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March 23, 2022

Spring Statement 2022 – The Tax Highlights

Spring has arrived in the UK, and along with longer sunny evenings and flowers coming into bloom, the Government has released it's Spring Statement 2022. Many of the announcements are in response to rising cost of living/fuel prices/energy bills. We have rounded up the key tax highlights.

Income Tax and National Insurance Contributions (“NICs”)

  • From July 2022, for Class 1 and Class 4 NICs, the National Insurance Primary Threshold and Lower Profits Limit will increase from £9,880 to £12,570, aligning them with the personal allowance for income tax. It is estimated that this will save a ‘typical’ employee over £330 in the year from July.
  • From April 2022, self-employed individuals with profits between the Small Profits Threshold and Lower Profits Limit will not pay Class 2 NICs.
  • From April 2022, the Employment Allowance will be increased to £5,000 (previously this was £4,000). This allows an eligible employer to reduce their secondary Class 1 NICs.
  • From April 2024, the basic rate of income tax will be reduced from 20% to 19% for taxpayers in England, Wales and Northern Ireland. This will not apply to Scottish taxpayers.
  • In addition to this, there will be a three-year transition period for Gift Aid Relief to maintain the income tax basic rate relief at 20% until April 2027.

Research and Development (“R&D”)

  • From April 2023, cloud computing costs associated with R&D will be considered qualifying expenditure.
  • The Government is planning to legislate so that overseas R&D activities can qualify where there are:

“Material factors such as geography, environment, population or other conditions that are not present in the UK and required for the research – for example, deep ocean research.

Regulatory or other legal requirements that activities must take place outside of the UK – for example, clinical trials”

  • Pure mathematics will be considered qualifying expenditure for R&D purposes. This could include firms dealing with artificial intelligence, quantum computing and robotics.

The changes should be enacted in the Finance Bill to come into effect in April 2023.

Other announcements

  • There will be a temporary 5p litre cut in fuel duty for 12 months which will take effect from 6pm on 23 March 2022.
  • From April 2022, there will be an extension of VAT relief for the installation of energy saving materials (“ESM”)– reversing a previous ruling of the Court of Justice of the European Union. This is reducing the rate from 5% to 0% for Great Britain (please note that the position will be different for Northern Ireland which has not been discussed in this article). This also means that domestic solar panels, heat pumps, wind and water turbines will be included as ESM.
  • From April 2022 to 31 March 2035, targeted business rate exemptions will apply for eligible plant and machinery used in onside renewable energy generation and storage and 100% relief for eligible low-carbon heat networks with their own rates bill. This was previously going to apply from 01 April 2023 but has been brought forward.

Look ahead to Autumn Budget 2022

In terms of capital allowances, the Government has written in the Spring Statement that they are considering options for further changes that could be made. They provide illustrative examples including:

  • Increasing the permanent level of Annual Investment Allowance, for example to £500,000.
  • Increasing Writing Down Allowances for main and special rate assets from 18% and 6% to 20% and 8%.
  • Introduce a First Year Allowance for main and special rate assets deducting for example 40% and 13% in the first year, with the remaining amount written down as 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.

Such changes have not yet been announced, but provide an indication of the areas the Government are looking to prioritise.

The Government are also looking at tackling abuse of the R&D tax system ahead of the Autumn Budget.

Please contact a member of our team if you have any questions on the Spring Statement.

Contact us today to discuss your tax requirements.
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