The Chancellor of the Exchequer, Rishi Sunak, delivered the UK Spring Statement on 23 March 2022. As part of the Statement, the Chancellor announced the government’s Tax Plan for the rest of the current Parliament. The Tax Plan contains three priorities, stated as “helping families with the cost of living; creating the conditions for private sector led growth; and ensuring the proceeds of growth are shared fairly.” In this article, we highlight some of the announcements from the Tax Plan, and when they come into effect.
Changes in the short-term
- Fuel duty will be cut by 5p per litre of petrol and diesel. The cut will take effect from 6pm on 23 March 2022 and will last for the next 12 months.
- The rate of VAT will be reduced from 5% to 0% on the supply and installation of Energy Savings Materials (ESM) such as insulation, solar panels and heat pumps in residential accommodation. Other green energy installations, such as wind turbines linked to residential accommodation, also look set to benefit from the reduction. This extension of the zero-rate will also simplify some complexities in the VAT treatment of supplies of ESM which had been introduced following a judgment of the European Court of Justice. This reduction in the VAT rate will take effect from 1 April 2022 across Great Britain and be in place for a period of five years, with Northern Ireland receiving a Barnett share of the value of this relief until it can be introduced UK-wide.
- In England, there will also be an exemption from business rates for ESM from April 2022, as well as 100% business rates relief for eligible low-carbon heat networks subject to their own rates bill.
- From April 2022, the Employment Allowance, which allows certain businesses to reduce the employers’ National Insurance contributions (NICs) they pay, will be increased from £4,000 to £5,000.
- Self-employed individuals with lower earnings who have profits between the Small Profits Threshold and Lower Profits Limit will not pay any Class 2 NICs from April 2022. However, they will continue to build up National Insurance credits.
Changes in the coming months
- From 6 July 2022, the National Insurance Primary Threshold for Class 1 NICs and the Lower Profits Limit for Class 4 NICs will be aligned with the income tax personal allowance, and increased from £9,880 to £12,570, with these rates remaining aligned in the future. This measure, together with the change to Class 2 NICs outlined above, will help soften the impact of the newly introduced Health and Social Care Levy, which will come into force from April as a 1.25% increase in NICs.
- The government will consult on potential changes to the UK’s capital allowances regime over the summer. A number of proposals have been made in the Spring Statement document, including proposals to increase the Annual Investment Allowance, to increase the rates of Writing Down Allowances for main and special rate assets, to introduce a new First Year Allowance, or to introduce full expensing of capital allowances for tax purposes. The government will then confirm the final plans ahead of their planned introduction from April 2023.
- As well as the reforms already announced, the government has said it will continue to review R&D tax reliefs, with further announcements on their future plans due in the autumn.
- Following a review of the Enterprise Management Incentives (EMI) scheme, the government has concluded that no further changes are required currently. However, it has announced that it will expand the scope of the review to consider whether the Company Share Option Plan (CSOP) should be reformed.
- From April 2023, some additional costs, including cloud computing and data storage costs associated with R&D will qualify for R&D tax relief. As previously announced, the government wants to focus R&D relief towards activities taking place in the UK, but recognises that in some cases R&D still needs to take place overseas. Therefore, legislation will be introduced to allow overseas R&D costs to be eligible where material, legal or regulatory factors require the activity to take place outside of the UK. Legislation will be published in draft over the summer before being included in a future Finance Bill to come into effect from April 2023.
- The basic rate of income tax will be cut from 20% to 19% in April 2024. To mitigate the impact of the change on charities that benefit from Gift Aid, there will be a three-year transition period to maintain the income tax basic rate of Gift Aid relief at 20% until April 2027. The reduction will not automatically apply in Scotland, as the power to set the rates for non-savings-non-dividend income is devolved to the Scottish government, although they may choose to introduce a similar rate cut.
- The tax cuts announced at the Spring Statement undo the effect of some of the tax rises announced earlier in this Parliament, and so the government may still be seeking ways to raise additional revenue. The Spring Statement document notes that the government will continue to consider where reforms can be made to the UK’s system of reliefs and allowances ahead of 2024. While the changes are intended to reduce complexity and increase fairness, a welcome side effect (from the government’s point of view, at least) may be increased revenue where reliefs are cut or limited.