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Spring 2022

Spring Statement 2022

Not traditionally associated with major tax changes, the 2022 Spring Statement sets out some key tax changes ahead.

There were many challenges for the Chancellor to address in the Spring Statement which primarily focussed on supporting families, businesses and recovery and growth for SMEs.

With the increase to household costs discretionary spending could be limited which will of course have a knock on effect on SMEs and the hospitality sector.

Income tax and NI

There was talk that the Chancellor would increase the threshold for NI contributions, and he delivered. The government had already pledged to increase the NI threshold to the level of the tax personal allowance of £12,570 by the end of the current parliament. This has been fast tracked and will now take place in 2022/23 for both Primary Class 1 and Class 4 NI.

The increased rates (additional 1.25%) for the year, and the Health and Social Care Levy will, however, go ahead as previously planned.

However, this change will not take effect until July 2022. The Factsheet accompanying the announcement makes clear that the first 13 weeks of the year will still use the existing weekly and monthly thresholds, with the increase coming in to play in July. The changes will not be applied retrospectively. This means directors using an annual pay period will have a Primary Class 1 allowance of £11,908. This amount will also apply for 2022/23 for the self-employed Class 4 threshold. The threshold for paying Class 2 NI has been aligned with the Lower Profits Limit, i.e. £11,908 for 2022/23. Where profits fall below this, but above the Small Profits Threshold (£6,725), no contributions will be paid, but a notional credit will be given toward the State Pension entitlement.

Employers will also benefit, as the Employment Allowance that offsets Secondary Class 1 NI will increase from £4,000 to £5,000. This will come into effect from April 2022.

The surprising big headline from the Spring Statement is the proposal that the income tax basic rate will fall from 20% to 19% from April 2024.

Other changes

Fuel duty was cut by 5p per litre, with effect from 6pm on 23 March 2022. The cut will last for one year, subject to any extension.

VAT on certain energy saving equipment has been cut from 5% to 0% for a period of five years and includes thermal insulation and solar panels, and similar items.

The temporary Business Rates discount of 50% for retail, hospitality and leisure businesses was reiterated (up to £110,000), to take effect in April, as previously announced in the 2021 Autumn Budget.

The super deduction for enhanced capital allowance of 130% will cease on 31 March 2023 but we will have to wait until the Autumn Statement to see how the positive impact of continued investment and capital spend will be encouraged.

Careful monitoring of inflation and thresholds will be paramount in the forthcoming period and strong policy decisions should be expected in the Autumn Statement.

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