Following on from our previous post, please see below for further guidance on the measures announced in the Spring Statement.
The changes starting this month are significant, as taxpayers will begin to pay for the cost of the government’s pandemic response.
This includes through:
- An increase in National Insurance by 1.25% to pay for health and social care
- A similar 1.25% increase in dividend tax
- A ‘stealth tax’ in the form of a personal allowance freeze, which keeps the amount you can earn tax-free at £12,570 until 2026 (so if your earnings go up while the personal allowance stays the same, you’ll pay tax on a bigger chunk of your money)
But amid the cost of living crisis affecting households and businesses across the country, the Chancellor was under pressure to use the Spring Statement to announce some relief.
So, what did Rishi Sunak announce in the Spring Statement for small businesses and the self-employed?
National Insurance rise still happening – but thresholds will increase
The 1.25% increase in National Insurance rates is still happening, before being replaced by the Health and Social Care Levy next year.
But the Chancellor has announced a tax cut for both employed and self-employed workers. National Insurance thresholds will be raised by £3,000 in July 2022, to bring them in line with the income tax personal allowance.
This increase means you need to be earning more before you start paying National Insurance contributions.
The primary threshold for Class 1 NICs and the lower profits limit for Class 4 NICs will increase from £9,880 to £12,570 in July 2022.
Self-employed people with lower earnings will also benefit. If you have profits between the small profits threshold (£6,725 in 2022-23) and the lower profits limit, you’ll build up National Insurance credits but won’t need to pay Class 2 NICs.
A fuel duty cut
If you do a lot of driving for work, the soaring cost of energy has likely already been affecting your bottom line for a while.
This makes the 5p a litre cut in fuel duty one of the government’s headline announcements from the Spring Statement. This came into effect from 6pm on 23 March 2022 and will last until March 2023.
Fuel duty is included in the price of petrol and has been frozen at 57.95p a litre since 2011.
RAC, the car breakdown and insurance firm, said before the Spring Statement that benefiting from the fuel duty cut “depends entirely on retailers reducing their prices and not using it as an opportunity to take a greater profit on every litre they sell.” Instead they recommended reducing VAT, but this failed to materialise.
What else could help with energy costs?
Homeowners will pay zero VAT to install energy saving products like solar panels and heat pumps for the next five years.
What’s the government’s new ‘tax plan’?
The Chancellor said he wants to reduce and reform taxes during this Parliament, but what does that mean in practice?
While we’ll need to wait for detailed analysis on the tax plan, the Chancellor did announce that by the end of this Parliament in 2024, the government will reduce the basic rate of income tax from 20% to 19%.
Were there any changes to business rates to help a struggling high street?
The previously announced business rates discount scheme for retail, hospitality and leisure is starting in April 2022, which is 50% relief on rates (the current 66% discount ends on 31 March). The business rates multiplier has also been frozen for 2022-23.
However, there were no new announcements on business rates, despite a review into the system being published in October 2021. As part of its new tax plan, the government has said that it will set out its plans for business rates reform at Autumn Budget 2022, with changes starting in April 2023.
No changes to VAT for hospitality businesses
To cope with lockdowns, the government reduced VAT for hospitality businesses to 5% initially, which then increased to 12.5% and is due to return to 20% in April.
In the Spring Statement, the Chancellor chose to let VAT return to these levels, despite calls for the government to extend the reduction.
What’s in the Spring Statement for businesses with employees?
Rishi Sunak announced that the Employment Allowance will increase to £5,000 in April 2022. This is the amount you can claim against your employers’ Class 1 National Insurance. If we do your Payroll service there is nothing for you to do, we’ll automatically claim it on your behalf.
As part of the Chancellor’s new tax plan, the government is also looking at more flexible models for apprenticeship training, as well as how to encourage greater private sector investment in employee training.
Improving R&D tax credits for small businesses
The Chancellor has committed to improving R&D tax credits to “deliver better value for money for the taxpayer while being more generous”. Details will be announced later in the year. The Federation of Small Businesses (FSB) had previously called for the system to be simplified. Please watch this space for a big announcement coming in April.
IR35 – no further news on regulating umbrella companies
It’s been nearly a year since IR35 was introduced in the private sector.
Experts were hoping to hear more about how the government plans to regulate umbrella companies, but this didn’t appear in either the announcement or the Spring Statement document itself.
The Fair Umbrella Campaign called for a timetable on creating a regulatory body in its response to February’s consultation on umbrella companies.
If you have any questions regarding any of the announcements, please do feel free to reach out.
Finally, thank you all to those who have already submitted the annual survey, we’ve had some very valuable responses so far. We’re extending the deadline to close of play Monday 28 March 2022. This feedback is very important to us in order to continue to improve our service to you. Also, don’t forget that everybody who completes the form will be entered into a prize draw for a £100 Miller & Carter voucher, to be drawn on 31st March 2022.
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