Spring Statement – Key points
The Spring Statement was announced at the end of March. Below we have condensed Rishi Sunak’s announcement into key points that may affect you or your business.
Cost of living
The Spring Statement acknowledges the Consumer Prices Index inflation has risen to a 30-year high in recent months. This has primarily been driven by global factors outside the government’s control, including continued disruption to global supply chains and higher global energy and commodity prices.
The government has already taken steps to help with the cost of living. They made a cut to the Universal Credit taper rate and increases to work allowances as mentioned above. A £9 billion package announced in February to help households with rising energy bills this year; and freezing alcohol duties and fuel duty to keep costs down.
- Fuel duty will be cut by 5p a litre for a full 12 months. (only the second time in 20 years)
- The fuel duty cut is worth £5bn and has since come into effect.
- The government will cut to zero a 5% VAT rate for households installing solar panels, heat pumps or insulation. This is to help households improve energy efficiency and keep heating bills down.
- The governments household support fund will double to £1bn.
A temporary 12 month cut will be introduced to duty on petrol and diesel of 5p per litre, representing a saving worth around £100 for the average car driver, £200 for the average van driver, and £1500 for the average haulier, when compared with uprating fuel duty in 2022-23.
- Borrowing in the current financial year, 2021-22, would be 5.4% of GDP, and would fall to 3.9% next year.
- In cash terms, the OBR estimated the budget deficit (the gap between spending and income) would be £127.8bn in 2021-22, and £99.1bn next year.
- The chancellor said debt service costs would rise to £83bn in the next fiscal year, the highest level on record.
- The planned 1.25-percentage-point rise in national insurance contributions will remain, as a “dedicated funding source” for health and social care.
- However, he announced he would increase the threshold by £3,000 this year, up from a planned rise of £300. This equalises the national insurance contributions threshold with the personal income tax allowance of £12,570.
- Sunak called it a £6bn personal tax cut for 30 million people, and the largest single personal tax cut in a decade.
The Spring Statement increase to the National Insurance Primary Threshold and Lower Profits Limit from £9,880 to £12,570, from July 2022 will allow hard-working people to keep more of their earned income.
- Changes to research and development tax credits – the reliefs for business investment would be increased to boost UK productivity.
- We are to expect tax rate cuts on business investment at the autumn budget.
- The chancellor said he would increase the employment allowance for small businesses to £5,000 – a tax cut worth up to £1,000 for half a million small firms – this is going to come into effect this month.
Employment Allowance allows eligible employers to reduce their annual National Insurance liability by up to £5,000 (increase from £4000)
You will pay less employers’ Class 1 National Insurance each time you run your payroll until the £4,000 has gone or the tax year ends (whichever is sooner).
You can only claim against your employers’ Class 1 National Insurance liability up to a maximum of £5,000 each tax year. You can still claim the allowance if your liability was less than £4,000 a year.
SMEs are also affected by rising costs. The Spring Statement is built on previously announced support for SMEs. This includes business rates relief worth £7 billion over the next five years; increasing the Annual Investment Allowance from £200,000 to £1 million until March 2023. They will do this by subsidising the cost of high-quality training through the Help to Grow Management scheme. They also plan to help firms to adopt new digital technologies.
- Sunak said the basic rate of income tax would be cut from 20% to 19% in 2024.
- He said it would not be responsible to make such a tax cut right now, given the uncertainty in the economy.
- “Tax cuts must be paid for, they must be prioritised and they must fit the economic circumstances of the time,” he said.
- The chancellor said it would be the first cut in income tax for 16 years.
Alongside tax cuts, the UK gov wants to make the tax system simpler, fairer and more efficient, and will confirm plans for reforms to reliefs and allowances ahead of 2024.
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