It has been just over a month since the Spring Statement was presented to Parliament by The Chancellor of the Exchequer. We all anticipated the topical subject of IR35 to be brought up with the intention to bring the off-payroll rules to private small end clients, however we were spared. Although we were lucky this time round, it is still on HMRCs radar. HMRC are currently working on assessing the compliance now that the soft-landing period has ended for medium and large size businesses affected by the Off Payroll rules of April 2021, so how long will it be until the announcement is made that the rules cover small end clients?
Instead of abolishing or delaying the Health and Social care 1.25% rise in NIC which is set to begin in April 2022, Rishi Sunak announced an increase to the primary threshold of NIC to help the cost-of-living crisis. From July 2022 the primary threshold and lower profits limit (for self-employed) will increase from £9,880 to £12,570 in line with the personal allowance. Both the NICs threshold and the personal allowance will remain at these levels until April 2026.
In reality despite the increase of 1.25%, increasing the threshold will mean that you take home more in net salary.
Disclaimer: The figures in the example are purely illustrative and do not constitute a form of tax planning. These figures are based on a standard tax code of 1257L.
Class 2 NIC weekly contributions will be increasing from £3.05 to £3.15 from April 2022. From April, self-employed individuals with profits between the Small Profits Threshold (£6,725) and Lower Profits Limit (£9,880 pro-rata to 5th July, £12,570 pro-rata from 6th July) will not pay class 2 NICs, meaning lower-earning self-employed people can keep more of what they earn while continuing to build up National Insurance credits.
Dividend tax rates will also be affected by the 1.25% hike, please see below the new dividend tax rates table:
Up to £2,000
The Conservative government have announced in the Spring Statement that from April 2024 the basic rate of tax will be reduced from 20% to 19%, the first cut in the basic rate for 16 years.
The employment allowance was introduced back in 2014 (opening rate of £3,000), but from April 2022 if you meet the criteria to qualify for the employment allowance, you would have heard the positive news that from April 2022 this has increased from £4,000 to £5,000. Business owners need to be registered as employers to claim and have Class 1 NI liabilities of less than £100,000 for the previous tax year. Limited companies can also apply for employer’s National Insurance allowance if they employ only directors, provided that at least two of those directors earn over the Class 1 NI contribution secondary threshold (£9,100 per annum).
With incomes falling, businesses owners were also keen to see how the Chancellor would help them with the rising cost of living. Fuel prices in the UK have reached record highs in 2022, with the average price of petrol hitting 167.30 pence per litre (ppl) on 22 March 2022 and diesel reaching 179.90ppl on 23 March 2022. The Chancellors announcement that fuel duty would be cut by 5p per litre from 6pm on 23rd March 2022 was welcomed by all, but consumers are still waiting for the full cost reduction benefit to be passed down by the by retailers, as currently (early April) the cost saving passed on is only up to 4p.
Many households will have received notice from their energy company of the rise in prices from the 1st of April of up to 54% on previous levels, enquiries into energy saving materials such as solar panels have gone sky high since these announcements. Many question if the initial outlay of £5,000+ is worth it. In the Spring Statement, the government announced that they will be reducing the VAT rate on energy saving materials from 5% to 0% for five years from April 2022, lets hope this saving is passed down to consumers.
With increased taxes and rising prices, business owners need to make sensible decisions now more than ever to make sure their hard earned money goes that little further. Make sure you speak to your accountant to make sure you are claiming all you can, that you are making the most of your allowances and that you are withdrawing funds in the most tax efficient manner.