On 23 March 2022, UK Chancellor delivered his 2022 Spring Statement. The Chancellor emphasized high uncertainty in the economic and fiscal forecast due to the UK economy emerging from the pandemic and the ongoing Russia-Ukraine conflict. While the Spring Statement appeared to include tax measures that would alleviate the tax burden of individual taxpayers on low incomes, not much detail was offered to businesses on future business tax reforms contemplated by the government. Noting that the government’s goal is to reform and reduce taxes in the face of the economic challenges, the Spring Statement included the following notable tax measures and proposals for future tax reforms:
- From April 2022, small businesses would be able to benefit from an increase in the employment allowance from £4,000 to £5,000 per year. This would allow employers whose employer’s national insurance liabilities were less than £100,000 (per employer or group if the employer is part of a group) in the previous year not to pay NI contributions on the first £5,000. In addition, such small businesses would not pay the new Health and Social Care Levy (due to apply from April 2023 at 1.25%) below this threshold.
- The Spring Statement noted that the government was considering reforms designed to (i) provide further tax relief on capital investment, (ii) increase R&D investment in the UK and (iii) facilitate increases in future business investment in the UK. Further announcements are expected to be made in the 2022 Autumn Budget.
- With respect to R&D reforms (expected to be introduced from April 2023), the government plans to:
- continue to offer R&D reliefs to UK businesses that are required to carry out certain work abroad;
- include all cloud costs associated with R&D in the scope of the reliefs. This would allow businesses to claim for costs related to the storage of vital data, supporting data-heavy research such as genomic sequencing;
- expand qualifying R&D expenditure to include mathematics. This would support UK businesses focusing on artificial intelligence, quantum computing and robotics including manufacturing and design.
- The Chancellor also announced that the government had completed its Enterprise Management Incentive (EMI) scheme review. According to the Spring Statement, the government concluded that the current EMI scheme remains effective and appropriately targeted. In addition, the Chancellor noted that it planned to expand the scope of the review to consider if other tax-advantaged share schemes and the company share option plan (CSOP) rules should be reformed to enable more companies to benefit from them.
- The government announced that the basic income tax rate will be reduced from 20% to 19%, with effect from April 2024. This would apply to non-savings and non-dividend income for taxpayers in England, Wales and Northern Ireland and be introduced subject to specific fiscal and macro-economic principles.
- It was also announced that from July 2022, Class 1 NI primary threshold and Class 4 NI lower profits limit would be aligned with the income tax personal allowance. Thus, the first £12,570 of income would be income tax and NI free for employees and self-employed individuals. This confirms the government’s objective to align income tax and national insurance contributions rules in the future.
- Effective from 6 pm on 23 March 2022, fuel duty has been cut on petrol and diesel by 5p per litre for 12 months.
If you have any questions or would like to discuss any issues raised in this publication, please get in touch with Katerina Heal at firstname.lastname@example.org. You can download a PDF of this update here.