Spring Statement maps out the UK government's tax plan
Published on 24th Mar 2022
Better-than-expected public finance predictions have made way for measures attempting to ease the soaring cost of living and to reform and reduce taxes
The UK chancellor, Rishi Sunak, has delivered tax and spending measures in his Spring Statement (23 March 2022) that would normally be made in the Budget, but, amid the current economic climate and the war in Ukraine, the announcements aim to help ease the pressure on households and businesses.
The chancellor also introduced his tax plan for the government's longer-term reform and reduction of taxes, but much of the detail around these measure to incentivise businesses to invest more in the UK have been reserved for the Autumn Budget. In his speech, the chancellor announced a range of measures (some immediate and others promised) that included changes to National Insurance contributions, Income Tax, the Employment Allowance, Fuel Duty, Green measures, tax-advantaged employee share schemes, research and development, and capital investment.
- NIC. The chancellor confirmed that the planned 1.25 percentage point rise in National Insurance contributions (NICs) will go ahead in April, but, to ease the impact of the NICs rise he announced that the National Insurance Primary Threshold and Lower Profits Limit would be increased from £9,880 to £12,570, from July 2022. This is intended to allow payroll providers and employers some time to update their systems to reflect the change in the threshold and will align it with the income tax personal allowance. The chancellor also announced measures to help self-employed low earners: from April 2022, self-employed individuals with profits between the Small Profits Threshold and Lower Profits Limit will not pay class 2 NICs.
- Income Tax. He also confirmed that the government intends to reduce the basic rate of income tax from 20% to 19% from April 2024 which will be implemented in a future Finance Bill.
- Employment Allowance. In order to help smaller businesses, from April 2022, the Employment Allowance will increase to £5,000.
- Fuel duty. As had been heavily trailed in the press, there will be an immediate temporary cut in fuel duty by 5p a litre for 12 months from 6pm on 23 March 2022.
- Green measures. To help support the UK's net-zero ambitions, the chancellor has announced an expansion of the scope of VAT relief for energy saving materials (ESMs) such as solar panels, insulation and heat pumps. The government will include additional technologies (such as wind and water turbines) to the list of ESMs and remove the complex eligibility conditions. It will also increase the relief further by introducing a time-limited zero rate of VAT for the installation of ESMs (which will last until 31 March 2027). The changes will take effect from 1 April 2022. To support the decarbonisation of non-domestic buildings, the government is also bringing forward, by one year to April 2022, the introduction of targeted business rates exemptions for eligible plant and machinery used in onsite renewable energy generation and storage, and a 100% relief for eligible low-carbon heat networks with their own rates bill. However, there was no update on measures to help the roll out of electric vehicles (EVs) with no new incentives for purchasing EVs or for the installation of new charging infrastructure despite the support of the tax system anticipated by many for the COP 26 net-zero targets.
- EMI. In the Budget 2020, the government launched a review of the Enterprise Management Incentive (EMI) scheme, to ensure it provides support for high-growth companies to recruit and retain the best talent they can to scale up effectively and to examine whether more companies should be able to access the scheme. The chancellor confirmed that the government has concluded that the current EMI scheme remains effective and appropriately targeted. However, the scope of the review will be expanded to consider if the tax-advantaged Company Share Option Plan (CSOP) should be reformed to support companies as they grow beyond the scope of EMI. The reform would enable more companies to qualify to grant CSOP options. There is anticipation that there will be a significant increase in the individual limit for CSOP (currently £30,000), which has remained unchanged for many years.
- Research and development. The government had previously announced that research and development (R&D) tax reliefs would be reformed to include some cloud and data costs and to refocus support on R&D carried out in the UK. From April 2023, all cloud-computing costs associated with R&D, including storage, will now qualify for relief. The statement also confirms that the government has recognised that there are some cases where it is necessary for the R&D to take place overseas and it intends to legislate in a future Finance Bill, to come into effect in April 2023, for expenditure on overseas R&D activities to qualify in limited cases. This would apply, for example, where material factors such as geography, environment, population or other necessary conditions require research outside of the UK – such as clinical trials. It also recognised the growing volume of R&D underpinned by pure mathematics and announced an expansion from April 2023 of the qualifying expenditure to include all mathematics. The government will also consider increasing the level of the R&D Expenditure Credit to boost investment in the UK and further announcements will be made in the autumn.
- Capital Investment. In advance of the end of the "super-deduction" – the temporary enhanced first year capital allowances – in April 2023, the statement said that the government will consider reforms to support future business investment. While the government has not committed to any specific reforms at this stage, the chancellor gave some illustrations of the types of changes that the government could make: for example, increasing the permanent level of the Annual Investment Allowance and increasing Writing Down Allowances for main and special rate assets. It also hinted that 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). Further detail is expected in the Autumn Budget.
Osborne Clarke comment
Given the current economic climate, the chancellor had to provide some relief for households, but, while this is welcome, many will argue that more could have been done to help ease current financial pressures. Although major announcements on tax policy were not expected, the publication of the tax plan sets out the government's direction of travel for a lower-tax economy with a general election looming. However, this may be of little comfort to those households and businesses that are currently struggling. We expect the Autumn Budget will flesh out much of the detail in the chancellor's announcements as well as offer new tax policy measures.