Page 4 - Spring Statement - March 2022

The Spring Statement Announcements

Although events have consistently conspired against him, Mr Sunak is not a member of the mini-Budget fan club. The
fact that the timing of the Spring Statement was revealed on 23 December with minimal detail underlines the point.
At the time his hope was to follow the framework introduced by Philip Hammond, with the Spring Statement setting
out for consultation matters to be legislated for in the Autumn Budget. To some degree this is what has happened, but
faced with a welter of headlines about a cost of living crisis it proved impossible for Mr Sunak not to produce a
Statement that had a strong resemblance to a mini-Budget.

The main announcements made on 23 March were:

National insurance contributions

There had been suggestions that Mr Sunak might raise the primary threshold (PT) for Class 1 national insurance
contributions (NICs) by more than the planned £6 a week he announced last October. In the event he chose to
increase the PT from £190 a week (£9,880 a year) from April 2022 to £242 a week (equivalent to £12,570 annualised)
from 6 July 2022. This means that for 2022/23 £11,908 of earnings will be free of NICs for employees. That will rise to
the full £12,570 in 2023/24, in line with the frozen personal allowance. For employees with earnings above £11,908,
there will be a NICs saving of £269 in 2022/23.

Employers Class 1 thresholds remain unchanged, but the employment allowance will increase by £1,000 to £5,000 for
2022/23.
For the self-employed, the Class 4 lower profits limit will correspondingly be increased from £9,880 to £11,908 in
2022/23, again reaching to £12,570 in 2023/24. If profits fall under these thresholds Class 2 NICs will not be payable.
For those with profits above £11,908, the Class 4 NICs saving is £208 in 2022/23.

Together these threshold adjustments claw back a little over one third of the revenue raised by the 1.25 percentage
points increase in NIC rates. In a full year around 70% of NICs payers will save more from the threshold increase than
they will pay extra because of the rates increase.

These changes will make little difference to answering the question of whether to incorporate, particularly when set
against the impact of the 6-percentage point rise in the main corporation tax rate from April 2023.

The fact that the increased rates of NIC are still going ahead means the strengthened arguments in favour of salary
sacrifice for pension contributions and low emission vehicles remain valid. Marginal combined tax and NIC rates will
still be as high as 48.25% (55.02% if employer’s NICs are also taken into account).

Basic rate tax

The basic rate of tax will be reduced to 19% from 2024/25, timed to coincide with the likely date of the next general
election. Devolved tax rules means that the cut will apply to non-savings, non-dividend income for taxpayers in
England, Wales and Northern Ireland and the savings basic rate throughout the UK.

Scotland will receive additional funding under the Barnett formula, allowing it to make its own decision on tax rate. It
currently has a small basic rate tax band, sitting between 19% (starter) and 21% (intermediate) bands.

In practice the cut in basic rate tax, which will cost about £6bn a year from 2024/25, can be viewed as either:

• A partial reversal of the NICs increase; or

• An unwinding of some of the Treasury’s inflation-driven revenue gains from the freeze to the personal allowance
and higher rate threshold.

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