The Chancellor of the Exchequer delivered his spring statement to Parliament on March 23, 2022. Chancellor Rishi spoke about social security thresholds, fuel tax, and VAT relief. But what does all this mean for you?
Against a backdrop of steep price rises, the Chancellor was already faced with the question of how the government will help those struggling with rising costs. He addressed the issue, saying "tough long-term decisions" were needed to strengthen Britain's economy. To help you understand the impact of the spring statement on your wallet, here's a look at some of the most important changes.
National Insurance Threshold Rise
From July, the threshold at which workers start paying Class 1 and 4 National Insurance (NIC) contributions will rise to £12,570 – which is the same as the personal income tax abatement. In the fall budget, Sunak announced a new 1.25% health and welfare tax to be added to Social Security Class 1 and 4 rates. taxes, the Chancellor confirmed today that it will be implemented from 6 April. According to the Chancellor, the high NIC threshold means that around 70% of all employees are tax-exempt even after paying the additional health and social security contributions of 1.25%. However, we have found that the tipping point will come with those earning between £34,000 and £35,000; from then on, you will pay even more tax due to the levy.
Fuel Duty Cut
To counter rising petrol prices, fuel tax will be reduced by 5p per liter from 23 march 2022 6 pm until March 2023. It is only the second time in 20 years that the tax is reduced, and the Chancellor says this is the largest reduction ever in a fuel tax rate. He says the reduction will save the average motorist an average of £100 over the next year, while van drivers could save around £200.
VAT Cut For Energy-Saving Measures
Homeowners who invest in energy-efficient materials such as solar panels, heat pumps, or insulation over the next five years will have to pay 0% VAT. Until now, VAT was charged at 5%.
Household Support Fund Doubled
For the most vulnerable households, Sunak announced the household support fund would be doubled to £1billion. This fund was first launched in November 2021 and its support was originally due to end on March 31, 2022. Local authorities will receive the additional funds from April and can choose how to distribute them among the neediest people in their local areas.
Inflation To Average 7.4%
The Office for Budget Responsibility (OBR) forecasts average inflation of 7.4% this year, well above today's 6.2% for February. These sharp price increases will outpace the growth in savings interest and wage increases, which means that we will feel the effects of the crisis.
Observe Future Changes
Sunak outlined the changes he plans to introduce in the coming tax years - some of which will have a direct impact on your pocket.
Lower-Income Tax Rate
In 2024, income tax at the base rate is to be reduced from the current 20% to 19%. It is estimated that more than 30 million people will benefit from a tax cut of around £175 and it will be the first time the property tax rate has been reduced in 16 years.
Reformed Corporate Investment Taxes
To address the lack of capital investment in UK companies, the government is looking at ways to reform corporate investment taxes. The plans will be confirmed in the budget later this year.
Simplified Tax Benefits and Deductions
The fall budget could herald big tax changes as the government's tax plan document says it wants to simplify the tax system - which could mean an overhaul of the existing 1,000 tax breaks and allowances.
Tax and Spending Announcements Summary
The announced tax and spending changes include:
● An increase in the income level at which people start paying National Insurance Contributions (NICs) from £9,880 to £12,570 in July 2022. The increase aligns the NIC thresholds (the main threshold and the profit floor) with the point at which people start paying income tax on their income (the personal income tax allowance). The NIC limits and personal allowance will then remain unchanged until April 2026. They would normally be increased every year in line with inflation.
● Reduction of Class 2 NICs to zero for self-employed people earning between the low-income line (currently £6,515) and the lower-income line (currently £9,568) from April 2022. Currently, Class 2 NICs will be paid at a flat rate of £3.05 if You have a freelance income of £6,515 or more.
● A temporary reduction of 5p per liter in fuel tax for 12 months from 6 pm on the day of the declaration.
● A cut in the base income tax rate in April 2024 from 20% to 19%.
● An increase in Employment Allowance (which allows employers to reduce their NIC payments up to a certain amount) from £4,000 to £5,000 from April.
● Reduce the VAT rate on energy-efficient materials (e.g. solar panels) from 5% to 0% for five years from April 2022. Wind and tidal turbines will be included in the list of energy-efficient materials.
● £500m for the Household Support Fund in 2022/23. This allocation expands the fund, which received an initial allocation of £500m for the period 6 October 2021 to 31 March 2022. It is distributed by parishes in England.
● HMRC and DWP have received additional funding to collect taxes, prevent and detect fraud and error and collect the debt.
The Chancellor’s statement seems to be a well-planned effort on the part of the British government to combat the after-effects of the epidemic. The main purpose of this effort seems to be to give relief to the common citizen and help him come back to the normal economic activity after Covid-19. The real outcome of this relief policy is yet to be seen throughout the 2022-23 financial year.