Introduction
When the Chancellor presented his Autumn Budget on 27 October 2021, the UK economy appeared to be emerging from the pandemic, with the Omicron variant yet to arrive. Inflation was poised to reach 3.1%. Five months on, inflation is forecasted to reach 6.2% (or more), Russia is waging war in Ukraine, and Britain is facing a cost-of-living crisis. What was meant to be a low-key affair turned into a mini-Budget? Understandably Rishi Sunak was under pressure to do more to help households and businesses alike, so he announced several changes, including:
National Insurance Contributions (“NIC”)
From 6 July 2022, an employee’s income will only be subject to Class 1 NIC when it reaches £242 per week. This brings it in line with the Annual Personal Allowance of £12,570.
In the tax year 2022/23, company directors will be able to earn a salary of £11,908 before they are subjected to Class 1 NIC.
For the self-employed, the lower profits limit will increase to £11,908, being the amount that they can earn before NIC becomes payable.
However, the new “Health and Social Care Levy” of 1.25% (as announced last year) will be brought in from 6 April 2022. This will make the NIC payable for a few months before reducing it in July 2022.
There are no changes for employers other than the Employment Allowance increasing from £4,000 to £5,000 for 2022/2023. The Employment Allowance exempts employers from the payment of Employers NIC due, up to the limits and subject to conditions.
Fuel Duty
Fuel duty on petrol and diesel was reduced by 5p a litre for 12 months from 6 PM on 23 March 2022.
Unfortunately, the increase in the price of fuel emanating from the Russian war on Ukraine is likely to cause the benefit of the reduced fuel duty to be short-lived.
Basic Rate of Income Tax
The basic rate of income tax will be reduced to 19% from 6 April 2024. This is the first cut to the basic rate of income tax in 16 years, and it will apply to non-savings, non-dividend income taxpayers in England, Wales and Northern Ireland and also to the savings basic rate, which applies to savings income for taxpayers across the UK.
There were no changes to the tax rates applicable to dividend income.
Research & Development Tax Credits
From 5 April 2023, all data, cloud computing and costs associated with research and development will qualify for Research & Development Relief.
Research & Development Relief allows businesses to deduct an extra 130% of qualifying costs from the yearly profits, as well as the normal 100% deduction. Loss-making businesses are also able to obtain tax credits (and eventual repayment) that are created by the Research & Development Relief.
Green Relief for Business Rates
The Autumn 2021 Budget introduced targeted business rates exemptions from 1 April 2023 to 31 March 2035 for eligible plants and machinery used in on-site renewable energy generation and storage and a 100% relief for eligible low carbon heat networks with their own rates bill. These measures will now be implemented from April 2022.
Pensions - Lifetime and Annual Allowance
The lifetime allowance, which sets the effective maximum tax-efficient value of pension benefits will remain at £1,073,100 for 2022/23 and is not due to rise until 2026/2027.
There is also no increase to the annual allowance, which remains at a maximum of £40,000, subject to a taper in money purchase annual allowance rules.
Company Cars
Company car tax for vehicles registered since 6 April 2020 will rise in 2022/2023 for all but the highest emission vehicles. The taxable cash equivalent percentages will all increase by 1%, subject to the current ceiling of 37% of the new list price.
This means that the amount that will be added to the salary of company car users could be up to 37% of the on-the-road price of the car as it leaves the showroom.
Value Added Tax
VAT on energy-saving measures such as solar power, heat pumps and roof insulation has been cut from 5% to 0% for five years from 1 April 2022.
The reduced 12.5% VAT rate for hospitality holiday accommodation and attractions will end on 31 March 2022, at which point the rate will revert to the 20% standard rate.
Student Finance
In January and February, the government announced new rules for student finance applying to students in England and Wales.
For existing Plan 2 student loan borrowers (those who started a course after 31 August 2022) and those starting courses in the 2022/2023 academic year, the repayment threshold will be frozen at £27,295 up to and including 2024/2025 before increasing annually in line with RPI thereafter.
For students starting the 2023/2024 academic year:
The interest rate will be cut to RPI;
Repayment terms will be extended from 30 years to 40 years; and
The repayment threshold will be £25,000, frozen until 2027/2028 and then increasing by RPI thereafter.
