Spring Statement 2022

The Spring Statement on 23 March 2022 was delivered against a backdrop of the increasingly desperate conflict in Ukraine and, on domestic shores, an escalating cost of living crisis prompted by soaring inflation rates, a surge in energy costs, and disruption to supply chains following Brexit and the pandemic.

With households and businesses alike feeling the squeeze, the pressure was on Chancellor Rishi Sunak to balance the books whilst supporting those in need. Below, our specialists have covered the key tax announcements.

Corporation Tax

Personal Taxes

Indirect Taxes

Innovation Taxes

Employment Taxes

Construction and Property Incentives


Corporation Tax

If there is one thing that UK companies have been seeking in recent years it is a period in which to consolidate their understanding of the tax and regulatory environment they operate in. Today’s Spring Statement was anticipated to be light on changes to Corporation Tax and in this regard the Chancellor delivered. Other than the consultations on how to stimulate future growth and investment in the UK economy through Capital Investment and Innovation (more on these below) it is clear the Chancellor’s focus is not Corporation Tax, at present.

However, there are still some considerations for business owners to bear in mind and you can read more about these here.

Personal Taxes

The Spring Statement made positive announcements for some UK households who are facing an increased tax burden from 6 April 2022 due to the new 1.25% Health and Social Care Levy being applied via National Insurance. 

One of the key headlines was the increase to the National Insurance threshold and the Lower Profits Limit, and we've explained how this will affect employees and the self-employed here.

We've also explained who will be impacted by the announcement that the basic rate of income tax will be reducing by 1% in 2024.

Indirect Taxes

Two of the Chancellor's key announcements were around cuts to VAT and Duty:

Temporary cut to fuel duty

The Government will cut the duty on petrol and diesel by 5p per litre for 12 months. This will take effect from 6pm on 23 March on a UK-wide basis. The Chancellor stated that this is the largest cash-terms cut across all fuel duty rates, at once, ever, and is only the second time in 20 years that main rates of petrol and diesel have been cut. The cut represents savings for households and businesses worth around £2.4 billion in 2022-23. Where practical, a proportionate cut will also apply to fuel duty rates which are lower than the main rates for petrol and diesel, including red diesel. 

VAT relief for energy saving materials (ESMs)

The supply and installation of ESMs in residential accommodation is currently subject to VAT at 5%. However, this relief is not available to all as restrictions mean that not everyone can take advantage of the relief and even those who can, may find the reduced rate only applies to installation services. 

Although the announcement is short on detail, it appears the Chancellor will: 

  • Increase the VAT relief from the current 5% rate down to zero-rate. 
  • Remove the eligibility restrictions, making the relief more widely available. 
  • Increase the types of ESM to which the relief applies – The Chancellor specifically mentioned wind and water turbines, which were originally within the relief, then removed. 

The changes will take effect from April 2022 and last for five years.  

The Chancellor painted this as a triumph of Brexit, stating he was reversing a European Court case which would have blocked the new reliefs. One consequence of this is that the new reliefs can’t apply in Northern Ireland, which remains subject to EU VAT rules, but the Chancellor has said he will give the relief to Northern Ireland via an adjustment to the Barnett settlement.

Innovation Taxes

The Chancellor’s spotlight continues to shine on the UK’s R&D tax relief system - and this is no surprise, as there is much that doesn’t add up.

The UK has one of the most generous R&D tax relief systems in the world, spending, as a percentage of GDP, more than any other country in the OECD. However, self-financed business R&D in the UK is less than half the OECD average.  These disparities will, at least in part, result from the well-documented abuse of the UK R&D tax relief system. 

With this in mind, there is no surprise that the Government is continuing to consider what more can be done to tackle the abuse of R&D tax reliefs, and steps taken to achieve that should be welcomed by all.  However, some of the compliance changes that have been mooted have not been well thought through and will benefit from further consultation before implementation, to ensure they have the desired effect without preventing genuine claims.  

On a more positive note, the Government remains committed to enhancing the UK R&D tax relief system and making it both more generous and more effective.

Read more about the changes announced today here.

Employment Taxes

The two main points of note from the Chancellor's Statement that will have an impact on employers are: 

Health & Social Care Levy

The announcement that the NIC rate increases in relation to the Health & Social Care Levy are being implemented as planned on 6 April will result in higher NIC costs for many businesses despite the welcome uplift to the NIC starting points from July this year. Employer NIC on benefits in kind, taxable staff expenses, bonuses, and termination settlements above £30,000 will all suffer the additional 1.25% NIC from April and will increase the overall paybill for many employers. 

Employment Allowance

The Chancellor announced that this will be increasing from £4,000 to £5,000 from 6 April 2022 for businesses with a Class 1 NIC liability of less than £100,000. The Government calculates this will benefit nearly half a million smaller businesses, removing NIC charges completely for around 50,000 of those businesses. 

Overall, the Statement will not prevent many employers across the UK facing a significant increase in their staff costs from next month, through a combination of the NIC increases and the previously announced above-inflationary increases to National Minimum/Living Wage rates from 1 April. 

Construction and Property Incentives

There was nothing to get too excited about in the announcement, however, there was mention of some positive changes being considered for Capital Allowances, which will be developed further prior to the Autumn Budget in time to replace the super-deduction which runs through to April 2023. The potential reliefs mentioned in the announcements are briefly outlined here.