The annual budget, originally published in the spring, was moved to the autumn in 2016 to allow more time to implement change in advance of the new tax year. The spring statement was then intended to become an interim economic forecast and an update on the health of public finances.
Due to global events since 2016, the spring statement has evolved into a mini-budget in it’s own right. A positive step to maintain our collective agility, a less than positive impact for people like me who have to re-evaluate client recommendations for the coming year!
If you don’t hear from me directly, you can assume your tax plans are not impacted. I will be in touch with those who will need to make some alterations.
Fuel duty
Many of you who are dependant on their vehicles to live and work will be feeling the pinch here. The impact of the rise in wholesale fuel costs on UK petrol prices will only be partially remedied by a 5p cut in fuel duty.
Health and Social Care Levy
This levy will go ahead as planned from 6th Apr 22. It will be a 1.25% increase on national insurance contributions across all classes (as well as all dividend rates), to then become a stand alone tax from Apr 23.
National Insurance Contributions (NICs)
However, the NI primary threshold – the point at which employees begin to make NICs, has risen from £9,880 to £12,570. This amounts to an average £330 NI saving for those earning in excess of the personal allowance. This will come into effect from 6th July 22, a quarter into the new tax year to allow payroll providers to make the necessary system adaptations.
Meanwhile the NI secondary threshold – the point at which employers begin to make NICs will remain at £9,100. To soften the blow, an additional £1,000 will be added to the Employers Allowance (an employer’s NI rebate for small business), taking the tax credit from £4,000 to £5,000.
Some good news for self-employed individuals. The Class 4 Lower Profits Limit – the point at which self-employed individuals begin to make NICs, will also rise from £9,880 to £12,570 from 6th Jul 22. Furthermore, from 6th Apr 22, Class 2 NICs will not be charged to businesses earning beneath the lower profits limit, but these individuals will still be able to build up national insurance credits.
A few things to unpick here with regards your own remuneration.
Income tax
The basic rate of income tax will fall from 20% to 19% from Apr 23. Higher and additional rates will remain at 40% and 45% respectively, as will the personal allowance, higher and additional rate thresholds.
Welcome news from some. Too little too late for others.
A quick assessment
There has been lots of speculation as to whether these measures amount to a tax cut. It’s been generally accepted that these measures give back a portion (perhaps a 3rd) of the higher-than-forecast revenues HM Treasury have received.
Rising inflation leads to higher prices and higher tax revenues. Stagnant tax thresholds coupled with rising wages leads to a greater portion of our income exposed to higher rates of tax. Increases in NICs (in spite of an increase thresholds) naturally lead to more money in the public purse.
The current cost of living crisis has been met with a cautious response compared with the throw-the-book-at-it approach of Covid. This suggests that the Government are keeping something in reserve should inflationary pressures increase further.
Again, low earners have been the main beneficiaries. Higher earners will pay more. Those out of work and/or claiming benefits have seen less help.
Any questions or concerns around this or any other area of your finances at this challenging time, please let me know.
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