The combined impact of the war in Ukraine and the Covid pandemic is rapidly increasing fuel and energy costs with inflation rising, which the Office for Budget Responsibility now expects to peak at 8.7% in the final quarter of 2022. This economic squeeze also affects the GDP forecast for 2022, which now has been forecast to decrease from 6% to 3.8%.
Against this background, the Chancellor was under pressure to offer financial support to families through this cost of living crisis. He announced an immediate 5p per litre cut in fuel duty for a year and, from July 2022, a £3,000 rise in the NIC threshold for employees and the self-employed. For employees this will align with the income tax earnings threshold at £12,570. For the self-employed, the limit will be £11,908 to take account of the mid-year change.
In the faculty’s comments on the Autumn Budget 2021, we noted that Sunak would probably suggest some tax cutting measures before the end of this Parliament, just in time for the next general election. Well, he did just that. In his “Tax Plan”, he announced a 1% income tax cut in the basic rate, from 20% to 19% with effect from April 2024.
The latest NIC and income tax changes call into question the introduction of the health and social care levy (HSCL), which was announced in September 2021 and added on the statute book a week later. It seems counter-productive to have introduced the HSCL from 2023/24, with a one-year temporary increase in NIC for 2022/23, only to announce a reduction in taxes as this will result in an overall tax cut for many taxpayers. What prompted the rush to introduce the HSCL in the first place, we will never know.
Although this was not billed as a Budget, there were a number of tax announcements including a new “Tax Plan” which is aimed at cutting taxes and boosting growth and productivity. As always, the devil is in the detail, particularly with regards to the potential to reform more reliefs and allowances ahead of 2024.
A number of new business tax measures were announced, including the increase in the employment allowance from £4,000 to £5,000, which will be welcomed by smaller businesses. In a widely trailed measure, there will be a further review of the R&D tax regime to ensure that it is effective and value for money. There will be a further consultation on reforms to the tax system to support future business investment and thereby improve economic growth.
VAT relief for energy saving materials
In ICAEW’s Autumn Statement 2021 commentary, we noted that, although the government now has much freedom to change the VAT rules following the UK’s departure from the EU, the government had made no substantial changes except for the reintroduction of the reverse charge for imports of goods. In the first sign of a possible change in policy, the Chancellor announced that the UK will reverse a European Court of Justice ruling which will allow VAT zero-rating to apply to the installation of energy saving materials in Great Britain
Business rates continue to be an area for change. In the Autumn Budget 2021, the Chancellor had announced the introduction of business rates reliefs from 1 April 2023 for eligible plant and machinery used in onsite renewable energy generation and low carbon heat networks. These reliefs are now being introduced a year earlier and will take effect from April. Eligible retail, hospitality and leisure businesses will also benefit from a new temporary 50% business rates relief.
View more updates from the Spring Statement
- Chancellor confirms changes will be made to R and D tax regime
- Chancellor announced review of the capital allowances regime
- VAT reduction for the installation of energy saving material
- NIC measures welcome but not as simple as the Chancellor’s speech made it sound
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