What do you need to know about yesterday’s Spring Statement?
At a glance
- The National Insurance levy planned from next month will go ahead, but the threshold where this will kick in has increased to £12,750.
- Rishi spoke of longer-term plans to reduce the basic rate of income tax by 1%, to 19% from 2024.
- As widely anticipated in the media, a 5p cut in fuel duty for 12 months is being introduced to help motorists struggling with ever increasing prices. According to the Treasury, this is worth around £100 for the average car driver.
- Given the uncertainty created by Russia’s invasion of Ukraine, the forecast for UK GDP growth has been reduced from 6% to 3.8%.
- It’s forecast that inflation in 2022 will average 7.4%, this was on the same day it was revealed that the current rate of inflation has hit a 30 year high at 6.2%.
- VAT relief is available for the installation of energy-saving materials, to encourage homeowners to install energy-saving solutions such as heat pumps and solar panels.
As expected, any changes Rishi announced are focused on helping lower income families and supporting them through the current cost of living hikes. He said the future reduction in income tax will benefit 30 million people, including workers, pensioners and savers.
Sunak unveiled a new three-point tax plan for the remainder of this parliament. We’ve included some further information on these measures and how they could affect you and your family or business.
A three-step tax plan
Calling it “a principled approach to cutting taxes”, the chancellor outlined how he intends to reduce the tax burden responsibly and sustainably.
- Help families with the cost of living
As the NHS rebounds from the Covid-19 pandemic, and with the challenges facing the social care sector, Sunak argued that it was only right that the rise in National Insurance contributions (NICs) – which will become the new Health and Social Care Levy in 2023 – stays.
However, to reduce the tax burden on working people, the chancellor raised the National Insurance Primary Threshold and Lower Profits Limit, for employees and the self-employed respectively, from £9,880 to £12,570. This equalises the NICs and Income Tax threshold from July 2022.
This means that individuals will be able to earn up to £12,570 a year without paying any Income Tax or NICs.
Around 70% of NICs payers will pay less contributions, even after accounting for the introduction of the Health and Social Care Levy.
Sunak also announced that, from April, self-employed individuals with profits between the Small Profits Threshold and Lower Profits Limit will not pay Class 2 NICs. So, lower-earning self-employed people will be able to keep more of what they earn, while continuing to build up NI credits.
- Create the conditions to encourage higher growth
The government considers that a new culture of enterprise is essential to drive growth through higher productivity.
So, Sunak announced a range of measures aimed at businesses including:
- The temporary £1 million level of the Annual Investment Allowance will be extended until 31 March 2023.
- The business rates multiplier will be frozen in 2022/23.
- A new temporary 50% relief in Business Rates for eligible retail, hospitality, and leisure businesses.
- Eligible employers will be able to reduce their employer NICs bills by up to £5,000 a year following an increase to the Employment Allowance.
Sunak also announced he would be consulting on a range of measures to reform business taxes and reliefs ahead of the autumn Budget.
- Proceeds of growth shared fairly
While arguing that it would be “irresponsible” to cut taxes in the current environment, Sunak reaffirmed his commitment to reducing the tax burden in the coming years.
He said that, by 2024, the OBR expects inflation to be back under control, debt to be falling sustainably, and for the economy to be growing.
Presuming the government has met its own fiscal principles, the chancellor committed to reducing the basic rate of Income Tax from 20% to 19% from April 2024.
This is a tax cut of more than £5 billion a year and represents the first cut in the basic rate of Income Tax in 16 years.
Interestingly, with more than 1,000 tax reliefs and allowances available, the government have also committed to considering tax reform “to better support a fair, efficient, simple, and sustainable tax system”.
Watch this space!
Get in touch
If you have any questions about how the spring statement will affect you and your finances, please contact us at email@example.com, or call 01202 025481.
This article is for information only. All contents are based on our understanding of HMRC legislation, which is subject to change.