Our guide to the 2022 Spring Budget provides a short summary of Rishi Sunak’s announcements, focusing on the issues pertinent to our clients, their families and their businesses.
There were no major changes to Pension legislation, Inheritance Tax or Capital Gains Tax.
The increasing cost of living is not ‘new-news’ – but yesterdays’ Budget offered Rishi Sunak a prime opportunity to intervene and reduce financial pressure for workers across the UK. We recently wrote about the rising rate of inflation (here) and the impact of the Russian invasion on the global economy (over here). These two events have increased uncertainty surrounding the Office for Budget Responsibility’s (OBR) spring economic and fiscal forecast – creating conundrums in every direction for the Chancellor.
Fuel Tax Cut: Tax on fuel to be reduced by 5p per litre for 12 months. This will allegedly amount to savings of £2.4bn for households and businesses over the next year. This of course is reliant upon petrol stations passing on that saving by reducing pump prices!
Income Tax Reduction: The government will reduce the basic rate of income tax to 19% (currently 20%) from April 2024. This is a tax cut of over £5billion a year, and represents the first cut in the basic rate of income tax in 16 years. Whilst the tax cut will certainly be welcome, it does create a further disparity between workers and non-workers. It is of course the workers who see their 1% tax saving offset by a 1.25% increase to National Insurance – whereas those living on rental or pension income will get the same tax reduction without the corresponding NI increase. This change will be implemented in a future Finance Bill and a three-year transition period for Gift Aid relief will apply, to maintain the income tax basic rate relief at 20% until April 2027.
National Insurance (NI) threshold increased: In combination with the introduction of the 1.25% Health & Social Care Levy, if you earn £35,000 or less you will pay less NI than you do currently on the same income. If you earn £35,000 or more you will pay more than you do currently. The amount of earnings you can have before paying National Insurance is being increased from £9,880 to £12,570 from July 2022, benefitting almost 30 million people. Government claim that a ‘typical UK employee’ will save around £330pa from July and around 70% of National Insurance contributions (NICs) payers will pay less NICs, even after accounting for the introduction of the Health and Social Care Lew. This has been delayed until July to give payroll software developers and employers the opportunity to update their systems.
VAT cut on renewables: Households will pay 0% VAT on solar panels, heat pumps and insulation for the next five years. This will also apply to wind and water turbines, which were previously out of scope under EU rules and the Treasury later clarified that the 0% VAT applies both to the materials used and the cost of installation. A fairly modest solar installation will now cost £1,000 less and save £300pa on energy.
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