The Chancellor’s Spring Statement 2022 at a glance

As anticipated, the Chancellor’s Spring Statement was light on significant business tax measures and we expect more meaningful announcements to be made in the Budget later this year. The Chancellor’s speech focussed on a three pronged ‘Tax Plan’ to strengthen the economy by helping families with the cost of living, supporting growth in the economy and ensuring that the proceeds of growth are shared fairly.

Under Part 1 of the Tax Plan, individuals will have been pleased to hear of the 5p fuel duty cut for the next 12 months and the increase in the employee’s National Insurance thresholds by £3,000 from July 2022. Despite the retention of the Health and Social Care Levy, the National Insurance threshold rise will result in a welcome tax cut for many workers. Whilst the threshold increase only applies to employee’s National Insurance (and therefore will not affect employer’s National Insurance contributions), certain small businesses will also benefit from the £1,000 increase to the Employment Allowance, allowing eligible businesses to save up to £5,000 on their employer’s National Insurance bill.

The lack of additional business support announcements may be disappointing for many; however, in the second part of the Tax Plan, the Chancellor announced his intention to cut taxes and enact long-term reforms to incentivise businesses to invest more in capital, people and ideas. Whilst the exact nature of these tax cuts remains to be seen, the Chancellor specifically mentioned the proposed reforms to the UK’s R&D tax relief schemes. Some of these proposals, such as an expansion to data and cloud computing costs and a refocus of the relief to UK based R&D, had been announced previously; but the additional references to R&D supported by pure maths and a more generous Research and Development Expenditure Credit for larger businesses will be a promising sign to innovative businesses.

Finally, the Tax Plan addresses the need to ensure that proceeds of the UK’s growing economy are shared fairly. This includes the Chancellors ‘rabbit out of the hat’: the bold commitment to cut the basic rate of income tax from 20% to 19% from April 2024, which is the first cut to the basic rate of income tax in 16 years. The Tax Plan also promises to look into potential reform of other costly and complex reliefs in order to make the tax system simpler, fairer and more efficient.

In addition to the Tax Plan, the Chancellor also announced an extension of the VAT relief available for the installation of energy saving materials. His comment that this measure was only possible as a result of Brexit (since it departs from the EU VAT position) was met with cheers across the House. The fact that the VAT reduction does not apply to Northern Ireland due to the Northern Ireland Protocol is a stark reminder of the continuing impact of Brexit on UK policies, and may set a precedent for differing treatment between the UK’s constituent nations.

In summary, there were no immediate drastic changes announced but a few measures have been introduced in an effort to acknowledge and take some small steps to address the challenges faced by the current rising cost of living.