Spring Statement Summary 2022

Analysis and commentary from FPM’s team of tax experts, identifying the key changes and outlining the practical implications for you and your business.

Download Your Guide Today >

Chancellor Rishi Sunak presented his Spring Statement on Wednesday 23rd March 2022.

He has unveiled a suite of measures aimed at addressing the economic impact of the pandemic whilst trying to implement the Government’s tax plan to support the UK economy, businesses, and families in both the short and the medium term. A central message from Mr Sunak was a reminder that he “can’t solve every problem”, clearly in anticipation of criticism from affected parties.

Spring Statement Summary

The key measures announced:

• There will be an increase to the National Insurance Primary Threshold for Class 1 NICs and the Lower Profits Limit for Class 4 NICs from 6‌‌‌ ‌‌July‌‌‌ ‌‌2022, aligning it with the equivalent income tax personal allowance which is set at £12,570 per annum
• From April 2022, self-employed individuals with profits between the Small Profits Threshold (SPT) and the Lower Profit Limit will not pay Class 2 NICs, while allowing individuals to be able to continue to build National Insurance credits
• The Employment Allowance will be increased by £1,000 from 6‌‌‌ ‌‌April 2022 to £5,000, which will benefit around 495,000 businesses
• There will be an immediate reduction in duty on diesel and petrol from‌‌‌ ‌‌6‌‌‌‌pm on 23‌‌‌ ‌‌March 2022, by 5‌‌‌ ‌‌pence per litre, for 12 months
• They will be scrapping VAT on green energy materials and devices for homeowners

Mr Sunak attempted to strike the difficult balance between delivering measures to improve the current cost of living crisis at a time when economic uncertainty and increased security spending prevails. Our Tax Team further unpack these key changes and outline the practical implications for you and your business below.

NICs threshold increase

• The primary threshold for Class 1 NICs and Lower Profits Limit for Class 4 NICs will be increased to £12,570 with effect from 6 July 2022.
• The government has long had the ambition to align the national insurance contribution thresholds with the income tax personal allowance, this is a larger increase to the primary threshold than the expected April 2022 increase (a £9,880 threshold has already been legislated). Note that this is not a full alignment of rules; there does not seem to be any proposal to withdraw the benefit of the NICs allowance for those earning over £100,000, as is the case with the income tax personal allowance.
• The increased threshold will effectively negate the effect of the 1.25% NICs increase for lower earners and mitigate the effect of this increase for middle earners. The increase in thresholds, however, does not take effect until July 2022, yet the increased NICs rate applies from April 2022, meaning potentially there will be 3 months of a wait for those worst hit by the cost-of-living crisis.
• From April 2022, self-employed individuals with profits between the Small Profits Threshold (SPT) and the Lower Profit Limit will not pay Class 2 NICs, while allowing individuals to be able to continue to build National Insurance credits

Income tax

• The basic rate of income tax will be cut from 20% to 19% from April 2024, but only if it is achievable via falling debt and no borrowing for day-to-day spending.
• No changes to the income tax personal allowance or higher / additional rate bands; the income tax personal allowance and bands remain at their 2021-2022 amounts and are currently expected remain until at least the 2025-26 tax year.

Temporary fuel duty cut

• A 5p per litre cut will be made to duty on petrol and diesel for 12 months from 6pm on 23 March 2022. Proportionate cuts to duty on other fuels will also be made for the same period.

Business friendly measures

• Employment Allowance: The Employment Allowance will be increased from £4,000 to £5,000 with effect from 6 April 2022. This measure will only benefit smaller businesses as only those businesses with NICs liabilities below £100,000 in the previous tax year qualify for Employment Allowance.
• Capital allowances reform: with the super-deduction due to end in April 2023, the government is considering options for capital allowances reform – for example, increases to the rate of writing down allowances or the introduction of a new first year allowance. Further details are expected in the Autumn Budget 2022.
• R&D relief reform: the government commenced its review of R&D reliefs in Spring 2021. In the Spring Statement 2022 it announced that relief for overseas R&D expenditure will be restricted unless there are material factors (e.g. geography) or regulatory reasons for carrying out the R&D activities overseas. It was also announced that all cloud computing costs associated with R&D and all mathematics underpinning R&D will qualify for R&D relief. These changes are expected to take effect from April 2023. Again, announcements relating to R&D tax reliefs will be made in Autumn 2022.