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On 23 March 2022 The Chancellor, Rishi Sunak, delivered his Spring Statement.

Normally this could have been expected to be a uncontroversial update on Economy, Growth and Public Finances, however the triple background of recovery from the Covid Pandemic, rising costs for businesses and households, and the Ukrainian conflict, all aligned to create a cocktail of circumstances that needed addressing,

Below we set out the main points as they will interest our typical client.   As always we make no claim that this is comprehensive, and also it’s been completed in the immediate aftermath of the Statement, so E&OE.

 

National Insurance

National Insurance was the major change, so we’ll focus on that first.

 

Health and Social Care Levy

Readers will recall the introduction of the Health and Social Care Levy in two phases from April 2022.

  • First, NI rates were to rise by 1.25% for 2022-23 only.
  • Second, NI rates would reduce again in 2023-24 but there would be a new levy of 1.25% for Health and Social Care

The convoluted route was to allow time for introduction and to move from “Tax and NI” to “Tax, NI and Levy” – a lot of reprogramming of systems!

In recent weeks the Chancellor has been under pressure to reverse or defer this rise to help tackle the cost of living pressures on households.

He has left it in place, but instead raised thresholds from 6 July 2022.

 

NI for Employees (including Company Directors)

The starting thresholds for NI increase from 6 July 2022:

National Insurance for Employees
2021-22 2022-23 original 2022-23 from 6/7/2022
Band  Rate Band  Rate Band  Rate
0 to £6,240 exempt 0 to £6,396 exempt 0 to £6,396 exempt
£6,240 to £9,568 0.00% £6,396 to £9,880 0.00% £6,396 to £12,570 0.00%
£9,568 to £50,270 12.00% £9,880 to £50,270 13.25% £12,570 to £50,270 13.25%
over £50,270 2.00% over £50,270 3.25% over £50,270 3.25%

On an annualised basis the saving for an employee is 13.25% x £2,690 (the increase from £9,880 to £12,570), which is £356.

However as these measures come in from July, the effect for 2022-23 is 9/12ths of this, £267.

On an annualised basis it looks like anyone earning less than £41,000 is slightly better off, depending on your choice of comparator.

The £12,570 starting threshold for Employees NI now aligns with the Personal Tax Allowance which has been an aim of the Government for a while, on a slow route to merging NI and Income Tax in practice if not in name.

The 0% rate allows for benefits to be accrued, notably State Pension, without contributions being due.

 

NI for Employers

There are no changes to thresholds, but the Employment Allowance increases.

National Insurance for Employers
2021-22 2022-23
Band  Rate Band  Rate
0 to £8,840 exempt 0 to £9,100 exempt
over £8,840 13.8% over £9,100 15.05%

The Employment Allowance is a disregard of Employers NI contributions, and has increased from £4,000 (2021-22) to £5,000 for 2022-23 with immediate effect.

Remember Employers NI is charged on top of salaries, hence it is sometimes called a “a tax on jobs” – the Employment Allowance exempts employers from paying over the first slice of contributions.

 

Income Tax for Employees

No immediate changes, but a promise of the Basic Tax Rate being cut from 20% to 19% from April 2024 (election year, of course…).

Income Tax
2021-22 2022-23
Band  Rate Band  Rate
0 to £12,570 exempt 0 to £12,570 exempt
£12,571 to £50,270 20% £12,571 to £50,270 20%
£50,271 to £150,000 40% £50,271 to £150,000 40%
over £150,000 45% over £150,000 45%

 

NI for Self Employed and Partners

The Self Employed and Business Partners pay two classes of NI:

  • Class 2 NI which is a fixed weekly amount and which gives entitlement to State Pension and other benefits
  • Class 4 NI which is a variable charge on profits

In the Spring Statement we saw several changes:

  • The threshold for Class 4 was increased to match the changes for Employees
  • For 2022/23 the new threshold is £11,908 which is an apportioned amount of the changes for Employees – 3 months at old level £9,880, 9 months at new level £12,570 = £11,908
  • From 2023/24 the threshold will align with the threshold for Employees and the Personal Tax threshold
  • For Class 2 the starting threshold was aligned with that for Class 4 but a 0% rate was introduced from the previous Small Profits Threshold
  • The 0% threshold allows benefits and State Pension to be accrued without NI being paid, and it aligns with the 0% rate for Employees

The result of the above changes is to more closely align Self Employed and Employed NI, albeit the Self Employed NI rates are lower.

The mid year change for Employees makes for a messy transition, but the thresholds will fully align from April 2023.

These are the resultant rates:

National Insurance for Self Employed
2021-22 2022-23 original 2022-23 from 6/4/2022
Band  Rate Band  Rate Band  Rate
Class 2 Class 2 Class 2
0 to £6,515 exempt 0 to £6,725 exempt 0 to £6,725 exempt
£6,515 and over £3.05/week £6,725 and over £3.15/week £6,725 to £11,908 0%
£11,908 and over £3.15/week
Class 4 Class 4 Class 4
0 to £9,568 exempt 0 to £9,880 exempt 0 to £11,908 exempt
£9,568 to £50,270 9.00% £9,880 to £50,270 10.25% £11,908 to £50,270 10.25%
over £50,270 2.00% over £50,270 3.25% over £50,270 3.25%

 

National Insurance Conclusions

Relatively small tweaks that will reduce the Chancellors tax take considerably.  In low / medium income households the changes should offset some of the inflationary pressures being experienced.

The move toward aligning Tax and NI thresholds is useful, however there is no guarantee the alignment will remain.

 

Spring Statement – The Best of the Rest

R&D Relief & Credits – some small increases to the scope of R&D Relief from April 2023 around Pure Mathematics and Data Storage costs being eligible expenses.   Will be reviewed over the summer to better target R&D Reliefs and tackle abuse.

Capital Allowances – extending the £1m Annual Investment Allowance to 31 March 2023 – it had been due to decrease to £200k.   Will be reviewed over the summer to consider increasing the scope of Capital Allowances to stimulate investment.

VAT Zero Rating on Energy Saving Materials – eg insulation and solar panels.

Business Rates – nothing much new; confirmation of a 50% Retail, Hospitality and Leisure discount for 2022-23, and some new exemptions for the value of green technology in buildings.

Fuel Duty – 5p per litre cut in Fuel Duty on Diesel and Petrol from 6pm on 23rd March for 12 months.

Inflation – expected to remain elevated until the end of 2022 peaking at 7.4%, before decreasing in 2023 and 2024.

GDP Growth in 2021 of 7.5%, although around 2/3rds of that from inflation, so real growth nearer 2.5%.  Cautious growth prospects ahead.