The Spring Statement is not supposed to be the occasion for significant tax or spending announcements. But this year, under pressure from the economy, the public and the opposition, the Chancellor had no choice but to take some action. We review the changes here.
Fuel duty: A temporary 12-month cut to duty on petrol and diesel of 5p per litre came into effect on 23 March 2022. But as pump prices continue to rise at speed, it may be prudent to review your business motoring strategy. For example, unincorporated businesses might want to revisit any decision to claim flat-rate expenses rather than a percentage of total running costs in their accounts. Similarly, employers should look again at their arrangements with employees.
Employment Allowance: Employment Allowance enables eligible businesses and charities (including community amateur sports clubs) to reduce employer Class 1 NICs and is broadly available where employer Class 1 liabilities are below £100,000. The allowance increased to £5,000 from 6 April (previously £4,000).
0% VAT rate for energy saving materials (ESMs): Previously, only some ESMs attracted a reduced rate of VAT. The Spring Statement introduced a time-limited zero-rate of VAT for the installation of certain types of ESMs in residential accommodation in Great Britain from 1 April 2022 for a period of five years. Wind and water turbines have also been permanently brought back into scope of the relief.
Please speak to your RfM advisor for guidance on any of the above points.
Capital allowances regime: April 2023 is the date when a particularly generous phase of tax relief will end. Both the Super Deduction – which provides temporary enhanced first-year capital allowances for companies – and the Annual Investment Allowance £1 million limit, will finish. The Spring Statement suggests a number of potential directions for future policy, and we would be pleased to advise on how best to future-proof your plans for capital expenditure.
Research and development (R&D): The definition of R&D for tax reliefs has been expanded and the government has provided clarification in certain areas. For example:
- pure mathematics is confirmed as a qualifying cost
- all cloud computing costs associated with R&D, including storage, will qualify for relief
- the position on expenditure on overseas R&D activity.
We anticipate these changes to take effect from April 2023 with more information forthcoming. Please speak to your RfM advisor for further advice on R&D expenditure and tax reliefs.
Personal tax matters
Income tax: The basic rate of income tax is set to fall to 19% from April 2024 for taxpayers in England. It should be noted that the position is different for Scottish taxpayers, and potentially also for Welsh taxpayers, pending future decisions by the Welsh Assembly.
The rate reduction has a knock-on consequence for charitable gifts made under the Gift Aid scheme as it reduces the amount that can be claimed back by recipient charities. The government has therefore proposed a three-year transition period (until April 2027) during which income tax basic rate relief will stay at 20% for charities.
National Insurance: There has been considerable change here for employees (read more here) but there are also imminent changes for the self-employed and company directors.
For the self-employed, there is an increase in what is called the Lower Profits Limit for Class 4 NICs. This comes into effect on 6 July 2022 and will bring it in line with the personal allowance for Income Tax, currently set at £12,570 pa. To put the headline change into context: Class 4 is calculated on an annual basis, so the full effect of the higher limit won’t be felt until the following tax year. For the tax year to 5 April 2023, the Lower Profits Limit is £11,908.
As of 6 April, Self-employed Class 2 NICs on profits between the Small Profits Threshold and the Lower Profits Limit are reduced to nil. NI credits for state pension purposes will still accrue, however. Government figures suggest this is equivalent to a tax cut of up to £165 pa for around 500,000 individuals but this will only impact those with relatively low levels of self-employed income.
Company directors who have an annual pay period will have a Primary Class 1 Threshold of £11,908 for 2022/23 and £12,570 for 2023/24.