• John Massey

UK Spring Statement 2022 💼 Small Business Review


The Chancellor's UK Spring Statement delivered 23 March 2022


The Spring Statement is usually intended only to be an economic update, but the Chancellor has delivered something akin to a mini-Budget. Read on for the key announcements affecting small businesses and their owners.


Personal tax rates and allowances


Rates of income tax remain unchanged at 20% for Basic Rate Taxpayers and 40% Higher Rate (there's an intention to reduce Basic Rate tax to 19% from April 2024).


The tax free Personal Allowance remains unchanged at £12,570 and expected to be frozen at that level until 2025/26.


National Insurance (NI) in employment


The threshold over which employees pay NI (Primary Threshold) will be brought in-line with the tax free Personal Allowance from 6 July 2022. Meaning that employees have NI free earnings thresholds of:

  • 2022/23 - £11,908 (£190 x 13 weeks + £242 x 39 weeks)

  • 2023/24 - £12,570 (inline with the tax free Personal Allowance)


Saving each employee approx. £268 NI per year ((£11,908 - £190 x 52) x 13.25%)


Whilst the threshold over which employers pay NI (Secondary Threshold) has not changed the Employment Allowance has increased to £5,000 meaning that many small employers will continue to not pay any Employers NI (Secondary Class 1).


The changes to national Insurance in employment has quite a beneficial impact on the Optimum Directors' Salary for 2022/23.


National Insurance (NI) in self-employment


From 2022/23 the threshold for paying class 2 NI will be aligned with that for paying Class 4 NI (the Lower Profits Limit): £11,908 for 2022/23, then £12,570 for 2023/24.


Further, from 6 April 2022 self-employed traders with profits below the Lower Profits Limit will be treated as if they had paid class 2 NIC, but in fact they will make no actual NI payment (protecting their entitlement to the State Pension and other benefits).


Saving each self-employed personal approx. £208 (£11,908 - £9,880 x 10.25%) in Class 4 NI + potentially £163 Class 2 NI (if profits are under £11,908).


VAT


VAT registration threshold frozen at £85,000 until at least 2024 (de-registration threshold at £83,000).


The Hospitality industry will resume paying VAT at the standard rate of 20% from 1 April 2022 (due to the COVID pandemic this industry had been paying a reduced rate of 12.5% from 1 October 2021 - 31 March 2022). More info found here.


Installation of certain types of energy saving materials (ESMs) will enjoy zero-rate VAT from 1 April 2022 until 31 March 2027 (before reverting back to the usual 5% reduced rate). Whilst the policy paper can be found here, we're still waiting on what the expanded list of ESM's will include (e.g. if, as rumoured, it might include in installation of Air-Conditioning units). An updated list of ESM's is expected shortly in VAT Notice 708/6.

Corporation tax


From April 2023 the main rate of Corporation Tax increases to 25%, however this only affects company's with profits exceeding £250,000. Profits under £50,000 will continue to be taxed at 19% with a tapered increase from 20-25% for companies with profits between £50-250k.


The Super Deduction of 130% for capital expenditure by a company which started April 2021 will end 31 March 2023. Tax planning tip - Machinery, vans and computer equipment purchased before 1 April 2023 will attract Corporation Tax relief of 24.7% vs 19% on or after 1 April 2023.


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