Spring Statement 2022

Inflation is at its highest rate since 1992, and is set to increase further. Of course, this has not been helped by the global impact of COVID-19 and the current situation in Ukraine. As a consequence of this, we have all had to tighten the purse strings a little and keep an eye on our costs.

In an effort to combat this, the government have implemented measures to help with the current cost of living crisis.

The key facts:

-          National Insurance Class 1 (employees) and Class 4 thresholds to increase by £3,000.

-          Employment allowance to increase by £1,000 to £5,000 per annum.

-          Proposals to reduce the basic rate of income tax from 20% to 19% by the end of 2024.

-          Research & Development (R&D) qualifying expenditure to expand.

-          Plans to reduce the rate of tax on capital spend once the “super deduction” comes to an end.

-          Fuel duty to be cut by 5p per litre until March 2023.

-          VAT rate on energy-saving materials to reduce to 0% for the next 5 years.

-          Pledges to assist 28 million households with the energy price cap rise.  

We have expanded on some of these key facts below.

National insurance threshold increased by £3,000

From July 2022, the Primary Threshold of Class 1 national insurance (employees), as well as the Lower Profit Limit of Class 4 national insurance is to rise by £3,000 to £12,570, in line with the current personal allowance for income tax.

What does this mean in real terms?

An employee earning £12,570 would have previously paid £360 i.e. 12% of the £3,000 increase. This will now be reduce to £nil.

An employee earning £35,000 will of course benefit from the saving also, however, with the rate of national insurance being increased from 12% to 13.25%, the benefit gained from the saving will be netted of by the national insurance rate increase of 1.25%. You can think of this as the ‘break-even’ point.

What about qualifying earnings for state pension?

Rest assured that both the Lower Earnings Limit (LEL) for employees and Class 2 national insurance for the self-employed has not changed. This means that the new thresholds have no impact on your earnings that contribute to your state pension.

Is there any change to employers’ national insurance?

Employers’ Class 1 national insurance threshold remains unchanged at £9,100 per annum for 2022/23. However, the 1.25% increase means that “Employers NI” will increase from 13.8% to 15.05%.

Employment Allowance up to £5,000

The employment allowance will increase from up to £4,000 to £5,000 from April 2022. This means that half a million smaller firms will benefit by an additional £1,000 to offset against their employers’ Class 1 national insurance (employer) liabilities.

Please note the employment allowance is not available if the sole employee is a director or where employers’ Class 1 national insurance contributions exceed £100,000.

Basic rate income tax at 19%

Rishi Sunak proposed that the basic rate of income tax would be cut from 20% to 19% by the end of 2024. This means that the basic rate of income tax would be cut from 20p to 19p in the pound by the end of 2024.

For someone earning £30,000 a year, they can expect to save around £175 in tax per annum.

Research & Development tax credits reform

The scope of qualifying expenditure for R&D tax credits is being reformed. It is said that in the Autumn budget, there will be clearer guidance on what exactly these reforms entail.

At the moment, companies that are spending money on “innovation” can make an R&D tax credit claim. This can be offset against corporation tax liabilities or refunded to the company in cash.

It has been suggested that expenditure meeting the “innovation” requirements are being expanded to include costs such as licence payments for datasets where the costs are incurred solely for a qualifying R&D project, as well as cloud computing costs that can be attributed to computation, data processing, analytics and software.