Nigel Bostock, Chief Executive
In the midst of a difficult period of global uncertainty, and with an expectant public looking to the Chancellor to ease the cost-of-living crisis, Mr. Sunak was in the unenviable position of seeking to find fiscal room for manoeuvre within the tax system. The result, perhaps unsurprisingly, is that the Spring Statement was relatively limited in scope, though a handful of new measures probably saved it from qualifying as a ‘damp squib’.
The equalisation of National Insurance and Income Tax thresholds will ease the burden for some workers, while we must wait until 2024 before the newly-announced income tax cut comes into effect. Some will undoubtedly have hoped for more immediate changes, but the lingering effects of the pandemic and soaring inflation have meant plans made at the previous Budget in autumn are still needing to be adapted. Looking further ahead, individuals and businesses alike will be hoping for more concrete detail around the Chancellor’s ‘Tax Plan’ by the time the Autumn Budget is upon us.
Jane Mackay, Partner and National Head of Tax
The reduction in fuel duty and the increase in the National Insurance Contributions (NICs) threshold were really 'new' announcements. The Chancellor must have calculated that reducing fuel duty, arguably taking a step backwards on decarbonising the economy, is politically easier to explain than a U-turn on the increase in National Insurance Contributions .
Increasing NICs threshold in one go provides a tax cut for lower earners and their employers and will be welcomed by many. It will be interesting to see if there will also be an increase in the lower earnings threshold, the point at which lower earners get the benefits of NIC contributions without having to pay NICs. There wasn’t much else to make employers cheerful in what are, no doubt, times of unusually high uncertainty. He mentioned the effects of COVID-19 and the conflict in Ukraine but there was no mention of the contribution of Brexit on wage inflation and supply chains. Brexit would have allowed him to do more with tax relief for key sectors, including for our manufacturers: How big a difference will 0% VAT rates that the UK can now apply to energy efficient refurbishments really make to a typical taxpayer?
Laurence Field, Partner, Corporate Tax
With the Autumn Budget yet to take effect the Chancellor is already having to make changes to his plans. Businesses find it hard to deal with tinkering to already complex rules. While relief for individuals from rampant inflation is likely to be well received, it can only be short-term. Cutting income taxes in two years’ time gives us something to look forward to, but doesn’t provide immediate help.
The business end of the 'Tax Plan' announced by the Chancellor covers seven pages of large print interspersed with pictures. Add in the cover and end pages and timeline and it gets to a whole 12 pages. It feels more of a hastily thrown together PR document than a carefully crafted initiative.
Simon Crookston, Partner, Corporate Tax
The Chancellor should have been bold and provided greater incentives for businesses to be innovative and invest. In these current times of increasing inflation and taxation we need to further stimulate the economy to encourage growth, enable real time wage increases and promote prosperity.
The Chancellor has windfall taxes from rising fuel prices and fiscal drag from VAT and corporate tax revenues as a result of raising prices. Tinkering with small National Insurance tax cuts and making future income tax cut promises will not make any real impact and is not the required solution.
It is encouraging that the Chancellor has provided VAT cuts for solar, wind and water turbines and other green initiatives, particularly in relation to renewable energy. However, this does not help families that are struggling to pay their fuel bills today. They won’t be able to afford the capital investment, be able to fund personal solar panels and therefore will not benefit from these energy incentives.
Caroline Fleet, Partner, Corporate Tax
From a Real Estate industry perspective, as expected the Spring Statement did not provide much specific content. The announcement of a further £500 million under the Household Support Fund and the scrapping of VAT for energy saving installations (such as solar panels) will be welcome but not ambitious enough. In terms of the 'Tax Plan', it would appear to be very conceptual at this stage, but it is vital that, as the plan develops, the importance and profile of the Real Estate industry are fully taken into account. This will be essential in delivering the government’s housing and development plans.
Nicky Owen, Partner, Professional Practices
There is no time like the present to make Gift Aid payments to charities – particularly with the basic rate tax reducing from April 2024 by one percentage point. This will have an impact on charities and the amount of basic rate tax relief that can be claimed back from the government.
Professional practices generally have struggled to be in a position to claim R&D tax relief and credits because often they are LLPs and not a limited company. It may therefore be time for R&D tax reliefs to be extended to LLPs and partnerships. This will enable them to grow and develop their businesses in an innovative way.
R&D tax reliefs are going to be reformed to include cloud and data costs and mathematical advances, which fits into a professional practice as they innovate in a fast changing and virtual environment.
Rebecca Durrant, Partner and National Head of Private Clients
As expected there were no real changes for Private Clients announced in the Spring Statement. Despite mounting pressure, Rishi Sunak did not back track on the increases to National Insurance and dividend tax rates meaning that income yields for investors will reduce, net pay for middle earners will shrink and profit extraction for business owners will be more expensive. He did however align the tax and NIC bands meaning that lower paid workers will be better off by around £330 per year.
The Chancellor suggested that inflation will reach 7.4% this year, while there is continued speculation that it could in fact reach double figures in some areas. These factors combined with the cost of living crisis means that everyone will need to keep a closer eye on their finances.
The continued silence on increases to Capital Gains Tax and changes to inheritance tax is welcome but are we just delaying the inevitable? There is still real concern amongst clients that this is still very much on the horizon and uncertainty causes anxiety.
In terms of possible changes in the autumn, it will be interesting to see whether the ‘Tax Plan’ that the Chancellor announced is extended. At the moment this is light on detail for private clients and does not address the wealth taxes issue. Neither does it include more detail on the recently released consultation on property taxes. Residential property landlords have weathered enormous amounts of change over the last 10 years and the concern is that this could mean more. A return to a simpler system would be much more welcome.
The only positive change on the distant horizon is the planned reduction to income tax to 19%, but we have to wait until 2024 for this which will not help people now.
In summary, not much tangible change, but a lot for people to think about over the coming months as we enter what is likely to be a challenging period for everyone.
Johnathan Dudley, Partner and Head of Manufacturing
A cut in fuel duty is an essential and very welcome gesture but of course, increase base prices in fuel will generate more VAT and Duty anyway and therefore the government are arguably only sharing out some of their total tax windfall.
The increase in the NIC threshold is predictable and welcome too; however, I suspect that this change may have come too late for many pay settlements that assume the NIC rate increase on businesses.
The proposed reform during the summer of the apprenticeship levy could be good. But, it could also be ominously bad. Crowe’s manufacturing surveys have pointed towards its unpopularity and 2021 was no exception; however the devil will be in the detail. There has to be a concern that the monetary support and incentives will be reduced; when the reality is, what is needed, is a reduction in employer administration in the apprenticeship scheme and elements that are not relevant to the apprentice’s actual job.
Reform of the R&D tax credit scheme sounds good and very welcome, especially if qualifying expenditure and even the rate expands as the Chancellor promises. But we need to see the detail as it emerges.
What is encouraging is the promise to incentivise capital expenditure into the future, and there was almost a promise to maintain Annual Investment Allowance at the current £1 million rate, and a hint of the continuum of the super deduction too; let’s hope so.
Extension of the employment allowance will be welcome from smaller businesses, but for group businesses with segregated payrolls this allowance typically causes more administrative hassle than it’s worth sometimes.
The cut in VAT on green domestic spend challenges UK manufacturers to actively enter this market; it would be really disappointing if we are incentivising imported green technology.
The Chancellor didn’t signal any relief for corporate energy costs though. There is little support to help manufacturing businesses with spiralling energy bills right now; commercial business are not protected by energy caps and trying to encourage investment at a time when energy costs are so high, on top of all of the other inflationary challenges businesses face, is a big ask right now without offering some immediate help. Inflationary costs create immediate cash outflows, tax incentives are, by definition, delayed. There is a cash disconnect here and it will need addressing before investment is stimulated in a sector where cash risk management will prevail.
Stuart Weekes, Partner, Corporate Tax
The Chancellor has dangled in the face of innovative businesses the carrot of positive reforms to the UK’s R&D tax credit scheme. This was not a surprise given recent reports that private investment in R&D has been low. However, by delaying any more detailed decisions until the autumn he has created for businesses a fog of uncertainty. It is encouraging that he promises to interact with businesses over the summer and my hope is that this includes small and medium-sized entities as well as the larger companies.
Robert Marchant, Partner, VAT and Customs Duty services
The anticipated reduction to fuel duty of 5p per litre announced by the Chancellor will be welcome news for motorists but it isn’t really that generous when considering that VAT revenues (which are based on the duty inclusive selling price of the fuel) have increased by more than this over the last 12 months given the significant increase in the price of diesel and petrol during the period.
What was conspicuous by their absences was the decision by the government not to impose a windfall tax on energy companies and not to provide additional support for hospitality and leisure businesses by extending the temporary reduced rate of VAT of 12.5% beyond the end of this month.
From a legal perspective it was interesting to see the return of Brexit freedoms in the Chancellor’s speech being used as a basis for making changes to UK VAT law. The change from a 5% to 0% VAT rate for energy savings materials is an impressive one but only if the relief is accessible and the conditions to qualify simple.
Spring Statement 2022: Employment tax updates
Spring Statement 2022: Indirect tax changes target energy saving works and fuel duty