Spring Statement 2022

23 March 2022

Rishi Sunak, Chancellor of the Exchequer, presented the Spring Statement 2022, on the 23rd March.

The ongoing energy crisis will see energy bills rocket by nearly £700, once Ofgem’s energy price cap increases by 54% from 1 April 2022, and paired with the ongoing fuel crisis that saw the price of petrol hit an all-time high this month, the cost of living for businesses and individuals alike is becoming increasingly burdensome.

Ahead of the Chancellor’s announcement, news also broke that inflation hit a 30-year high, with National Insurance Contributions (NIC) also set to rise from April 2022.

Sunak took to the podium to address the health of the UK economy and use the ‘mini-budget’ as a chance to clean up Covid-19 debts. As Government debt now stands at around 96% of GDP, from just over 80% of GDP pre-pandemic, Sunak’s plan signalled towards building the “security of more resilient public finances… [and] a faster growing economy”.

While we overcome the threat of Covid-19 on the UK economy, a new crisis awaits – the war in Ukraine. The Chancellor addressed the devastating war between Russia and Ukraine, and the domino effect this is having on the price of food and energy, pushing up the cost of living.

Here are the key measures announced in the Spring Statement that will affect businesses and individuals across the UK:

National Insurance Contributions rise (NIC) – National Insurance Contributions are set to rise by 1.25% from April 2022 and the earnings threshold has been raised to £12,570 to provide respite to low-income workers. Despite speculation that the hike may be delayed or scrapped, it is going ahead to raise money earmarked for the NHS and social care although the blow has been softened by the threshold change.

Fuel duty cut – Fuel duty, also known as fuel tax, will be cut by 5 pence to reduce the price of fuel per litre. This will come into effect from 6pm today until March 2023. Reducing the government levy on petrol and diesel will help bring down the cost of living for families and the cost of operating a business.

Business rates discount – A business rates discount is promised to come into effect in April 2022 for retail, hospitality, and leisure businesses. A typical pub will save around £5,000.

Income Tax threshold cut – The Chancellor promised to cut the basic rate threshold for income tax from 20p in the pound to 19p in the pound by 2024.

Employment Allowance – This will be increased to £5,000 from April 2022 for small businesses.

R&D Tax Credit reform – Research and Development (R&D) tax credits will be reformed, and R&D expenditure credit may be boosted, a decision he will make in autumn 2022.

Business investment rates cut – The Chancellor will cut rates on business investment this autumn 2022.

What else is in store?

Energy Bill Rebate – Households in council tax bands A to D will receive a £150 non-repayable Council Tax Rebate to offset rising energy bills.

Energy bill discounts – A £200 discount will also be applied to household electricity bills in autumn 2022, repayable over 5 years.

Income tax threshold freeze – The income tax personal allowance and the threshold for the higher rate will be frozen until 2026, as announced in the 2021 Spring Budget.

VAT cut on energy-efficient materials – 0% VAT on energy-saving materials, such as solar panels, to improve energy efficiency in homes.

If you or your clients have any concerns about the viability of their business, please do not hesitate to get in touch.

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Making Tax Digital (MTD) for ITSA: A Phased Approach

September 17, 2024

The move to Making Tax Digital for income tax from 2026 will cost sole traders and landlords on average £350 to set up the correct reporting system. HMRC estimates that the new MTD rules will result in an average annual additional cost of £110 for those reporting within the £30,000 to £50,000 threshold, while those with income over £50,000 will face transitional costs of £285, with ongoing costs of £115 a year. Up to 780,000 people with business or property income over £50,000 will have to report through the MTD for ITSA service from April 2026 with a further 970,000 set to sign up from April 2027 when the scheme extends to those with income between £30,000 and £50,000. Under MTD for income tax, landlords and sole traders will have to report income on a quarterly basis but the government dropped the requirement for a fifth report consolidating the annual information, a move announced at the Autumn Statement last November. The extension of MTD is set to raise an additional £120m in tax in the first year of operation, rising to £465m in 2027-28. The new reporting requirements are designed to reduce the level of errors and help to close the tax gap when they come into force from April 2026. HMRC estimates a transitional cost to business of around £561m and a net increase in the continuing costs of tax compliance of around £196m for those businesses mandated to use MTD for ITSA. Transitional one-off costs will include time spent in familiarisation with the new MTD reporting with digital record keeping and quarterly submission of information, in-house training, the purchase of new hardware or upgrading of existing hardware and additional accountancy or agents' costs. Transitional costs can be offset against the business' profits for tax purposes. Ongoing costs for business will be made up of the cost of subscriptions to MTD compatible software systems, additional time for making quarterly updates, and the cost of bridging software for those who want to continue using spreadsheets. Software and agent costs for business purposes, are tax deductible. HMRC estimates IT and non-IT costs for this next phase of MTD expansion will be in the region of £500m to the end of March 2028. 'MTD for ITSA is intended to help businesses get their tax right, with mandatory use of digital record keeping and using MTD compatible software to provide updates and returns digitally,' HMRC said. 'These measures are expected to improve businesses' experience of dealing with HMRC as managing their tax affairs will be simpler. Once businesses are used to operating the new MTD processes, we anticipate that they will find that MTD makes it easier for them to get things right and reduce errors.' At the moment, original plans to extend MTD for ITSA to those with income below £30,000 are on hold, while HMRC said it ‘remains committed’ to extending the scheme to partnerships. To be fully compliant and set up, please get in touch: lee@longdencompany.co.uk .