Below you will find a few highlights from the Budget announcement
- The Health and Social Care Levy goes ahead as planned from April 2022 (effectively increasing NIC rates for 2022/23).
- Class 1 employees NIC – the Primary Threshold of employees NIC will rise from July 2022
- Class 2 self-employed NIC – from April 2022, the starting threshold will increase from £9,569 to £11,908
- Employers NIC – the Employment Allowance (for smaller employers) increases to £5,000 for 2022/23.
- The basic rate of income tax is to be cut by 1% to 19% from April 2024.
- Household Support Fund – an extra £500m will be made available to Local Authorities to support vulnerable households.
- R&D relief – part of the reforms being implemented from April 2023 block deductions for overseas R&D work but some exemptions have been confirmed (for regulatory reasons, eg clinical trials and geographical factors). In addition, companies will be able to claim R&D relief on projects supported by pure maths.
- Further reforms to R&D relief will be considered in a consultation to be published in the summer – this may include an increase in the rate of relief to ensure the UK remains a competitive location for R&D.
- Capital Allowances – The government will consider alternative options so that it is able to replace the super-deduction when it expires in April 2023
- VAT on energy saving materials will be reduced from 5% to 0% from April 2022 to April 2027 (this includes insulation, solar panels and wind turbines).
- A review of the Apprenticeship Levy (introduced in 2017 to encourage employers to use apprenticeships to upskill their workforce) will take place to determine whether the scheme is “doing enough”.
- Tax reliefs – In the interest of creating a fairer and efficient system, the government plans to announce the simplification or removal of a number of existing tax reliefs in the lead-up to 2024.
Class 1 National Insurance contributions primary threshold will be aligned with the personal allowance of £12,570 from 6 July 2022.
Note that the secondary class 1 NIC threshold, where employers start paying class 1 NIC, will not be raised to align with the primary threshold. Employers will pay class 1 NIC at 15.05% on most employees’ salaries above £9,100 from 6 April 2022. Different secondary class 1 NIC thresholds apply for apprentices and freelance employees.
The Chancellor has gone further than expected, with plans to align the thresholds where the self-employed start paying class 2 NIC and class 4 NIC, with the personal allowance, but not immediately.
The class 4 NIC lower profits limit will rise to £11,908 for 2022/23 and then be aligned with the personal allowance of £12,570 from 6 April 2023. This two-step increase is presumably implemented to shadow the delayed rise in the primary class 1 NIC threshold from 6 July 2022.
Class 2 NIC is currently payable once the individual’s profits for the year exceed the small profits threshold of £6,515. This relatively low payment threshold exists to allow self-employed individuals with small profits to build up a contribution record for the state pension and other benefits.
From 2022/23 the threshold for paying class 2 NIC will be aligned with that for paying Class 4 NIC: £11,908 for 2022/23, then £12,570 for 2023/24. However, this large step up could leave many low-profit traders with no national insurance contributions for many tax years.
To solve this problem, from 6 April 2022 self-employed traders with profits below the lower profits limit will be treated as if they had paid class 2 NIC, but in fact they will make no actual NICs payment. No voluntary NIC will be needed.
The employment allowance will rise from £4,000 to £5,000 from 6 April 2022. This allowance can only be claimed by employers that had a class 1 NIC liability of no more than £100,000 in the previous tax year. The increase will allow an eligible employer to pay one extra person on the national minimum wage without having to pay employer’s class 1 NIC.
The detail in the Spring Statement also confirmed that the employment allowance will cover the employers’ liability for the Health and Social Care levy.
Basic rate cut
The promised cut in the basic rate of income tax from 20% to 19%, is slated to apply from 6 April 2024, but that is a long way off. As the past month has shown, the world can change significantly in a few weeks, and I wouldn’t like to predict where we will be in the spring of 2024.
Tax cuts must be funded
In his Mais lecture last month Chancellor Rishi Sunak set out the principles that underpin his tax policy. At the core is a desire to cut taxes, but only where those cuts can be funded, and he restated that belief in his Spring Statement.
To find out how much the tax cuts are all going to cost you need to dig into the Spring Statement 2022 policy costings document. For example, the increases in NIC thresholds to align with the personal allowance will cost £26.345bn over five years to 2026/27.
The costings document sets out three additional sources of income for the Treasury:
- HMRC compliance (tax enquiries): £3.156bn
- DWP compliance (benefit fraud and error): £2.24bn
- Student loans (frozen thresholds and increased interest): £35.215bn
The conclusion must be that the next generation will be funding today’s tax cuts by paying handsomely in increased student loan repayments.