Spring Statement 2022: the lowdown for small business clients

The Chancellor, Rishi Sunak, unveiled a fresh batch of fiscal changes and updates in yesterday’s Spring Statement. Here are the key takeaways for small business clients, accountants and bookkeepers.

Fuel duty has been cut 

One change announced in the Spring Statement has already come into effect: at 6pm yesterday, fuel duty was cut by 5p a litre for a period of 12 months. This means that business owners will pay less for the fuel they use for business travel.  

The Employment Allowance will increase

From April 2022, the Employment Allowance, which reduces employer’s National Insurance contributions for certain employers, will increase to £5,000.

The planned increase to National Insurance rates will go ahead

Yesterday, the Chancellor confirmed that the planned increase of National Insurance rates by 1.25% between 6th April 2022 and 5th April 2023 will go ahead. After 5th April 2023, this increase will be replaced by a separate Health and Social Care Levy. 

Class 1 and Class 4 National Insurance thresholds will increase

From July 2022, the threshold at which employees start paying Class 1 National Insurance contributions will increase to £12,570. The threshold for Class 4 National Insurance contributions will also increase to £12,570 in July 2022.

Class 2 National Insurance rules will change 

Sole traders whose annual profits fall between the Small Profits Threshold and the Lower Profits Limit will be able to claim that year as a qualifying year for contributions towards the State Pension and other benefits, without paying Class 2 National Insurance. 

Further news on capital allowances is expected in the Autumn Budget

The Annual Investment Allowance will remain at £1 million until March 2023. The Chancellor indicated that more news on the UK’s capital allowances regime can be expected in the Autumn Budget later this year. The government’s documentation also makes a reference to “cut[ting] the tax rates on business investments” in the Autumn Budget.

R&D tax credits to be reviewed and reformed

The Spring Statement confirms that the government will review and reform R&D tax reliefs and that from April 2023, all cloud computing costs associated with R&D, including storage, will qualify for relief. 

The basic rate of Income Tax will decrease

In April 2024, the basic rate of Income Tax in England, Wales and Northern Ireland will decrease from 20% to 19%. It’s not yet known whether any equivalent change in Scotland, where rates are set by the Scottish government, will be introduced.

HMRC to invest in resourcing

Over the next five years, HMRC will invest £161 million in increased resourcing. The Spring Statement states that this will be used to “fund additional HMRC staff to provide greater support to taxpayers seeking to pay off accrued tax debts, and to tackle the most complex tax risks, ensuring large and mid-sized businesses pay the tax they owe”.

All of the tax changes reported in this article will be implemented in FreeAgent in time for the specified deadlines. 

You can read the Spring Statement 2022 in full on the government’s website.