Spring statement outlines UK government’s tax plan

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Better-than-expected public finance forecasts gave way to measures to mitigate the soaring cost of living and to reform and cut taxes

UK Chancellor Rishi Sunak outlined tax and spending measures in his spring statement (March 23, 2022) that would normally be made in the budget, but, in the current economic climate and war in Ukraine, the announcements are aimed at help ease the pressure on households and businesses.

The Chancellor also outlined his tax plan for longer-term government reform and tax reduction, but much of the detail around these measures to encourage businesses to invest more in the UK has been reserved for the budget. of autumn. In his speech, the Chancellor announced a series of measures (some immediate and some promised) which included changes to national insurance contributions, income tax, employment benefit, fuel tax, green measures, tax-efficient employee stock ownership plans, research and development, and capital investment.

  • NIC. The Chancellor confirmed that the planned increase of 1.25 percentage points in National Insurance (NIC) contributions will continue in April, but, to mitigate the impact of the increase in NICs, he announced that the threshold National Insurance primary and lower benefit limit would be increased from £9,880 to £12,570, from July 2022. This is intended to give payroll providers and employers some time to update their systems to to reflect the change in the threshold and align it with the personal income tax allowance. The Chancellor also announced measures to help the self-employed on low incomes: from April 2022, self-employed workers with earnings between the small earnings threshold and the lower earnings limit will not pay class NICs 2.
  • 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.
  • Job allowance. To help small businesses, from April 2022 the Job Allowance will increase to £5,000.
  • fuel tax. As had been heavily trailed in the press, there will be an immediate temporary fuel duty reduction of 5p a liter for 12 months from 6pm on March 23, 2022.
  • Green measures. To help support the UK’s net zero ambitions, the Chancellor announced an extension to the scope of VAT relief for energy efficient materials (ESM) such as solar panels, insulation and heat pumps. The government will include additional technologies (such as wind and water turbines) to the ESM list and remove complex eligibility requirements. It will also increase the relief by introducing a time-limited zero VAT rate for the installation of ESMs (which will last until March 31, 2027). The changes will enter into force on April 1, 2022. To support the decarbonisation of non-residential buildings, the government is also bringing forward, by one year, until April 2022, the introduction of targeted exemptions from professional tariffs for installations and machinery. eligible sources used in on-site renewables. energy production and storage, and 100% relief for eligible low-carbon heating networks with their own tariff bill. However, there was no update on support measures for the deployment of electric vehicles (EVs) without further incentives to purchase EVs or install new charging infrastructure despite support from the tax system anticipated by many for the COP 26 network. zero target.
  • NDE. In Budget 2020, the government launched a review of the Business Management Incentive (EMI) scheme, to ensure it helps high-growth businesses recruit and retain the best possible talent for grow efficiently and to consider whether more companies should be able to access the scheme. The Chancellor confirmed that the government has concluded that the current EMI program remains effective and properly targeted. However, the scope of the review will be broadened to determine whether the tax-advantaged Corporate Stock Option Plan (CSOP) should be reformed to support businesses as they grow beyond the scope of EMI. The reform would allow more companies to qualify to grant CSOP options. It is expected 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 previously announced that tax relief for research and development (R&D) would be reformed to include certain cloud and data-related costs and to refocus support on R&D conducted in the UK. From April 2023, all cloud computing costs associated with R&D, including storage, will now be eligible for relief. The statement also confirms that the government has recognized that there are cases where it is necessary for R&D to take place overseas and that it intends to legislate in a future finance bill, which will come into effect. effective April 2023, for expenses relating to R&D activities abroad. qualify in limited cases. This would apply, for example, where material factors such as geography, environment, population or other necessary conditions necessitate research outside the UK, such as clinical trials. It also recognized the growing volume of R&D supported by pure mathematics and announced an extension from April 2023 of eligible expenditure to include all mathematics. The government will also consider increasing the level of the R&D expenditure credit to stimulate investment in the UK and further announcements will be made in the autumn.
  • Capital investment. Ahead of the end of the “super-deduction” – the temporarily enhanced capital cost allowances for the first year – in April 2023, the statement said the government will consider reforms to support future business investment. Although the government has not committed to specific reforms at this stage, the Chancellor gave some illustrations of the types of changes the government could make: for example, increasing the permanent level of the annual investment allowance and increasing depreciation allowances for major expenses and special rate assets. He also hinted that he might also consider changing other allocations, such as the allocation for structures and buildings, or new reliefs targeted at specific investments (such as the current enhanced capital allocations in areas designated free ports). Further details are expected in the fall budget.

Given the current economic climate, the Chancellor must have provided some relief to households but, while this is welcome, many will say more could have been done to help ease the current financial pressures. Although major tax policy announcements were not expected, the release of the tax plan sets the government’s direction for a low-tax economy with a general election looming. However, this may be of little comfort to households and businesses that are currently struggling. We expect the fall budget to flesh out many of the details of the Chancellor’s announcements and propose new tax policy measures.

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