With the war in Ukraine continuing and huge increases in energy costs inflation is expected to increase substantially over the coming year. The financial pressure is huge with households facing the largest ever recorded cost-of-living squeeze and businesses suffering substantial planned tax rises as well as pressure on wages and fuel costs.
Chancellor Rishi Sunak delivered the government’s Spring Statement last Wednesday but it was clearly aimed at households. For businesses there was very little content.
Below we detail some of the key points:
- Inflation is likely to average 7.4% for the rest of the year, rising from its current level of 6.2%;
- The economy is forecast to grow by 3.8% this year and then 1.8% in 2023 and 2.1% in 2024;
- To help the most vulnerable, Local Authorities will receive further government support of £500m for the Household Support Fund from April;
- Fuel duty was cut by 5p a litre from 6pm on 23 March 2022. The saving over the next 12 months is expected to be £200 for the average van driver and £1,500 for the average haulier;
- To counteract some of the impact of the impending 1.25% percentage point increase in National Insurance Contributions (NICs) on employees the income level at which individuals start paying NICs will rise from £9,880 to £12,570 in July. There was no increase on income level at which employers will pay national insurance contributions. This remains at £9,100;
- The Employment Allowance, which gives relief against smaller businesses’ employer NICs, will increase from £4,000 to £5,000 from April. Around 495,000 businesses (30% of all businesses) will benefit from this increase, including around 50,000 businesses (3% of all businesses) that will be taken out of paying NICs and the Health and Social Care Levy entirely;
- An exemption on business rates for green technology was brought forward. Solar panels and heat pumps will be exempt from business rates from April 2022. This is on top of reducing the VAT on energy savings materials (ESM) from 5% to 0%;
- Reforming R&D tax credits to help drive innovation. From April 2023, business will be able to claim relief on the storage of their vital data and pure maths research.
The only other concrete good news mentioned in the Chancellor’s speech was related to business rates. The Chancellor restated that from 1st April 2022 eligible businesses will receive temporary business rates relief as well as freezing the business rates multiplier for another year. In addition the transitional relief for business rates will be extended for 2022-23, which will restrict bill increases from between 15% and 25% for SMEs.
Whilst the national insurance adjustments for employees was welcomed there was little in the statement for the vast majority of our clients.
The increase in employer allowance was probably the one bright spot. For a company with five employees earning an average salary of £25,000 each the overall saving will be £6.25. For a company with 10 employees earning an average salary of £40,000 the additional employer’s NI will be £2,862.50 after the increased employer allowance.
For the employee on £25,000 the net saving in employee’s NI will be £167.42. For an employee earning £40,000 there will be an increase in employee’s NI of £20.08.
The final point the Chancellor raised was the prospect of income tax being reduced to 19% before the end of parliament. However again there was no mention of companies who will see corporation tax rising in 2023 to potentially 25%.
The irony was there to be seen when Shadow Chancellor Rachel Reeves branded the Conservatives as the party of high taxes. Whatever your political persuasion, for business the facts speak for themselves!
For businesses and individuals tax is on the increase and with inflationary increases income and profits are going to be squeezed. Tax is an expense incurred by businesses and individuals and to an extent can be managed. For clients of Friend & Grant we will be working with you to look for ways to ensure your affairs are kept tax efficient and where possible we will help you to reduce those tax liabilities. Please contact your client relationship manager if you have any concerns or need any immediate advice.
The content in this blog is correct as at 28 March 2022 See terms and conditions.