On March 23rd, 2022, the Chancellor of the Exchequer, Rishi Sunak, presented the Spring Budget and Spending Statement to parliament for consideration and review.
Unlike the Autumn budget, the increasing geopolitical tensions between Russia, Ukraine, the UK, and the greater EU were of primary concern in compiling —and presenting— the 2022 Spring Statement. The current war in Ukraine stands to impact the United Kingdom, which has already been affected by:
- Raising fuel costs
- The increasing cost of food and shelter
- A severely impacted global supply chain
- Financial volatility across global markets
In conjunction with parliament, the Chancellor has set forth several tax proposals designed to capitalise on the nation’s resilience. The United Kingdom has emerged from the COVID-19 era with greater agility and responsiveness to changing conditions, both global and domestic. It should be noted that although the nation has a thriving job market with a robust economic recovery in the wake of the pandemic, current geopolitical factors make the projections in the Spring Statement subject to a significant amount of uncertainty.
Below, we’ll outline the Chancellor’s key points, including their impact on the business sector and the UK’s citizen populace.
Autumn Budget Recap
Before we examine changes in taxation, the rate of inflation, or budgetary considerations for 2022, it’s helpful to explore some of the key points from the Autumn 2021 budget report. In specific:
- The dividend rate increase
- The national insurance increases
Regarding the dividend rate increase, the 2021 Autumn projections set forth a 1.25% increase across the board through the end of the 2023 fiscal year. That means that the basic rate will increase to 8.75%, the higher rate will increase to 33.75%, and the additional rate will plateau at 39.35%. However, it should be noted that while the dividend rate itself has changed, the allowance rate has remained static at £2,000 since 2018.
The National Insurance Contribution (NIC) will also increase at a rate of 1.25% starting April 6th of this year. This change will affect both employers and employees from class 1 NIC (including class 1A and 1B) to class 4 NIC. This will result in a combined 2.5% increase effective until the end of 2022.
Spring Statement 2022 Impact on Business
First, let’s tackle the key business changes laid out in the Spring 2022 Statement. These changes fall into three distinct categories:
- Employment allowance
- Business rates
- Fuel duty cuts
Chancellor Sunak and the OBR are predicting that the economy will grow 3.8% in 2022, as well as sustained yet moderate GDP growth over the coming years, beginning with 1.8% in 2023. While this might be a lower-than-expected level of economic growth, Chancellor Sunak was quick to say in his address to parliament that the United Kingdom’s job outlook remains strong at a near-historic 3.9% unemployment rate despite two years under pandemic policies.
The Employment Allowance
Two years ago, during the debut of his inaugural budget, Chancellor Sunak increased the employment allowance, thus facilitating growth among small to medium-sized businesses. In the 2022 statement, he’s reaffirmed his fidelity to that goal by increasing the allowance.
Starting in April, the allowance will increase to £5,000. This tax cut is designed to significantly reduce the rates business owners currently pay to National Insurance, giving them proper leverage to grow and expand.
Mr Sunak also reaffirmed his goal of increasing the United Kingdom’s focus on investment and progressive innovation. Therefore, the 2022 Spring Statement focuses on green initiatives —for both homeowners and businesses. Under the broad “Help to Grow” schemes,” there are rate discounts totalling more than £1.7bn. In particular, green technology initiatives will no longer be subject to business rates. As a result, according to the Chancellor’s office, businesses that embrace new, greener technology stand to save more than £35 million over the 2022-23 fiscal year.
Fuel Duty Cut
The cost of fuel is currently a hot-button topic across the UK. From private motorists to business-class fleets, rising fuel costs have become untenable. To that effect, the Chancellor’s office has included a fuel duty cut of 5p per litre effective March 23rd of this year. The fuel duty cut will run for an entire calendar year, helping alleviate pain at the pump for professional vehicle operators and private citizens alike.
Spring Statement 2022 Impact on Individuals:
Chancellor Sunak’s statement contained budgetary initiatives designed to help private citizens and the overall economy. The topics that he addressed include:
- National insurance
- VAT on home energy costs
- Income tax
For individuals, the Spring Statement included cuts for everything from green initiatives such as installing solar panels and heat pumps in your residence to national insurance and the basic income tax rate.
To spur the economy, people should be able to earn a living without having the entirety of their wages taken for taxation purposes. The Spring Statement includes provisions for raising the National Insurance threshold limit from £9,880 to £12,570 starting this July. This historic increase will provide tax cuts totalling nearly £6bn for UK citizens.
VAT on Home Energy
The UK’s formal withdrawal from the European Union will allow the Chancellor’s office to carry out a more robust offering of green tax cuts. For example, private homeowners who’ve installed items such as heat pumps, solar panels, and high-quality insulated roofing will no longer be subject to the 5% VAT imposed under the old EU rules. Instead, these energy-saving measures will carry 0% VAT for the next five years.
Rounding out the notable points from the Spring Statement, Chancellor Sunak announced a staggering £5bn tax cut set to affect more than 30 million UK citizens. This historic initiative marks the first time in more than 20 years that the basic rate of income tax has been reduced. Starting in 2024, the income tax rate will decrease from 20% to 19%, granting relief to millions.
Spring Statement 2022 In Summary
After a relatively tame outing during the autumn budget announcement, the current war in Ukraine has added a level of instability to budgetary considerations going forward. This may serve as a watershed moment, however. The UK is poised to come through current global adversity more financially secure than ever, thanks to several new taxation initiatives set to roll out over the next two years.
With all the changes coming down the pike, you need a taxation expert that can help you navigate through these challenging times. The chartered accountants at DS Burge & Co. can help advise you regarding business and personal taxation. Contact us today to set up an appointment.