Spring Statement 2022

The Chancellor's Spring Statement speech – was given on Wednesday 22 March 2022

Spring Statement – which includes provision for further investment in HMRC and the DWP to enhance compliance, etc. (3.15 – 3.18), and a Tax Plan, in more detail below

Spring Statement Tax Plan – more of a glossy manifesto than a plan, really, setting out the Chancellor’s “vision for a lower-tax economy”, the key points are:

1. Help families with the cost of living, with various measures examined in more detail in the Tax Documents below
2. Create conditions for higher growth, focusing on:
   • Capital – a commitment to do something – anything – to encourage higher capital investment even after current measures such as super-deductions and enhanced AIA reach their sell-by dates. By “anything”, it is worth noting that the Chancellor is expressly contemplating a reversal of the 2% reductions to the special and main rates that we saw in April 2019 and April 2012 respectively; maybe even the old, non-super First Year Allowances again.
   • People – a stated ambition to encourage more employee training (no mention of the self-employed)
   • Ideas – a commitment to promote R&D by adding mathematics to the pool of costs, (as well as cloud and data costs, which got the official nod in November 2021), and to continue to permit non-UK R&D, basically where it cannot be undertaken here (such as deep ocean research, or clinical trials being co-ordinated in another country
3. Share the proceeds of that growth fairly – a scheduled reduction in the Basic Rate of Income Tax from 20% to 19%, from April 2024.

Spring Statement Tax Documents

Aside from a promise to try really, really hard to reduce the Basic Rate of Income Tax to 19% from 2024, some more concrete/immediate measures were also announced:

Fuel Duty – reduced by 5p per litre (petrol or diesel) for 12 months from 6pm 23 March 2022. Given the increased prices at the pumps over the last few months (and those that may be in the, er, pipeline) this is roughly on a par with the extra VAT that the Treasury is already making.

Employment Allowance Increase – help employers by increasing the maximum Employment Allowance from £4,000 to £5,000, from April 2022. It will perhaps draw the sting of the NICs hike / Health and Social Care Levy, for the smallest employers.

National Insurance – aligning Starting Thresholds (sort of) – the Primary Earnings Threshold will be increased to the level of the Personal Allowance of £12,570 (per year), but basically pro-rata from 6 July 2022 (to give HMRC and employers and – presumably – software companies time to prepare). The strange timing of this will make NICs quite complex for 2022/23, depending on the earnings period (usually, but not always, on a non-cumulative basis, of course) and the date of payment in 2022/23:

Note:

While directors’ earnings are usually on a cumulative/annual basis, and their treatment has been catered for specifically by the transitional provisions so as then to apply for the whole of the tax year, they are not the only employees who may be assessed on an annual basis.

Non-directors, in particular, might prefer to see annualised earnings paid on or after 6 July although, given that there is no change to the Upper Earnings Limit, any differences will not be huge.

For NICs, payment of employed earnings is deemed to arise (and NICs are triggered) only when the sums are “placed unconditionally at the employee’s disposal”.

But employers hoping to move earnings to later in the year on a non-cumulative basis should note that HMRC has powers in the 2001 NIC Regulations (SI 2001/1004) to direct employers to operate specific earnings periods (e.g., to apply an annual basis instead) or to ‘normalise’ their payments – but only in terms of calculating NICs, rather than actually dictating the dates of physical payments, etc.
The self-employed Lower Profits Limit will be raised to £11,908 for the 2022/23 tax year, effective from 6 April 2022 (which is arithmetically equivalent to also adopting £12,570pa from 6 July 2022).

The plan is clearly that the PET and the LPL will be maintained at £12,570 from 2023/24 and then follow whatever becomes of the Income Tax Personal Allowance. This is a very expensive commitment for the government, but necessary to harmonise Income Tax and NICs at some point in the future.

Reduction in Self-Employed Class 2 NICs between Small Profits Threshold and Lower Profits Limit – Self-employed people with profits of up to the Lower Profits Limit (to be £11,908 for 2022/23, then £12,570) will also pay no Class 2 NICs, but will still be able to ‘earn’ the credit (e.g., State Pension) so long as they reach the Small Profits Threshold of £6,725. This will apply for 2022/23. The legislation to achieve this may need some work – so far, the draft merely grants the government various powers to achieve it, without saying how.