Today, the chancellor presented the government’s Spring Statement 2022, outlining the latest changes in government tax and spending. Here is our analysis of what was announced today, what this means for you and your team, and what this means for your business.

Cost of living crisis

There was an expectation (or hope) that support for families dealing with the cost of living crisis would be announced today - many business owners I’ve spoken to are really worried about the impact on their employees. Martin Lewis, the money-saving expert, said today that “the UK is on the brink of a personal finance precipice”  The Office for Budgetary Responsibility (OBR) says that this year will be the biggest fall in living standards since records began in 1956.

Prices are going up: The OBR forecast predicts that inflation will average 7.4% this year, peaking at around 9% at the end of the year.

However, there is little in today’s announcements that will make a meaningful difference to families already faced with soaring prices of everything from groceries to fuel and an increase in tax from next month.

The Health and Social care levy comes into place from April 2022 - and has been neither abolished nor postponed as some had expected. There was no mention of a windfall tax on oil company profits and no increases in benefit payments or state pensions to help.

The headline announcements:
  • Fuel duty cut by 5p per litre from 6pm tonight
  • The Employment Allowance rises to £5,000 from April
  • National Insurance Contribution thresholds increase by £3,000 from July 2022
  • VAT is abolished on some energy-saving building products such as solar panels, heat pumps, insulation, etc.
  • Annual Investment Allowance stays at £1m per year
  • R&D tax credits to be reformed
  • The basic rate of income tax will reduce from 20% to 19% in 2024
What this means for you and your team

Health and Social Care Levy

Despite speculation, the Health and Social Care Levy stays -  this means an additional 1.25% on your National Insurance compared to the rates for 2021/22. This is mirrored in the increase in dividend tax from 6 April 2022 of 1.25%.

National Insurance Contribution thresholds increase by £3,000 from July 2022

From this July, you will be able to take a salary of up to £12,570 before you pay National Insurance. 

For those with an annual income made up of salary and dividends, this will mean some changes could be made to how you pay yourself from July. Due to the increase in dividend tax alongside the Health and Social Care Levy, the net effect for individuals is neutral. 

For your employees, they will see a rise in National Insurance due to the Health and Social Care Levy from April. However, from July this rise will be reduced due to the increased threshold. For those earning under £35,000, there will be no rise, and most will see a reduction. 

What this means for your business

The Employment Allowance rises to £5,000 from April

From next month, there is an increased incentive to employ people. The Employment Allowance is increasing from £4,000 per tax year per employer to £5,000, resulting in less tax paid by you for being an employer. 

Capital Investment

The Annual Investment Allowance limit remains at £1m per year, meaning that any qualifying assets that you buy during the year will receive 100% tax relief in the first year, as long as you spend less than the limit. As a reminder, the ‘super’ deduction will remain until 31 March 2023, so any qualifying asset that you buy before then will receive an additional 30% tax relief.

R&D Tax Credits

There were no specific changes to R&D Tax Credits. However, the chancellor did announce that reforms will come in the Autumn 2022 budget announcement, stating that the reforms will be ‘generous’ and designed to give more value for money. We’ll see what that means in practice. If you claim R&D Tax Credits, keep an eye out for more on what we expect to change from our Head of R&D at Wow, Fantasia Bell. For now, the National Insurance limit for individuals is increasing from July. For directors involved with R&D activities, this could result in being more tax-efficient. If this is you, we recommend reviewing your current salary structure. We can help those affected to provide some calculations on this.

Hopefully, this is a useful summary for you. As always, more detail may be published in the coming days, and we’ll keep you updated on any changes that may affect you. If you have any questions about any of the above or would like more detail on some of these announcements, please don’t hesitate to contact us.