Every week we take a look at what is trending in the accountancy and tax press and share items that we think will interest you. However, these are only outlines and where they relate to tax planning should not be acted upon without looking into them more completely as everyone’s circumstances are particular to them. You need to take specific advice appropriate to your own circumstances.
While every effort is made to deliver accurate, informative and balanced articles this content is general in nature and should not be used as the sole basis for making decisions.
The Spring Statement – Uncertain Times
Rishi Sunak kept referring to the OBR (Office of Budget Responsibility. However, in the documents released following the statement, it says “the uncertainty surrounding the Office for Budget Responsibility’s (OBR) spring economic fiscal forecast is higher than usual.”
So, does his reference to the OBR forecast actually count for anything?
The freezing of key allowances and thresholds will pull in significant amounts of tax over the remainder of this parliament. Removing one element of the pensions triple-lock will reduce government spending. The increase in corporation tax from April 2023 will raise yet more tax.
Inflation is a two edged sword. It raises prices meaning the VAT element is also higher, a bonus for the exchequer. However, it will increase the cost of borrowing for government with the interest bill for 2022/23 now forecast to be £83bn as against £23.6bn in 2020/21.
So where is tax going? What can we expect as the chancellor navigates unknown treacherous waters?
Rishi announced that his tax plan is focused upon three key priorities:
- helping families with the cost of living;
- creating a new culture of enterprise and the conditions for private-sector-led growth;
- sharing the proceeds of higher growth fairly with working people through further tax cuts.
The government also says that it wants to make the tax system simpler, fairer and more efficient, but we have been hearing that for a very long time. The Office of Tax Simplification was set up many years ago.
Can we identify some moves to implement this plan?
- Aligning the Class 1 and Class 4 thresholds from July will cost over £25bn between 2022/23 and 2026/27 but the government estimates that the measure will take around 2.2m people out of the scope of NI and the Health and Social Care Levy.
- Reducing Class 2 NI on profits between the Small Profits Threshold and Lower Profits Limit will also help the smallest businesses
- The cut in fuel duty will help many small businesses, although not by much.
- There is also the promised cut in Ime Tax from 2024.
What is likely to be next on the Government’s Agenda?
- amending the capital allowances regime including an increase in the permanent level of the Annual Investment Allowance, increasing Writing Down Allowances, introducing an Additional First Year Allowance to permit claims in excess of 100% of initial cost and so on.
- Updating the reliefs for training and R&D.
But then we come back to the uncertainties from the OBR. Whatever Rishi’s plans, he may find his hand stied by external forces that he cannot control. Some of the factors that he will have to accommodate in his plans going forward include:
inflation is already significantly worse than had been predicted at the time of the October Budget;
- the invasion of Ukraine;
- changes to the way we work;
- the impact of new technology;
- the drive to fight climate change.
Rishi’s plans and indeed the whole administration of ta collection in the UK will have to accommodate these and many other factors.
So, what does the Autumn Budget contain?
Employers’ class 1 NIC
The secondary class 1 NIC rates and thresholds (paid by employers) were not altered in the Spring Statement, and the rate is increasing from 13.8% to 15.05% on 6 April 2022.
For 2022/23 the various secondary class 1 NIC thresholds are:
Employees’ class 1 NIC
The rates of primary class 1 NIC paid by employees are increasing on 6 April 2022 from 12% to 13.25% with the upper rate increasing from 2% to 3.25%.
The lower earnings limit (LEL) has not been changed from the proposed level for 2022/23, which will be: £123 per week, £533 per month, £6,396 per year. On earnings between the LEL and the primary threshold, the employee pays class NIC at 0%, thereby receiving NIC credit for those wages.
The upper earnings limit (UEL) has also not been changed by the Spring Statement, and will stay at the proposed thresholds for 2022/23 of £967 per week, £4,189 per month, £50,270 per year. On earnings above the UEL, the employee will pay class 1 NIC at 3.35% for 2022/23.
The primary threshold (PT) for class 1 NIC will change part way through the tax year on 6 July 2022 and the employee will pay class 1 NIC at 13.25% on earnings between the LEL and the PT for 2022/23.
|Class 1 NIC primary thresholds||6 April to 5 July 2022||6 July 2022 to 5 April 2023|
As NIC is paid according to the pay period, and is not cumulative, only nine months of earnings (from July 2022 to March 2023) will benefit from the higher PT.
Company directors using an annual basis for calculating their NIC contributions will use a PT of £11,908 for 2022/23 as specified in the regulations.
Class 4 NIC
The lower profits limit (LPL), from which class 4 NIC becomes payable, is also increased to align with the personal allowance of £12,570, but over two years. The upper profits limit is frozen at £50,270.
|Tax Year||Main rate||Additional rate||LPL||Upper profits limit|
Class 2 NIC
The class 2 NIC paid by the self-employed creates a contribution record for the individual, unlike the class 4 NIC, which is a pure tax.
The class 2 small profits threshold (SPT) will remain in place from April 2022, but the individual will not be liable to pay class 2 NIC until their profits exceed the lower profits threshold for the tax year, which is aligned with the lower profits threshold for class 4 NIC. Below this level, you will receive a Class 2 NIC credit.
|Tax year||Flat rate per week||Small profits threshold||Lower profits limit|
In order to receive the class 2 NI credit the taxpayer will have to submit a tax return, although if they have no other income in the year they will have no tax to pay.
You may still wish to pay voluntary class 2 NIC in order to maintain your contribution record and qualify for the state pension, if your profits are below the small profits limit.
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 employment allowance will cover the employers’ liability for the Health and Social Care levy.
In total, this means that from April 2022, 670,000 businesses will not pay NICs and the health and social care levy due to the employment allowance.
Basic Rate Tax Cut
A cut in the basic rate of income tax from 20% to 19%, will apply from 6 April 2024.
In addition, it has been reported that the Chancellor has ordered Treasury officials to review options of reducing the tax burden.
The measures currently being suggested include a 1p cut in the basic rate of income tax by 2023-24 and a further 1p cut in 2024-25 with a bigger cut to the rate of VAT.
Other measures reportedly being considered include scrapping the 45% high rate of income tax and raising the threshold at which inheritance tax (IHT) becomes payable.
Zero rate VAT for solar panels
Chancellor Rishi Sunak said: ‘As energy costs rise, for next five years homeowners having solar panels and heat pumps installed will pay zero rate VAT, and there will be a zero rate for investment in wind and water turbines.’
The government will expand the scope of VAT relief available for energy saving materials including solar panels and wind turbines, so that households having energy saving materials installed pay 0% VAT. The current rate is 5%.
The zero rate VAT scheme will start on 1 April and will run until March 2027.
With the significant increase in National Insurance from April 2022, it may be useful to look into some form of salary sacrifice arrangement. Some work more efficiently than others. You can either use a salary sacrifice and an optional remuneration arrangement.
However, these are not a silver bullet that just provides tax and National Insurance savings because there are administrative considerations that can be quite burdensome.
If you have any questions about any of these, you know where to find us. If you prefer, just give me a ring on 07770 738770 or email me at firstname.lastname@example.org.