Spring Statement delivers Autumn cliff-hanger

Chancellor Rishi Sunak today delivered his Spring Statement against a backdrop of soaring inflation and rising costs.

It delivered a package of measures to help families and small businesses mitigate those rising costs including a fuel duty reduction, increasing the National Insurance threshold, extending business rates relief and increasing the employment allowance.

Laurence Parry, Tax Partner at Kreston Reeves said: “The Chancellor had little choice but to address the increased cost of living and in doing business and delivered some genuinely helpful measures. Yet it was those measures that were promised that perhaps will have the greater long-term impact.

“In addition to a cut in income tax before the end of this parliament in 2024, the Chancellor has promised to involve businesses in shaping R&D tax credit reform and investment before its Autumn Budget, suggesting that he and the business community will have a busy summer. Now is the time to book your seats for Autumn’s hottest ticket.”

Spring Statement – the headlines

Fuel duty

Duty on fuel will be cut by five pence per litre from 6pm today until March 2023, representing a saving of £100 a year for the average car driver and £200 a year for van drivers. There is no obligation on fuel retailers, however, to pass on this saving to customers.

It is an easy measure for the Government to introduce as it easily offset by the increased VAT revenues received from increasing pump prices.

National Insurance and Income Tax

The Government has been facing pressure to drop or postpone its increase in National Insurance rates that take effect in April. Instead, the Chancellor has increased the threshold at which individuals start paying National Insurance from £9,880 to £12,570. The Government says this will represent a tax cut of £330 for the average person.

At the same time, the Chancellor has announced a cut to Income Tax from 20 pence to 19 pence in the pound. We will, however, have to wait until 2024 for this to take effect – just as this government faces a general election.

The increase in the NIC threshold is a sensible and welcome measure. It is long overdue and will make a very real difference to an individual’s pay packet.

Energy efficiency and homes

In what seems to be the first move since Brexit towards changing EU enforced VAT rules or removing limitations imposed by the EU on the UK in offering more extensive reliefs from VAT, the Chancellor has announced a change to the VAT rate on the supply of the installation of energy-saving materials from 5% to 0%.

This is currently proposed to take effect from 1 April 2022 to 31 March 2027 and will re-introduce certain items such as wind and water turbines which were removed as a result of EU interaction.

The installation of energy efficient materials is currently subject to the reduced rate of VAT (5%) and applies to qualifying materials installed in residential property and where the eligibility conditions are met. These conditions are either:

• A person over 60;
• A person receiving grants/benefits;
• A housing association: or
• The cost of the goods is less than 60% of the total cost of the services.

These conditions have now been removed.

Business Rates

Retail, hospitality and leisure businesses will benefit from a temporary 50% reduction in business rates over the next five years. The reduction recognises the impact business rates has on small businesses and further strengthens the argument that further reform is needed.

Employment Allowance

The Employment Allowance has been increased from £4,000 to £5,000 a year, meaning eligible businesses can reduce employer National Insurance Contributions by up to £5,000 a year. This will be welcomed by small businesses who are the engines of our economy.

Autumn Budget – big announcements on the horizon

It was perhaps those measures not announced but promised in the Autumn Budget Statement that will be of greater interest to larger and rapidly growing businesses.

R&D tax credits

The Government has long believed that the valuable R&D tax credits relief is not working as well as it can. Major reform of the reliefs to include new technologies is on the cards, along with the promise of a more generous relief.

Business investment

The Super Deduction introduced by the Chancellor in 2021 is shortly to end. The Government is keen to see greater private investment into businesses and will propose further reform of the capital allowances regime.

Detail on these measures is not yet there and the Government has promised to work with businesses over the summer in a series of consultations to shape policy. The Autumn Budget promises to be a government blockbuster.

If you would like to explore the topics explored in this article following the Spring Statement, please get in touch with us.