Tax highlights from the Spring Statement
The ICAS Tax Team highlights three tax headlines from the Chancellor’s Spring Statement.
Spring Statement – the Tax Plan
The Spring Statement 2022 was expected to concentrate on economic updates and forecasts – significant tax announcements were not anticipated. However, against the backdrop of the war in Ukraine and significant increases in the cost of living in the UK, the Chancellor chose to include a Tax Plan in his statement.
This included announcements of several tax changes, alongside some longer-term options for possible reforms to taxes, under three headings:
- Helping families with the cost of living: This includes the alignment of the National Insurance and income tax thresholds, a temporary (one year) reduction in fuel duty and an expansion of the scope of VAT relief on the installation of energy saving materials.
- Boosting productivity and growth by creating the conditions for the private sector to invest more, train more and innovate more: This includes the announcement of a review of the Apprenticeship Levy, some changes to R&D reliefs and consideration of some options for reform of capital allowances.
- Sharing the proceeds of growth fairly: The Chancellor announced a plan to reduce the basic rate of income tax to 19% from April 2024.
We examine three of the tax announcements in more detail in the remainder of this article. Further information can be found in Spring Statement 2022 documents and Spring Statement 2022 tax-related documents.
Alignment of the income tax and National Insurance thresholds
There had been considerable speculation ahead of the Spring Statement that the Chancellor might cancel or delay the 1.25% increase in National Insurance Contributions (NIC) which was announced in September 2021, to come into effect from April 2022. He did not do so. However, he did announce an increase in the annual National Insurance Primary Threshold and Lower Profits Limit from £9,880 to £12,570, from July 2022. For 2023/24 onwards this will align the NIC threshold with the income tax personal allowance. For 2022/23 the NIC threshold will be lower, at £11,908 because (for practical reasons) the change cannot be introduced until July.
ICAS supports the simplification of the tax system and therefore welcomes this announcement which will provide useful simplification in future years. It is unfortunate that it could not have been announced in time for systems to have been updated so that it could have taken effect from the beginning of the 2022/23 tax year in April.
The change to the NIC threshold applies throughout the UK, including Scotland – NI is not a devolved matter.
Options for capital allowances
The Autumn Budget in 2021 announced that the temporary increase to £1,000,000 in the level of the Annual Investment Allowance (AIA) would continue to apply for qualifying expenditure on plant and machinery incurred during the period from 1 January 2022 to 31 March 2023. An important part of the Tax Plan in the Spring Statement explains that the UK Government is considering some significant longer-term changes to capital allowances – intended to drive capital investment.
The Statement notes that some changes might be attractive due to their simplicity, upfront support and generosity – but might come at a high cost for a comparatively modest impact on business investment decisions. Conversely, more complex changes could be more effective. A combination might achieve the best balance.
ICAS would welcome input from Members on the options for change summarised below, which are set out in detail (with indicative costings) in paragraphs 4.32 and 4.33 of the Spring Statement:
- Increase the permanent level of AIA, for example to £500,000.
- Increase Writing Down Allowances for main and special rate assets from their current levels of 18% and 6% to 20% and 8%.
- Introduce a First Year Allowance for main and special rate assets where firms can deduct, for example, 40% and 13% in the first year, with the remaining expenditure written down at standard Writing Down Allowances.
- Introduce an Additional First Year Allowance, to bring the overall amount that can be claimed to greater than 100% of the initial cost. An additional capital allowance of 20% in the first year, on top of standard Writing Down Allowances on 100% of the initial cost across the first and subsequent years. This would spread relief over time, while giving relief on over 100% of the initial capital cost.
- Introduce full expensing, to allow businesses to write off the costs of qualifying investment in one go.
On the last option the Government comments that no other country in the G7 has implemented this on a permanent basis – and that full expensing of plant and machinery could cost significantly more than the other options, potentially over £11 billion in a single year.
The Government goes on to note that these potential changes relate to capital expenditure on general plant and machinery. However, it could also consider changes to other allowances, such as the Structures and Buildings Allowance, or new reliefs targeted at specific investments (such as the current Enhanced Capital Allowances within designated Freeport areas).
Please email tax@icas.com to give us your feedback on these suggestions for possible changes to capital allowances.
Increase in the Employment Allowance
In April 2020, the government increased the Employment Allowance from £3,000 to £4,000. The Spring Statement announces a further increase to £5,000 from April 2022. The intention is to support businesses to create jobs. The Government indicates that the increase will allow eligible employers to employ four full-time employees on the National Living Wage without paying employer NICs.
Businesses should refer to the guidance on GOV.UK to check their eligibility for the allowance.
ICAS Spring Tax Updates
The ICAS Tax Team will be delivering two webinars in May:
- Spring Tax Update 1: Employment Taxes Update (12 May)
- Spring Tax Update 2: Personal and Business Taxes Update (19 May)
Full details will be available in due course on the ICAS events page, where you will also be able to register.
Let us know your views
ICAS responds to many tax calls for evidence and consultations, as well as producing tax policy papers and reports. We also regularly attend meetings with HMRC at which service levels, delays and other administrative issues are discussed, and we raise problems being encountered by Members. We welcome Members’ input to inform our work – please email tax@icas.com to share your insights and feedback.