Rishi Sunak finds himself in a very difficult position; inflation is soaring to a 30-year high, the energy cap is increasing in April by 54%, and the British public are experiencing an unprecedented cost of living crisis.
Without these pressing issues, this year’s Spring Statement would likely be an understated affair. Amid widespread calls to deliver more support to help people pay their bills, the Chancellor is under pressure to act. His Tax Plan sets out the Government’s measures to help the public with rising prices and continue to support businesses still recovering from the COVID-19 pandemic.
Following widespread speculation that the Chancellor would reduce tax on fuel and energy, there is a welcome reduction in fuel duty by 5p per litre for the next 12 months. Not all taxpayers own a car but the savings in the transport sector will hopefully filter through to the public’s purses.
Whilst this reduction in fuel duty is welcomed, at a time where the average petrol price is 167.3p per litre and diesel of 179.7p per litre, a 5p reduction in the cost per litre may not stretch very far.
The Chancellor has also reduced VAT on energy saving equipment such as solar panels, heat pumps, and insulation from 5% to 0% to try and bolster investment.
There had been calls for the Health and Social Care Levy (‘Levy’), an additional 1.25% tax charge being introduced in April, to be abolished or postponed. The Chancellor has confirmed that the Levy will indeed go ahead.
The most unexpected announcement was an increase in the National Insurance threshold by £3,000 to align it with the personal tax allowance. This will provide some welcome relief by reducing National Insurance contributions by £360 for someone earning more than £12,570 per annum.
However, this needs to be considered in light of the incoming Levy which will eat into the tax savings. Taxpayers with earnings of more than £41,370 per annum will still find themselves worse off, whilst taxpayers earning less than this will see some benefit from the increased threshold.
Business Owners who pay themselves below the current NI threshold will not see the benefit of the increased limit, but they will be stung by the introduction of the Levy.
Jack Parker, Matthew Denney, Andrew Knott
The Chancellor has also announced that the basic rate of income tax will reduce from 20% to 19% by the end of Parliament in 2024. Whilst this comes with positive intentions, the reduction is not set in stone as recent changes to the Corporation Tax rates will show. As income tax is a devolved issue, whether this reduction will filter through to Welsh taxpayers remains to be seen.
Turning to taxes on businesses, the Chancellor has expressed his concern in the reduction of spending on innovation in the UK private sector; spending on R&D is less than half of the OECD average. Mr Sunak’s focus in the upcoming months will be how to address this and to reform the tax regime around R&D tax credits to encourage innovation.
There is also concern that investment in the private sector is below the Government’s targets, partly driven by the uncertainty of the last two years. The Chancellor has pledged to cut tax rates on business investment as part of his Autumn Budget, which will likely be in the form of reforms to the rates and thresholds for capital allowances.
In terms of an immediate benefit to business, the Chancellor has announced a business rates discount of up to 50% in England and a UK-wide increase of employment allowance to £5,000, which will give most businesses a tax saving of up to £1,000.
The Chancellor did not announce any measures specific to Welsh taxpayers. The Welsh Government has reacted to the Statement calling it ‘threadbare’ and that the UK Government has ‘squandered the opportunity to provide meaningful support’.
Last month, the Welsh Government announced a support package of £330 million to assist with the cost of living, including extending the £200 winter fuel payments, providing a £150 cost of living payment, and more money being made available through the Discretionary Assistance Fund. This includes a 50% rates reduction for 2022/23 for ratepayers within the retail, leisure, and hospitality industries. The Welsh Government is encouraging Welsh taxpayers to familiarise themselves with, and take advantage of, the support which is being made available.
Bevan Buckland LLP is the largest independent accountancy firm in Wales providing practical support and strategic accounting, tax and financial planning advice for small to medium-sized businesses. Headquartered in Swansea, the firm has offices in Cowbridge, Carmarthen, Pembroke, Haverfordwest and St David’s.