Spring Budget
The Chancellor of the Exchequer, Rishi Sunak has delivered his Spring Statement on Wednesday 23 March where he has given us an update on UK's current financial position. Trisha Doan from our Tax department outlines how it may affect you.
Previously, Rishi Sunak's last two statements were targeted on dealing with the Covid-19 pandemic, with vast spending packages and multi-billion pound bailouts to help workers and businesses get through the tough time. However, this time the Chancellor faces a new challenge of dealing with the current cost of living crisis that has been worsened by the Russian invasion of Ukraine. The effects of this crisis are currently being felt in the UK's inflation rate, with energy and fuel prices dramatically increasing.
What has been announced?
Responding to the latest economic forecasts from the Office for Budget Responsibility, Mr Sunak revealed that the economy is expected to…
Energy price crisis/fuel duty
Household energy bills are currently a major area of concern, with Ofgem announcing that the energy price cap is rising by 54% from 1 April. Russia's invasion of Ukraine has put more pressure on global energy prices and the energy price cap is still on course to rise sharply again in October.
In February, Mr Sunak had already announced some measures to alleviate the surging cost of energy prices, including a £150 Council Tax rebate for homes in bands A to D and a £200 energy bill rebate. However, due to rapid rise in energy prices since, many argue that these measures don't go far enough to help reduce household budgets compared to when they were first announced.
The Chancellor has announced that fuel duty is set to be cut by 5p per litre until March 2023 to take effect immediately. As an illustration, this cut along with the freeze in 2022-23 should be worth a saving of around £200 for the average van driver.
To help ease the rising cost of fuel and energy, it has been announced that homeowners that install energy efficient materials (e.g. heat pumps, solar panels) will not pay VAT. This represents a cut from the previous 5% households were levied with when funding the installations of energy saving technology in their homes.
Health & Social Care Levy – impact on Employment Allowance
The Chancellor has also announced further details about the proposed Health and Social Care Levy due to start from April 2022. Mr Sunak announced that there would be an increase in taxes on dividends of 1.25% as well as an increase in the rate of National Insurance Contributions by 1.25% to cover social care reform. The Chancellor has expanded on this in his statement and said that the 1.25% rise will remain to ensure health and social care is adequately funded.
As a boost to smaller businesses', the Employment Allowance, for national insurance payments, will be increased from £4,000 to £5,000 from April. The Employment Allowance is a relief for smaller businesses that enables them to reduce their employer national insurance contributions bill each year (should they meet the eligibility criteria).
Revisiting the tax freezes
In April 2021, several tax allowances and thresholds were frozen. For example, the income tax personal allowance and the higher rate threshold were frozen until the 2025/26 tax year. Given the current state of inflation in the UK, this will have an adverse impact on an increasing number of people as many more people will be brought into higher rates of tax – a stealth tax increase.
This stealth taxation has been subject to a lot of debate, to which Mr Sunak has addressed this by saying that the income threshold for when individuals start paying National Insurance will rise to £12,570 in July – an increase of £3,000.
There has also been an announcement that a pledge will be met by the end of this Parliament that the basic rate of income tax will be cut from 20p in the pound to 19p in 2024.
R&D Tax Credit Reform
Businesses will now be able to claim relief on the storage of data and any research pertaining to pure maths, which is designed to boost sectors of the economy where the UK is relatively strong (AI and robotics). This measure should help both small and larger businesses alike involved in these sectors as it will stimulate further expenditure on technology which is a growth economy. The details of this reform will be outlined in draft legislation which is set to be published in the summer.
If you would like to know how this budget will affect your tax planning, please contact us on 0115 955 5500 or email enquiries@pagekirk.co.uk.