Spring Budget 2022: What does it really mean for businesses?

Last week, Chancellor Rishi Sunak delivered the Spring Budget 2022 to the commons and as expected, it’s been widely reported on.

Amid rising inflation and cost of living, some of the points highlighted in his statement were highly anticipated – many had already speculated what Sunak would announce and hoped for good news to alleviate some of the financial burden put upon the British public.

But was everything announced really that supportive? And what does it really mean for businesses?

Let’s take a look.

National Insurance Contributions… To rise or not to rise?

There have been many calls for the chancellor to scrap the increase in National Insurance and Dividend Tax that was planned to be implemented from April 2022.

However, in the Spring Budget 2022, Sunak actually announced that the plan to increase both taxes by 1.25% points will still go ahead. And, it’s on track to become the norm as The Health and Social Care Levy at some point in 2023.

National Insurance wasn’t completely left out of the statement though, with Sunak announcing that the threshold for Class 1 and 4 National Insurance will increase from April 2022.
This means that the threshold for National Insurance Contributions will be £12,570, in line with the Income Tax Threshold – a slight improvement for employees.

Fuel Crisis help

Sunak acknowledged the rising cost of fuel in the Spring Budget 2022 and announced that the fuel duty will be cut by 5p per litre until March 2023.

Whilst this has been announced to help alleviate the cost of fuel that is ever rising, experts have warned that this will only help the British public if gas retailers do not use it as an opportunity to make more profit on the fuel – keeping costs high. We for one would like to see some regulations in place to ensure this doesn’t happen.

VAT for energy efficient equipment

Perhaps the most talked about announcement following the budget; homeowners installing energy efficiency materials such as solar panels, heat pumps, or insulation will see VAT cut on these items from 5% to zero for the next five years.

Support for businesses

Much of the statement focused on the cost of living and therefore was more relevant to personal income as opposed to businesses. However, Sunak gave certain insights into his plan for continuing to help businesses out of the unprecedented times they have faced.

The Chancellor announced that the employment allowance will be increased to £5,000 from April, up from £4,000. This will help businesses and sole traders with one or more employees who are liable for Class 1 National Insurance Contributions, in the hope of alleviating business owners’ rising liabilities. We’d certainly have appreciated additional measures being introduced for our clients. But perhaps the future holds further announcements?

Looking to the future

The Spring Budget 2022 put a greater emphasis on deferred plans set to take effect from Autumn, as opposed to this April. This suggests we must keep looking forward and hope that further opportunities and support will arise for businesses.

In other positive news, Sunak did announce his plan to cut income tax by 2024. The plan would cut the basic rate income tax to 19%, down from 20%. Whilst this appears to be a minimum cut, it could benefit 30 million people who could each save £175.

Furthermore, Sunak announced his intention to overhaul the Research and Development credits to help create a “new culture of enterprise”. The plans will seek to help incentivise UK businesses to innovate in a more globally appealing manner. Moving forward, data, cloud computing and pure maths will be eligible within the schemes. Again, this change is most likely to come into effect following the Autumn Budget.

Our reaction

As expected, the NI hike from April 2022 will be implemented however the impact will be largely offset by the increase in the NI threshold. This will mean that anyone earning less than £35k per year will pay less NI – which is around 70% of workers.

Those who earn more will see a tax rise, albeit smaller than expected. Employees earning £20k per year will see an NI cut of £180 instead of an increase of £90, which is positive.

Unfortunately, this relief does not extend to employers, whose payroll costs will increase by 1.25% of all salaries over £9,100 at a time when they are already struggling with labour shortages and wage inflation, raw material price inflation and the escalating cost of energy.

The 1% reduction in the basic rate of income tax before the end of Parliament, in our view, is largely political. There are several variables that need to land safely before this will be substantively enacted.

There will be significant additional spend on HMRC compliance activity, targeted in particular towards large and medium sized businesses. This is projected to raise £3 billion in extra tax over a 5-year period. However, under the badge of simplification and fairness, a review will be undertaken of tax reliefs and allowances – the implication being that some of these may be abolished. As a firm, we were not expecting any changes to the capital gains tax regime, but we were aware that a number of people were concerned about it. Fortunately, the 20% capital gains tax rate and the £1m Business Asset Disposal Relief limit remain intact for now, although this could be one of the reliefs that is ‘reformed’ to pay for the income tax cut in 2024.

Final thoughts

We know the immense pressure that businesses are under right now, especially amid the ongoing and upcoming changes.

The Spring Statement may not have been delivered with the business owner in mind, but with Sunak’s future plans outlined, we can continue to plan for the future with hope that support is on the horizon.

As always, if you require any support with these upcoming changes, do not hesitate to contact us at hello@shenward.com.