Chancellor Rishi Sunak has delivered his Spring Statement with a focus on attempting to ease the cost of living and cutting taxes in a bid to keep the UK economy on a firm footing.
Here, Andrew Diver, head of taxation at Beatons Group, summarises the main points from The Chancellor’s statement and offers his thoughts on the measures in real terms.
The Chancellor delivered his Spring Statement with few surprises, and as expected, an emphasis on seeming to ease the cost of living.
He also emphasised the government’s focus on security, in the sense he pressed the point that the war against Ukraine would impact the UK’s economy and that today’s announcements form part of the government’s plans to secure the country’s finances in light of that.
The Chancellor confirmed that inflation had hit 6.2% last month and it is predicted to be as high as 7.4% over the course of the rest of the year. This is a prediction by the Office for Budget Responsibility (OBR) and could yet turn out to be higher.
The National Insurance threshold is set to increase from £9,500 to £12,570. This means the typical employee will save £330 a year and this will benefit even those employees on high incomes.
This will also apply to the self-employed who are subject to Class 4 National Insurance Contributions (NICs) who will see that threshold rise also.
This will not come into effect until July to allow employers to update their software, therefore people won’t notice the boost it offers straight away.
One point that is useful to note is that whilst the NICs limit has increased for employees, the employer rate remains the same. This means they will see increased costs from the Health & Social care levy from April 2022. It appears that the employment allowance, highlighted below may have been an attempt to try to counter that.
The fuel duty cut of 5p per litre is very welcome. Prices still spiralling outside of the wholesale price of fuel which decreased a few weeks ago and there isn’t anything that will force petrol companies to pass this reduction in duty onto customers. Petrol companies pay the duty when acquiring fuel so will have paid the duty on the fuel in their pumps already at the higher rate so they might wait until they need to restock their supplies and they have paid the lower rate of duty before passing it onto customers.
Basic rate of tax cut
In a slight surprise announcement, The Chancellor revealed plans for a cut in the basic rate of tax from 20% to 19% across the board.
Everyone loves a reduction in the basic rate of tax (except me, I prefer round numbers and 20% is so much easier than 19% for calculations).
The Chancellor said this amounts to a £5billion tax cut for more than 30 million people including workers, pensioners and savers. However, while this is a welcome announcement, it isn’t due to come in until April 2024 and as we all already know, a year is a long time in politics so two years is a very long time indeed!
Cut to VAT on energy saving measures
Homeowners installing energy efficient materials such as solar panels, heat pumps, or roof insulation will pay 0% VAT. Though this is only helpful to those households which can afford these energy savings in the first place.
Household Support Fund
Though it was announced councils will receive extra help to support those with the greatest need, it didn’t appear that was any extra help for those struggling across the board with the increase in domestic power costs (outside the National Insurance reductions). The Chancellor did announce that vulnerable household targeted support worth £500m will be available through local authorities from April
Help for businesses with increase in employment allowance
There was a little extra help for employers with the announcement of an increase in employment allowance to £5,000. There were also further extensions to what is classed as Research & Development and annual investment allowance was again set at £1m, with the transitional relief for business rates being extended for 2022/23.
The overall sentiment is that there are a lot of nice increases in thresholds, though some are far from immediate. Since taking on the role of Chancellor, Rishi Sunak has been increasing the HMRC coffers through fiscal drag by generally not increasing rates and allowing inflation to lead to more tax revenues being collected so we can take sound a small positive note in that he has given something back. However, many will no doubt feel that The Chancellor has not gone far enough in his measures to help ease the cost of living.
Please get in touch with us if you need advice on what any of the new measures might mean for you or your business by email to email@example.com or by calling 01473 659777.
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