Research and reports
The Chancellor, Rishi Sunak, delivered the UK Spring Statement on 23 March 2022. What do small businesses need to know about the announcements?
When the new tax year starts on 6 April each year, new tax changes are introduced.
The changes starting next month are significant though, as taxpayers will begin to pay for the cost of the government’s pandemic response.
This includes through:
But amid the cost of living crisis affecting households and businesses across the country, the Chancellor was under pressure to use the Spring Statement to announce some relief.
So, what did Rishi Sunak announce in the Spring Statement for small businesses and the self-employed?
The 1.25 percentage point increase in National Insurance rates is still happening, before being replaced by the Health and Social Care Levy next year.
But the Chancellor has announced a tax cut for both employed and self-employed workers. National Insurance thresholds will be raised by £3,000 in July 2022, to bring them in line with the income tax personal allowance.
This increase means you need to be earning more before you start paying National Insurance contributions.
The primary threshold for Class 1 NICs and the lower profits limit for Class 4 NICs will increase from £9,880 to £12,570 in July 2022.
Self-employed people with lower earnings will also benefit. If you have profits between the small profits threshold (£6,725 in 2022-23) and the lower profits limit, you’ll build up National Insurance credits but won’t need to pay Class 2 NICs.
If you do a lot of driving for work, the soaring cost of energy has likely already been affecting your bottom line for a while.
This makes the 5p a litre cut in fuel duty one of the government’s headline announcements from the Spring Statement. This comes into effect from 6pm on 23 March 2022 and will last until March 2023.
Fuel duty is included in the price of petrol and has been frozen at 57.95p a litre since 2011.
RAC, the car breakdown and insurance firm, said before the Spring Statement that benefiting from the fuel duty cut “depends entirely on retailers reducing their prices and not using it as an opportunity to take a greater profit on every litre they sell.”
Instead they recommended reducing VAT, but this failed to materialise.
Homeowners will pay zero VAT to install energy saving products like solar panels and heat pumps for the next five years.
If you're a landlord, why not read our Spring Statement 2022 summary for landlords?
The Chancellor said he wants to reduce and reform taxes during this Parliament, but what does that mean in practice?
While we’ll need to wait for detailed analysis on the tax plan, the Chancellor did announce that by the end of this Parliament in 2024, the government will reduce the basic rate of income tax from 20 per cent to 19 per cent.
The previously announced business rates discount scheme for retail, hospitality and leisure is starting in April, which is 50 per cent relief on rates (the current 66 per cent discount ends on 31 March).
The business rates multiplier has also been frozen for 2022-23.
However, there were no new announcements on business rates, despite a review into the system being published in October 2021.
As part of its new tax plan, the government has said that it will set out its plans for business rates reform at Autumn Budget 2022, with changes starting in April 2023. But is this fast enough?
Commenting prior to the Spring Statement, Kate Nicholls, the CEO of UKHospitality, said: “In order to safeguard jobs and businesses, and to support a fully recovered and thriving hospitality sector, business rates must be reformed, with a fairer system that does not disproportionately penalise businesses that bring people together and create jobs. There must also be a fully functioning infrastructure to ensure that valuations are accurate and that appeals are accessible.”
To cope with lockdowns, the government reduced VAT for hospitality businesses to five per cent initially, which then increased to 12.5 per cent and is due to return to 20 per cent in April.
In the Spring Statement, the Chancellor chose to let VAT return to these levels, despite calls for the government to extend the reduction.
Simon Jupp MP (East Devon), Chair of the Hospitality and Tourism APPG, said: “Having sought views across the industry, it’s clear that keeping the reduced rate of VAT will help the hospitality and tourism industry get back on its feet after an exceptionally difficult two years. It’s really important to support the industry to help showcase the best of the UK”.
Rishi Sunak announced that the Employment Allowance will increase to £5,000 in April 2022. This is the amount you can claim against your employers’ Class 1 National Insurance.
As part of the Chancellor’s new tax plan, the government is also looking at more flexible models for apprenticeship training, as well as how to encourage greater private sector investment in employee training.
The Chancellor has committed to improving R&D tax credits to “deliver better value for money for the taxpayer while being more generous”. Details will be announced later in the year. The Federation of Small Businesses (FSB) had previously called for the system to be simplified.
It’s been nearly a year since IR35 was introduced in the private sector.
Experts were hoping to hear more about how the government plans to regulate umbrella companies, but this didn’t appear in either the announcement or the Spring Statement document itself.
The Fair Umbrella Campaign called for a timetable on creating a regulatory body in its response to February’s consultation on umbrella companies.
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