Tax

On 23 March 2022, the Chancellor delivered the Spring Statement, which was light on significant tax announcements. In the current environment of rising energy prices and inflation, the headline items comprised an immediate cut to fuel duty, an increase in National Insurance Contribution thresholds which will take effect from July 2022 and a decrease in the basic rate of income tax which will take effect from April 2024 (each more fully detailed below). The government has also published a “Tax Plan” which, although currently setting out little in the way of detail, suggests that further reforms to the tax system are on the horizon.

We have summarised below those measures that are likely to be of greatest relevance or interest to our clients.

If you would like to discuss any of the following please contact the tax team and we will be happy to assist.

Key announcements and publications

1. National Insurance Contributions (NICs) threshold increase: The government announced that the Primary Threshold for Class 1 NICs payable by employees and the Lower Profits Limit for Class 4 NICs payable by the self-employed (i.e. the point at which employees and the self-employed start paying Class 1 and Class 4 NICs respectively) will increase from the current threshold of £9,880 per year to £12,570 per year from July 2022. This increase aligns the two NICs thresholds with the annual income tax personal allowance.
2. Employment Allowance increase: The government announced that the Employment Allowance, which allows eligible employers to reduce their annual NICs liability, will increase from £4,000 to £5,000 per year from April 2022.
3. Fuel duty: The government will reduce rates of fuel duty for 12 months. The rates for diesel, unleaded and leaded petrol will reduce by 5 pence per litre and a proportionate percentage cut will be made in respect of other fuels, where practical. This cut applies from 6pm today, 23 March 2022.
4. VAT on Energy Saving Materials (ESMs): Following the UK’s withdrawal from the EU, the government can now reverse certain VAT-related changes made in 2019 which provided that the reduced 5% rate of VAT only applies to the installation of ESMs in limited circumstances. The government announced today that it will reverse the 2019 changes and widen the scope of the relief such that: (i) a temporary zero rate of VAT will apply to installation of ESMs for a five year period; (ii) certain conditions will no longer need to be met; and (iii) wind and water turbines will again constitute ESMs. This measure will take effect from 1 April 2022.
5. Business rates for green technology: As part of the Autumn Budget 2021 the government announced business rates exemptions for eligible plant and machinery used in onsite renewable energy generation and storage (for example, solar panels and heat pumps) and a 100% relief for eligible low-carbon heat networks. These exemptions were to apply from 1 April 2023 until 31 March 2035 but will now take effect from April 2022.
6. Tax Plan (including measures relating to Capital Allowances, Research & Development (R&D) and Income Tax rates): In furtherance of its stated goal to reform and reduce taxes, the government has published a Tax Plan setting out three key priorities – namely:
   1. sharing proceeds of growth with “working people” through further tax cuts, with the government announcing its intention to cut the basic rate of income tax to 19% (a 1% reduction to the existing 20% rate) from April 2024. Although the government’s announcement focusses on the impact on individual taxpayers, it is expected that this change would also affect the rate of withholding tax on interest and other annual payments insofar as this is linked to the basic rate.
   2. cutting and reforming business taxes, to drive growth through investment in:
      • Capital: The government is considering changes to the capital allowances regime, including an increase to the Annual Investment Allowance, an increase in Writing Down Allowances for certain assets, the introduction of First Year and Additional First Year Allowances and the introduction of “full expensing”, which would permit businesses to write off the costs of qualifying investments in one go.
      • People: The government will consider whether further intervention is required to encourage employers to offer high quality training, including whether the current tax system (in particular, the Apprenticeship Levy) is sufficient to incentivise investment in this respect.
      • Ideas: With the aim of ensuring that the UK remains a competitive location for cutting edge research, the government will consider further measures to ensure that R&D reliefs are as effective as possible and represent best value for taxpayers. The government has also noted that the scope of its EMI option scheme review – pursuant to which the government has concluded that the EMI option scheme remains appropriately targeted – will be expanded to consider whether Company Share Option Plans (CSOPs) should be reformed to support companies as they outgrow the EMI option scheme parameters.
   3. helping families with the cost of living, addressed chiefly through the various measures outlined above, including the cut to fuel duty and the NICs threshold increase.

We have been told to expect further clarity on the means of achieving these Tax Plan priorities in future budgets, starting this autumn, and that the government’s intention is for any key changes to be brought into effect from April 2023.