There was huge emphasis on the global economic impact following the “unprovoked, premeditated attack Vladimir Putin launched on Ukraine” in The Chancellor’s Spring Statement delivered on 23 March. The main areas affected are energy prices and the cost of goods resulting in a high cost of living across the UK. Below we have summarised the main points from Rishi Sunak’s announcement that will affect taxpayers, businesses and employers.
The Tax Plan
Through a new Tax Plan announced in the Spring Statement, the government will reform and reduce taxes in three ways:
- Aligning with the income tax personal allowance, the Primary Threshold and Lower Profits Limit will increase from £9,880 to £12,570, from July 2022, helping almost 30 million working people, with a typical employee benefitting from a tax cut worth over £330 through the following year.
- Helping the private sector to invest more, train more and innovate more – via the government’s intention to cut and reform business taxes.
- For the first time in 16 years, the government will reduce the basic rate of income tax to 19% from April 2024 – equivalent to over £5 billion a year. In addition, the government wants to make the tax system simpler, fairer and more efficient, and will confirm plans for reforms to reliefs and allowances before 2024.
Improving productivity to boost the economy
Following the government’s steps to meet its growth commitments known as levelling-up through the super-deduction, the capital uplift and commitment to invest £20 billion per year in R&D (research and development) by 2024-25, the Chancellor confirmed his focus on three priorities:
- Cutting and reforming taxes on business investment to encourage firms to invest in productivity-enhancing assets.
- Encouraging businesses to offer more high-quality employee training and exploring whether the current tax system – including the operation of the Apprenticeship Levy – is doing enough to incentivise businesses to invest in the right kinds of training.
- Ideas – delivering on the pledge to increase public investment in R&D and doing more through the tax system to encourage greater private sector investment in R&D.
Fuel Duty cuts
In response to fuel prices reaching their highest ever levels, Rishi Sunak announced a temporary 12-month cut to duty on petrol and diesel of 5p per litre in his Spring Statement, equivalent to a tax cut of circa £2.4 billion over the next year. When comparing to uprating fuel duty in 2022-23, cutting fuel duty to this level will deliver savings for consumers worth over £5 billion over the next 12 months, broken down as follows based on average fuel consumption:
- the average UK car driver will save around £100.
- an average van driver will save approx. £200.
- hauliers can expect to save around £1,500.
For small to medium sized businesses, the Spring Statement builds on measures previously announced including freezing the business rates multiplier in 2022-23. This tax cut will save the equivalent of £4.6 billion for all ratepayers over the next five years. Furthermore, a new temporary 50% Business Rates Relief worth £1.7 billion, will benefit eligible retail, hospitality, and leisure businesses. The overall package of changes is worth £7 billion over the next five years including savings of
- £5,200 for the average pub with a rateable value of £21,000.
- the average convenience store, with a rateable value of £28,500, will save £7,000.
Help to Grow: Management and Digital
The government is subsidising the cost of high-quality training by offering businesses 12 weeks of “world class” leadership training through the UK’s top business schools, with the government covering 90% of the cost. The cost of apprenticeship training will be 95% subsidised for SMEs that do not pay the Apprenticeship Levy. The temporary £1 million level of the Annual Investment Allowance has been extended to 31 March 2023 to support businesses to invest and grow. The government is also helping firms to adopt new digital technologies, offering eligible SMEs a 50% discount on approved software worth up to £5,000.
Energy incentives for residential and commercial properties
To help households improve energy efficiency and keep energy costs down – as well as supporting the UK’s long-term Net Zero ambitions – the government is extending the VAT relief available for the installation of energy saving materials (ESMs). The government will also increase the relief further by introducing a time-limited zero rate for the installation of ESMs. A typical family having roof top solar panels installed will save more than £1,000 in total on installation, and then £300 annually on their energy bills. The changes will take effect from April 2022.
To support the decarbonisation of non-domestic buildings, the government is introducing targeted business rates exemptions for eligible plant and machinery used in onsite renewable energy generation and storage, and a 100% relief for eligible low-carbon heat networks with their own rates bill. The Spring Statement announced that these measures will now take effect from April 2022, a year earlier than previously planned.
Finally, the government is supporting small businesses to create jobs. Following an increase to the Employment Allowance April 2020 from £3,000 to £4,000, the Spring Statement announced a further increase from April 2022, allowing eligible employers to reduce their employer National Insurance Contributions (NICs) bills by up to £5,000 per year – a tax cut worth up to £1,000 per employer. The impact of this will allow eligible businesses to employ four full-time employees on the NLW without paying employer NICs, benefitting approx. 495,000 businesses, including circa 50,000 businesses which will be taken out of paying NICs and the upcoming Health and Social Care Levy entirely.
If you need bespoke advice as a result of the Chancellor’s Spring Statement, please do not hesitate to contact a member of our team – we’re here to help.
Call 0161 905 1801 in Manchester or 01925 830 830 in Warrington, or you can email us via email@example.com
Les Leavitt, Leavitt Walmsley Associates – Chartered Certified Accountants