Reactions to the Chancellor’s 2022 Spring Statement
March 24, 2022
On Wednesday 23 March, the Chancellor delivered his 2022 Spring Statement against a backdrop of rising inflation (6.2% in the 12 months to February - a 30 year high) and lower economic growth outlook (forecasted at 1.8% in 2023 and 2.1% in 2024). Along with the Spring Statement, the Chancellor also presented the Government’s “Tax Plan” for the remainder of Parliament.
In terms of impact on Channel Islands businesses, the Spring Statement was fairly uneventful for most businesses, however here is a summary of the most important announcements:
Business Taxes
R&D tax relief reform
The Government has confirmed that R&D tax reliefs will be reformed to include some cloud and data costs and refocus support on R&D carried out in the UK.
Three extensions from the previous announcements are:
- all cloud computing costs associated with R&D, including storage, will qualify for relief;
- some overseas costs will be eligible for relief; and
- the definition of R&D will be expanded to include pure mathematics as a qualifying cost.
Legislation will be published in draft and included in the next Finance Bill, and will come into effect in April 2023.
Relief for capital investment
The Government is considering how to give tax relief for future business investment, after the super-deduction ends in April 2023, and will consult with businesses.
The Government’s priority is said to be ensuring that any future relief is effectively targeted, possibilities including partial first year allowances or increased writing-down allowances for general plant and machinery, or targeting higher relief at specific types of expenditure.
An announcement will be made in the Budget in Autumn 2022.
Personal tax, employment and National Insurance (NICs)
Income Tax rates
In his Tax Plan, the Chancellor pledged to cut the basic rate of Income Tax from 20% to 19% before the end of Parliament (by 2024). The plan will be partly funded by reforming some relief and allowances in the period to 2024.
NIC threshold
From July 2022, the basic rate NIC threshold (the point at which people start paying National Insurance) will rise to £12,570 (from £9,880), which will align with the Income Tax (IT) personal allowance.
The move is clearly targeted at helping those with the lowest earnings who may already be below the IT threshold. However, the true impact of this cut, as well as of the future decrease of the basic rate tax rate, for middle income earners will need to be assessed against the impact of the freezing of the income tax bands until 2026.
Review of Apprenticeship Levy
In the Tax Plan, the Government said it would explore whether the current tax system – including the operation of the Apprenticeship Levy – is doing enough to incentivise businesses to invest in the right kinds of training.
Employment Allowance
The Employment Allowance will increase from £4,000 to £5,000 from April 2022, meaning eligible employers will be able to reduce their employer NICs bills by up to £5,000 per year.
Fuel, energy and living costs
Three main measures were announced in response to the rising fuel, energy and living costs:
- Temporary cut to fuel duty – The Government will cut the duty on petrol and diesel by 5p per litre for 12 months. This will take effect from 6pm on 23 March, across the UK.
- VAT relief for energy saving materials (ESMs) – The Government will introduce a time-limited zero rate for the installation of ESMs from April 2022. In addition, wind and water turbines will be added to the list of ESMs and the complex eligibility conditions will be removed. This measure will not apply in Northern Ireland.
- From April, the Household Support Fund will be doubled (from £500m to £1bn) to assist local authorities to help vulnerable households with rising living costs.
Tax Reform
The Chancellor’s Tax Plan brings together some of the announcements under the themes of:
- Helping families with the cost of living;
- Creating the conditions for private sector led growth (focusing on capital, people and ideas); and
- Sharing the proceeds of growth (ie the proposed income tax reduction).
The Government will also look to reform and simplify the tax system, highlighting in particular that there are over 1,000 reliefs and allowances, which adds to the complexity of the system. There will be a review and an announcement made by 2024.
In terms of impact on Channel Islands businesses, the Spring Statement was fairly uneventful for most businesses, which would likely be appreciated given the broader tax developments on the local agenda (including the BEPS Pillar Two rules, introduction of partnerships to Economic Substance and FATCA/CRS compliance requirements). However, Real Estate businesses will wish to consider the ever-changing capital allowances reliefs, although this will be 'business as usual' for most.
If you have any questions or would like to discuss any of the areas we covered in more detail, please do get in touch with your usual PwC tax contact or with one of the below directly.
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