In a time of uncertainty, it can be helpful to know what to expect financially from the government in the coming years.
This way, you can feel more confident when aiming for growth in your business and have the flexibility to get through problems.
Although not as heavyweight as the annual Autumn Budget in October, the Spring Statement delivered by the Chancellor on 23 March 2022 contains a handful of details that you need to know about.
Here’s what we cover in this article:
Other previously announced changes
Final thoughts on the Spring Statement 2022
Business taxes
There was a lot of talk about helping businesses in the Spring Statement 2022.
But much of it hinted at what’s to come within the Autumn Budget, due in October 2022.
For example, there will be a tax rate cut for business investment, and the government intends to consult on this before that time.
There was some good news for smaller businesses that make use of the Employment Allowance.
This existing scheme can be used by employers whose Class 1 employer National Insurance contributions are less than £100,000 in the previous tax year.
Up to £4,000 can currently be claimed back, and the Spring Statement 2022 announced this will rise to £5,000 as of the 2022/23 tax year.
In other words, businesses using the Employment Allowance effectively get a £1,000 tax cut.
Two planned rates relief are being brought forward, so they start in the 2022 tax year.
The first means no rates are due on a range of green technologies used to decarbonise buildings. The second means eligible heat networks will receive 100% rates relief.
But that was about it in terms of direct tax cuts for business in the Spring Statement.
The Chancellor reminded us of the previously announced business rates relief of 50%, due to begin on 1 April 2022 and end on 31 March 2023.
This can be used by eligible retail, hospitality and leisure businesses and is capped at £110,000 per business.
He also referenced the already established Help to Grow schemes along with the Annual Investment Allowance ‘super-deduction’ of £1m that significantly expands capital allowances for all businesses until 31 March 2023.
Notably, one of the Chancellor’s mooted upcoming changes for 2023 is around capital allowances and is intended to follow on from the super-deduction.
But there are no details yet.
As announced in the Autumn Budget in 2021, the business rates multipliers for 2022/23 are frozen at 49.9p and 51.2p, respectively.
What this means for your business
For those outside the hospitality and leisure sectors, and who aren’t investing in decarbonising their property, the Spring Statement delivered just a £1,000 tax cut—but only for smaller businesses.
Nonetheless, the government says half a million smaller businesses will benefit from the Employment Allowance increase, and that 50,000 businesses will be taken out of paying employer National Insurance contributions (NICs) altogether (along with the upcoming Health and Social Care Levy in 2023).
The previously announced freeze on business rate multipliers is also welcome as of April 2022.
But all eyes will now be on the Autumn Budget 2022, which the Chancellor has literally said will promise much more for business.
VAT
Outside of a reduction in VAT for home installations of energy-saving measures, no changes to VAT were announced in the Spring Statement 2022.
Therefore, the following remains true:
- VAT rates and rules remain the same – 20% standard rate, 5% reduced rate, and 0% zero-rated supplies. Those in the hospitality trade shouldn’t forget that the reduced 12.5% VAT rate ends as of 1 April 2022, and the usual rates resume (e.g. 20%).
- The VAT threshold of £85,000 remains the same, as does the deregistration threshold of £83,000. In fact, this remains so until the end of March 2024, as promised in the Spring Statement back in 2021.
What this means for your business
The biggest change to VAT recently has been Making Tax Digital for VAT applying to all VAT-registered businesses as of April 2022.
For those affected, this has meant a period of adjustments, even if they subsequently benefit from much better accounting processes and improved insight into their finances.
But needless to say, further changes to VAT on top of this would be unwelcome, so no movement around VAT in the Spring Statement might just be welcomed by many.
Wages and payroll
The Spring Statement delivered quite a few changes to the taxes employees pay—although not to employer considerations when it comes to wage taxes and National Insurance contributions (NICs).
National insurance and the Health and Social Care Levy
Although it had been much discussed, there was no removal of the planned temporary National Insurance increases of 1.25% for both employer and employee NICs, due to start in April 2022 and end a year later.
And there are no changes to the original plan of converting this into the Health and Social Care Levy as of April 2023 onwards.
At that time, the levy will effectively become a third type of tax on individual income, alongside income tax and National Insurance, and should be listed as such on payslips and calculated for Self Assessment.
However, there was good news for workers in that the Primary Threshold (PT) and Lower Profits Limit (LPL) for National Insurance will be raised from £9,880 to £12,570.
This applies to Class 1 and Class 4 NICs, so both employed and self-employed individuals will be able to earn more before these types of National Insurance contributions become due.
The increase means the National Insurance threshold and the income tax personal allowance are now the same, at £12,570.
While this makes working-out tax and NICs much more straightforward, it’s not clear if the National Insurance threshold will subsequently rise alongside the typically yearly increase to the income tax personal allowance (although as announced in the Spring Statement in 2021, the personal allowance is presently frozen until April 2026).
The less-good news is that the National Insurance threshold rise won’t take effect until July 2022. This is because employers need time to adjust their payroll systems.
However, there’s more good news for the self-employed, and this time the changes take effect as of April 2022.
Class 2 NICs will no longer be due on profits between the Small Profits Threshold (£6,725) and the Lower Profits Limit (currently £9,568, but switching to £12,570 as of July 2022, as mentioned above).
However, if their earnings are between these two, the individual will continue to build National Insurance credits for their state pension.
Income tax
From April 2024 onwards, the Chancellor says the basic rate of income tax will be cut from 20% to 19%.
This applies to England, Wales and Northern Ireland. Scotland has devolved tax setting powers, and it’s not yet clear if (or when) the Scottish parliament will follow the Chancellor’s lead.
There will no doubt be more concrete details about the income tax rate cut when it arrives in two years’ time.
What this means for your business
The increase in the National Insurance threshold will do much to offset employee concerns about the introduction of the Health and Social Care Levy.
But while there’s much to celebrate about the National Insurance changes for employees, employer NICs have not been touched.
(Note that we listed the NIC rates in our article about the Autumn Budget in 2021.)
However, while the tax burden for businesses remains the same, the effective cut in National Insurance payments—and therefore effectively an increase in take-home pay—is something businesses can discuss in pay reviews when employees raise the issue of tightened living costs.
In other words, while businesses may find themselves unable to respond to requests for better pay, the government’s announcements are a de facto pay increase for many low-to-middle earners.
Finally, don’t forget to ensure your payroll software is updated in time for the April change to the Employment Allowance, and the July increase in the NI threshold.
Cloud payroll software will be updated automatically and ahead of time, so the changes should flow through automatically to employee wage calculations.
Research and development
Research and Development (R&D) tax credits can be used by science and technology businesses.
For such businesses there’s some good news in the Spring Statement 2022.
As of April 2023, businesses will be able to claim R&D tax credit relief on the storage of their vital data and pure maths research.
We can expect draft legislation around the details of this during summer 2022.
What this means for your business
If you make use of R&D tax credits, this is good news.
If not, and you operate in the science or technology fields, the changes are a good reminder that there’s quite a lot of help available from the UK government for those aiming for breakthroughs in their work.
Transport for business
Fuel duty is being temporarily cut by 5p per litre on both petrol and diesel.
The reduction took effect on 23 March 2022 and lasts until midnight on 22 March 2023.
This means the government will take 52.95p in every pound spent on petrol or diesel, rather than 57.95p.
Liquefied petroleum gas (LPG) also gets a duty cut of 2.73p per kg, while road fuel natural gas is cut by 2.13p per kg.
The government says this should equate to the same kind of cut per litre for these fuels compared to petrol and diesel.
This fuel duty cut is very unusual in the history of fuel duty, with the Chancellor pointing out it’s the only time one of such magnitude has occurred.
The last was a 1% cut back in 2011.
And don’t forget the measures announced in the 2021 Autumn Budget:
- Road tax (also known as Vehicle Excise Duty) increases in line with the retail price index (RPI) as of 1 April 2022.
- Company car fuel benefit multiplier increases to £25,300.
- Company car tax remains frozen until 2024/25.
- HGV road tax (also known as HGV VED) remains frozen for 2022/23. Additionally, the government is suspending the HGV Levy for another 12 months from August 2022.
What this means for your business
Cheaper transport and logistics costs in the form of the reduced fuel duty levy are always to be welcomed.
The government estimates that savings will be £200 for the average van driver and £1,500 for the average haulier.
Of course, you should budget for an effective 5p per litre rise in the cost of petrol and diesel this time next year.
Worldwide events continue to squeeze oil supplies, so the effects of the duty decrease might effectively disappear in real term costs for operating a vehicle.
But the prices would be even higher without the duty cut and will remain in place until 2023.
Hopefully, before that point, we should see more stability in the world—and a fall in fuel costs too.
Other previously announced changes
Don’t forget the following changes that were announced in 2021:
- Dividends tax: As per the National Insurance increase for the Health and Social Care Levy, the income tax on dividend tax rates increase by 1.25% from April 2022 for dividend income above the £2,000 tax-free allowance.
- Recovery Loan Scheme: The existing Coronavirus Recovery Loan Scheme remains open for applications until 30 June 2022. Small to medium-sized businesses can use it to finance up to £2m.
Final thoughts on the Spring Statement 2022
This was a Spring Statement largely aimed at individuals, rather than businesses.
However, there were some very strong hints that the government has more up its sleeves for businesses and that we’ll start to learn about this in the forthcoming Autumn Budget.
If in any doubts, speak to your accountant or payroll manager about the changes around National Insurance and Employment Allowance, and how they will be applied within your business.
