into effect from April this year are:
- Energy support package of reduced Council Tax bills of £150 in Bands A to D and a £200 discount on fuel bills repayable over four years;
- Increase in National Insurance of 1.25%;
- Income tax on dividends increased by 1.25%;
- 50% discount of business rates for those in the retail, leisure and hospitality sectors;
- Increase in the National Living Wage to £9.50 per hour;
- Extension of Income Tax and NIC exemption for employer-provided and employer reimbursed COVID-19 tests.
The Spring Statement has not solved the challenges faced by individuals and businesses, but there is support for households as the National Insurance increases are effectively cancelled for many employees from July. However, this does not deal with the immediate inflation impacts affecting families. Taking into account the previous announcements, the net effects compared to the current position are:
- Employees’ net monthly pay will be reduced where they earn more than approximately £12,875 per annum from April, but will only be reduced from July 2022 if they earn more than £41,390 per annum;
- Overall, an employee earning less than £34,000 will pay less National Insurance in 2023 than in 2022;
- Employers who qualify for the Employment Allowance are likely to face increased National Insurance costs where their payroll exceeds approximately £140,000 per annum, depending on the number of employees;
- Taxation on dividend income will increase by 1.25%.
There is no surprise that an Income Tax cut is coming before the next general election, and a 1% cut in basic rate tax will help everyone.
If you would like to understand how this affects you, please speak to your local partner on 0330 088 7111.