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Chancellor of the Exchequer, Rishi Sunak, announced the Spring Statement on 23rd March 2022.
And there’s a lot to discuss. This year was different because usually, no new taxes are announced at the Spring Statement.
This announcement puts measures in place to help combat rising energy costs and an increase in the general cost of living. National Insurance, energy prices, and inflation will all be increasing from April 2022.
What does this mean for you taxpayers? Well, you’ve definitely come to the right place to find out!
So, what is Income Tax? Income Tax is tax that’s paid on your main form of income. Many people pay their Income Tax through PAYE (meaning that it’s deducted automatically from your salary) but if you’re self-employed or earning money through other means (e.g. property) you pay tax via a Self Assessment tax return.
UK income tax bands for 2022/2023 are as follows:
| Income | Tax rate | Band |
| Up to £12,570 | 0% | Personal Allowance |
| £12,571 to £50,270 | 20% | Basic Rate |
| £50,271 to £150,000 | 40% | Higher Rate |
| £150,000 + | 45% | Additional Rate |
The changes affect basic rate Income Tax at 20%, which will be lowered to 19% by 2024. This means that basic rate taxpayers will pay less Income Tax on their earnings.
Basically, instead of paying HMRC 20p to every £1 that you earn, it will now be 19p to every £1 earned.
OK, before we start, there’s quite a lot to get your head around, so hold onto your hats 🎩🧢
National Insurance (NI) is a tax that you pay to HMRC. You are afforded different State Pensions and benefits depending on your employment status and earnings. Employees, employers and the self-employed all pay NI contributions.
Currently, the NI threshold is £9,568 if you’re employed. This means that previously, you didn’t need to pay any NI contributions on earnings up to £9,568. If you were self-employed, the threshold was (slightly) lower. You didn’t have to pay on anything less than £6,515.
Sunak announced, however, that the Class 1 and Class 4 National Insurance threshold will be increased by £3,000 from July 2022. As a result, the new NI threshold will be £12,570, matching the Personal Allowance. But you’ll still owe Class 2 National Insurance if you’re self-employed. The 2022/23 threshold will be £3.15 per week owed on any income more than £6,725 per year.
Still with us? OK, let’s plough on!
Increasing the Class 1 and Class 4 thresholds means that you won’t have to pay those NI contributions on earned income up to £12,570, but as the rates are going up, you will most likely end up paying more.
NI is deducted from income earned above the threshold from your monthly income, either by your employer through PAYE, or HMRC directly on your Self Assessment tax return if you’re self-employed. From April 2022, NI contributions for Class 1 and Class 4 are still set to rise 1.25%. (Sob.) And between April and July 2022, the interim rate for Class 4 National Insurance contributions will be 10.25% on any income over £9,880.
Class 1 contributions are increasing to 13.25% and 3.25%. Class 4 contributions are increasing to 10.25% and 3.25%. Whether you’re taxed on the higher or lower rate depends on how much you earn.
So although the Income Tax rate has been reduced, and despite the NI threshold increase from July, this rise in National Insurance rates will still increase the overall tax owed.
When you’re self-employed, you have to pay your National Insurance contributions yourself in your annual Self Assessment, together with any income tax you might owe.
You pay no NI contributions on the first £12,570 that you make.
You will need to pay Class 2 NI worth £164.
You will also have to pay £3,632 (9%) on your income between £12,570 and £48,000.
From November 2022, new National Insurance rates and thresholds have been introduced. For Class 2 the threshold is now £11,908, which will increase to £12,570 in April 2023. Class 4 contributions have decreased to 9% for earnings over £12,570 and 2% for earnings over £50,271. Class 1 contributions have decreased to 12% (from 13.25%) and 2% (from 3.25%).
The Employment Allowance is a UK government tax relief scheme for eligible small business owners to reduce their annual Class 1 National Insurance bill. This scheme helps support small businesses, charities, and community amateur sports clubs – like your new go-to coffee shop or your kid’s amateur rugby team. There are qualifying factors so it’s worth looking into those before you claim, just to be safe.
Previously, the allowance was £4,000 but following the Spring Statement, it has been increased to £5,000 from April 6th 2022. This means that many people will receive the support they need during the general rise in costs, and also the pandemic, and HMRC reports that around 495,000 businesses will benefit from this increase.
You can claim it here, on the HMRC website.
Another concern, along with the rising cost of living, is the price of fuel and its sudden spike. What is Fuel Duty? It’s a fee that’s automatically added when you pay for petrol, diesel, other fuels used in vehicles or for heating.
Rishi Sunak announced that the Fuel Duty will be cut by 5p per litre until March 2023, to counteract the increased fuel prices. This change intends to reduce the cost of fuel to support both businesses and households alike.
Part of the government’s plan to help with the increased cost of living is to lower the 5% VAT charges to 0% VAT on certain Energy-Saving Materials (ESM). This zero-rate VAT is in place for the next 5 years, from 1st April 2022 until March 2027.
It’s in place to encourage homeowners to use ESM into their households to combat the rise in energy prices by being more energy efficient.
Some ESM include:
As usual, there are rules and regulations that need to be followed. Only those specific ESMs will be eligible under this reduction so it’s worth speaking to contractors beforehand to check you’re on the right path to being eligible. Contractors are also asked to take note and make sure their work is qualifiable under the given regulations.
And finally, the last change announced in the Spring Statement: the Household Support Fund is being increased by £500million. This is in addition to the current £500million, bringing the total to £1billion.
But what actually is it? The fund is to support the most vulnerable households across the UK, especially against the current price hike. Local councils will distribute the money to those who need it most to support the cost of essentials. Local Authorities pinpoint local needs and use the fund towards those causes. At least 50% of the fund is dedicated to households with children.
Check to see if you’re eligible or apply for the Household Support Fund through your local council. Each application process will be different for each local council so make sure you check their website for further information.
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