2022 Spring Statement:
a tightrope between dealing with the cost-of-living crisis and protecting the economy

The Chancellor referred to the following temporary capital allowances measures that were previously announced at the 2021 Spring Budget and confirmed or extended at the 2021 Autumn Budget (see our 2021 Autumn Budget Bulletin):

• the “super deduction” applicable to qualifying expenditure incurred between 1 April 2021 and 31 March 2023; and
• the temporary £1 million limit (increased from £200,000) for the annual investment allowance (AIA), applicable until 31 March 2023.

It is not currently proposed to extend those measures beyond March 2023. Instead, the Government intends to consult with businesses on reforming and cutting taxes on business investment and to announce the outcome of such consultations and resulting measures, including any changes to the capital allowance regime, at the 2022 Autumn Budget.

Today’s Spring Statement included an announcement that R&D reliefs will be reformed, with changes being announced at the 2022 Autumn Budget and coming into force in April 2023. The intention is for the Government’s R&D spending to be increased to £20 billion a year by 2024, representing an increase of £5 billion. The stated aim of these reforms is to encourage and support innovation in the UK.

The Government had previously announced that some cloud computing costs will qualify for R&D tax relief. It has now been confirmed that from April 2023, all cloud computing costs associated with R&D, including storage, will qualify for relief. Additionally, in recognition of the growing importance of mathematics in supporting R&D, the scope of the relief will be expanded to include pure mathematics as a qualifying cost.

The Government will also legislate to allow overseas R&D expenditure to qualify for relief. This will apply where there are material factors that are not present in the UK, such as geography or environment, covering expenditures such as deep ocean research. Taxpayers may also claim relief for overseas R&D where this is necessitated by regulatory or legal requirements, such as the carrying out of clinical trials.

The Apprenticeship Levy is a tax paid by employers whose annual payroll exceeds £3 million. The levy is charged at 0.5% of the employer’s total payroll and is collected through PAYE.

The purpose of the levy is to provide funding for apprenticeships across the private sector, including by using some of the funds raised through the levy to support non-levy paying employers in providing apprenticeship training.

In recognising stakeholder frustration in the ways that levy funds are spent, the Government intends to look into more flexible apprenticeship training models. The overall aim is to encourage greater private sector investment in employee training, and there will be a review to consider whether the Apprenticeship Levy is doing enough to support investment in training.

The Employment Allowance exists to support businesses and charities with Class 1 National Insurance (NI) liabilities that are less than £100,000 in a given tax year. It’s aim is to reduce the cost of employment.

The Chancellor has announced that the Employment Allowance will increase from £4,000 to £5,000, from April 2022. This means that eligible employers will be able to reduce their annual NI liability by an additional £1,000 per employer, in effect an indirect tax cut.

Today’s Spring Statement did not include any changes to venture capital reliefs. It should be noted, however, that the Employment Allowance referred to above counts as a ‘de minimis State Aid’ and its increase could therefore affect the amount of SEIS funding that a company is able to raise.

It was announced today that, effective from July 2022, the NI threshold (meaning the current Primary Threshold and Lower Profits Limit for Class 1 (employee’s) NI contributions) will increase from £9,880 to £12,570, to match the current income tax personal allowance threshold.

Self-employed people with lower earnings will also benefit, as they will no longer be required to pay any Class 2 NI contributions on profits below the Small Profits Threshold (£6,725 in the 2022-23 tax year), but will continue to build up NI credits. This change will apply from April 2022.

This is a welcome measure for those hit hardest by the cost-of-living crisis, where they will now be able to earn up to £12,570 annually before having to pay any NI or income tax. It is estimated that individuals will save an annual £330, as part of this £6 billion tax cut.

However, this increase of the NI threshold comes amidst the looming increase in NI contributions, which has not been scrapped and will become effective from April 2022 onwards. As announced in the 2021 Autumn Budget, NI contributions are set to rise by 1.25% in both Class 1 (employer and employee) and Class 4 (self-employed), with such increases being replaced by the Health and Social Care Levy the year after. The increase to the NI threshold is only a concession to protect lower earners from the effect of the 1.25% increase in NI.

The Chancellor has announced his intention to cut the basic rate of income tax from 20%to 19% before the end of this Parliament, from April 2024 onwards. This would be the first cut to the basic rate of income tax in 16 years, and would see the average taxpayer £174 a year better off. Legislating for this measure will be contingent on inflation being back under control etc., and it cannot therefore be regarded as a certainty that this will happen.

The Chancellor also intends to carry out a general review of tax reliefs and allowances before the reduction of the basic rate of income tax is implemented.

As of 6 pm on 23 March 2022, fuel duty has been cut by 5p per litre on a UK-wide basis. This measure is intended to help combat the increase in cost of living and is set to remain in place for 12 months.

There have been no further changes to alcohol duties, which remain frozen as confirmed at the 2021 Autumn Budget (see our 2021 Autumn Budget Bulletin).