2022 Spring Statement Update
Yesterday, Chancellor Rishi Sunak delivered his 2022 Spring Statement, one in which he set out the Government’s plans to reduce and reform taxes via its Tax Plan. The Plan aims to help families with the cost of living pressures, create favourable conditions for private sector led growth, and share the proceeds of growth fairly with working people. Within this article, Andrea Solana, Partner and Head of Advanced Planning, summarises the information we believe to be most relevant.
Yesterday, Chancellor Rishi Sunak delivered his 2022 Spring Statement, one in which he set out the Government’s plans to reduce and reform taxes via its Tax Plan. The Plan aims to help families with the cost of living pressures, create favourable conditions for private sector led growth, and share the proceeds of growth fairly with working people.
Alongside the tax change announcements made previously such as the surcharge on national insurance and dividend tax rates, and frozen tax bands, the Chancellor announced a few new measures relating to an increase in the National Insurance Contribution thresholds, a cut in fuel duty and VAT on energy spending and a future decrease in the Basic Rate income tax rate.
We have summarised the information we believe to be most relevant below:
Growth & Employment
- After a stronger than forecast 2021, the Office for Budget Responsibility (OBR) expects the UK economic growth to be slower than forecast at the last budget due to the current headwinds of rising inflation and the invasion of Ukraine. Its economic growth forecasts for the UK economy are expected to be the following:
o 2022 – 3.8%
o 2023 – 1.8%
o 2024 – 2.1%
o 2025 – 1.8%
o 2026 – 1.7%
- Unemployment has fallen for 12 consecutive months and sits at 3.9% in the three months to end of January 2022 (November, December and January).
- Inflation in February was 6.2% as pressures on energy prices and the global supply chain continue. OBR expects CPI to average 7.4% over this year and decrease thereafter.
- While debt servicing payments remain historically high, following the governments Charter for Budget Responsibility, net borrowing as a percentage of GDP is forecast to continue to fall.
- Corporation Tax remains set to increase to 25% (from 19% at present) in April 2023. This change will apply for businesses with profits in excess of £250,000. For those businesses with profits less than £50,000, the rate of tax will remain at 19% with a step increase to 25% for businesses with profits between £50,000 and £250,000.
- The government will invest £600 billion over the next five years to encourage businesses to invest more capital.
- Research & Development (R&D) tax reliefs will be reformed and expanded in scope to facilitate business investment. Work on this will be carried out this year, with any new legislation aimed to come into effect from April 2023.
- The business rates multiplier will remain frozen in 2022/23 and eligible retail, hospitality and leisure businesses can take advantage of a new temporary 50% business rates discount.
- From this April, the employment allowance available to small businesses will be increased further to £5,000 per year
- Duty on fuel will be cut by 5p per litre for the next 12 months from 6pm tonight until March 2023.
- VAT relief will be expanded for the purchase of energy saving materials from April 2022
Savings and Investments
- In line with the new Health and Social Care levy previously announced, a reminder that there will be an increase in dividend tax rates by 1.25% from April 2022. The dividend rates from this point will be as follows (Trust tax rates will generally align with the additional rate band):
o Basic Rate – 8.75%
o Higher Rate – 33.75%
o Additional Rate – 39.35%
- The Starting Rate band for savings will remain at the current level of £5,000 for 2022/23.
- In 2022/23, State Pension benefits will increase by 3.1%.
- The Capital Gains Tax Allowance will remain at £12,300 for individuals (£6,150 for most Trusts) until April 2026.
- The annual allowance for Adult ISA’s and Junior ISA’s will remain at £20,000 and £9,000, respectively, for 2022/23.
- The current pension lifetime allowance will remain at £1,073,100 and will remain frozen until April 2026.
Personal Tax and National Insurance
- As previously announced, the new Health and Social Care levy of 1.25% will begin to apply from April 2022 to Class 1 and Class 4 National Insurance Contributions (NICs) and to the main and additional rates. The levy will not apply to Class 2 or Class 3 NICs.
- From July, the government will raise the primary threshold and lower profit limit for National Insurance from the £9,880 to £12,570 to align the threshold with the income tax personal allowance.
- From this April, self-employed individuals with profits between the small profits threshold and lower profit limit will continue to accrue NI credits but will not have to pay Class 2 NI contributions which will help align the change to equalise NIC with the income tax personal allowance.
- The 2022/23 Personal Allowance threshold of £12,570 will remain frozen until April 2026.
- Alongside the Personal Allowance, the 2022/23 Higher Rate Income Tax Band of £50,270 will remain frozen until April 2026.
- From April 2024 the Basic Rate of Income tax will be reduced from the current 20% to 19% provided overall fiscal principles set out by the government are met in between now and then.
These are just a few of the changes that were outlined today along with confirmation of what remains without change from prior announcements. If you have any questions about the implications of these changes on you, please do not hesitate to contact your Wealth Manager.
Source of economic data: The Office of Budget Responsibility; Source of budget information: Chancellor Sunak’s budget speech to the House of Commons 23 March 2022
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