Spring statement 2022
Written by Ray Coman
This year’s Spring statement was delivered in the context of the unprovoked attack on the Ukraine by Russia, related energy price increases and ongoing inflation headwinds.
To tackle the resultant rise in cost of living, the Chancellor announced a decrease in fuel duty and a hike in national insurance thresholds.
The threshold at which an employee becomes liable to National Insurance is called the Primary Threshold and at which a self-employed person becomes liable is known as the Lower Profits Limit. Both will increase to the same level as the personal allowance of £12,570 by July 2022. This is an increase of roughly £3,000, and will save an employee about £300 a year.
By way of recap, the primary NIC rate will increase to £9,880 from 6 April 2023 and to £23,570 on 6 July 2022.
The secondary or employers’ national insurance level will not change and the increase in rate of national insurance by 1.25% will still go ahead on 6 April. The government estimates that about 70% of taxpayers will benefit from the increase in thresholds even though the rate of NIC will increase.
Currently self-employed individuals currently become liable to Class 2 on making profits over the Small Profits Threshold (of £6,725 for 2022/23.) The threshold for paying Class 2 National Insurance is set to increase to the lower profits limit. Nonetheless, entitlement to social security benefits will continue accrue once profits reach the Small Profits Limit. Most significant among the benefits is the addition of a year towards the number required to secure a basic state pension. As a result a sole trader or partner will profits between the Small Profits and Lower profits limit will accrue state pension without any liability to Class 2 NIC. From next tax year, the weekly rate of Class 2 NIC will rise in line with inflation to £3.15.
The basic rate of tax will be cut from 20% to 19% from April 2024. The basic rate of tax has not been cut in 16 years.
Fuel duty will be broght down for the first time in 20 years by 5 pence per litre. The reduction in fuel duty is hoped to offset some of the rising energy costs. The cut will be effective for one year with effect from today.
The employment allowance will exempt the first £5,000 of employer’s national insurance otherwise payable. This £1,000 increase in rate will take effect from April 2022.
The government is extending the zero rated Vat on the energy saving materials. Typical examples include rooftop solar panels and loft insulation.
Many business are not liable to business rates on account of the small business rates relief. Rate paying businesses will benefit from a freeze in the business rates multiplier during 2022/23. A 50% reduction in rates will continue to apply to certain hospitality sector businesses. Establishments such as pubs, cinemas and corner shops will not have to face any rise in rates from 2021/22.
To encourage economic growth, the annual investment allowance will be increased to £1 million from 1 April 2023. This is an increase from the current level of £200,000. The allowance determines the amount of investment in assets that can be deducted from taxable profits each year.
Government subsidy will be available to certain companies with between 5 and 249 employees towards the cost of certain equipment and training.