Spring Statement 2022 – Our Initial Views

Rishi Sunak delivered his Spring Statement earlier today, amidst a backdrop of the rising cost of living and the atrocities of the war in Ukraine.

Understandably, many of the announcements had the cost of living at their heart, and some of the changes will support workers and their families at these uncertain times. However, the Statement was fairly light on specific changes to tax laws, although we anticipate further changes will be announced in the Autumn Budget, following a period of consultation.

Within his speech, Mr Sunak set out his Tax Plan which aims to “help families with the cost of living, support growth in the economy, and ensure the proceeds of growth are shared fairly”

Further detailed analysis will follow in the coming days, but the key points from today’s Statement include:

Health & Social Care Levy

There was no U-turn on the planned Health & Social Care Levy, which will go ahead as planned. This will see an increase of 1.25% on National Insurance from April this year, to help pay for the NHS. The tax rates on dividends will also increase by the same amount.

Supporting the cost-of-living crisis

Three new things were announced to help with the cost-of-living crisis. Fuel duty will be immediately cut by 5p per litre, VAT on energy saving capital (like solar panels and heat pumps) will be set to 0%, and £500m additional funding will be made available for local authorities to target those that require the most support.

R&D

As part of measures to support growth in the UK economy, the Government will increase spending on Research and Development (R&D) to £20bn a year from 2024, a £5bn increase.

To encourage UK businesses to invest in their own transformative R&D and develop new products and solutions, the Spring Statement announced improvements to the R&D Tax Reliefs scheme, setting out support for data and cloud computing costs, refocussing relief on R&D undertaken in the UK, and allowing businesses to claim relief on R&D supported by pure maths.

Further reforms and improvements to R&D tax reliefs are due to be announced at the next Budget.

Capital investment consultation

The enhanced Super Deduction, providing for a 130% deduction for qualifying capital expenditure, is due to be in place until April 2023, and with the Annual Investment Allowance set at £1m, businesses are encouraged to invest in capital expenditure.

The Government wish to further encourage capital investment, and will consult on ways to “cut and reform taxes on business investment”, with further incentive measures due to be announced in the Autumn.

Income Tax Cut

From April 2024 the Government have committed to reducing the Basic Rate of Income Tax, from 20% to 19%, leading to a cash saving for many. Further reforms to simplify Income Tax are also expected.

NIC Thresholds

To combat the planned increase in NIC rates for the Health & Social Care Levy, and to support those with lower salaries, the threshold for employees’ NIC will increase to align with the personal allowance, and will be £12,570, effective July 2022.

Employment Allowance

To support smaller businesses in particular, the Employment Allowance (being an allowance in Employers’ NIC) will increase from £4k to £5k.

Capital Gains Tax

No new changes were announced to the main rates of CGT or taxation of Employee Ownership Trusts; good news for those considering an exit from their business.

Corporation Tax

There were no new announcements on the rate of Corporation Tax, and this remains due to increase to 25% from April 2023.