Spring statement 2022 headlines

Spring statement 2022 has landed, and if you’ve been waiting to hear what the Chancellor has in store for your finances, we’ve cut through the announcements to bring you the practical essentials. Whether you’re a sole trader, limited company director, or employee, there are several changes heading your way that deserve your attention—and your action.

National Insurance contributions: the significant change

The headline grabber this year is the rise in National Insurance contributions (NICs). From July 2022, the employee threshold drops from £9,100 to £8,700 annually, meaning you’ll start paying NICs on a lower salary. For employers, the secondary threshold increases slightly, but the overall picture still means higher contributions across the board.

In real terms, an employee earning £25,000 will pay approximately £144 more per year in NICs. For businesses with multiple staff members, this cumulative effect is worth budgeting for immediately. If you operate a limited company and pay yourself via salary and dividends, now is the time to revisit your remuneration strategy with your accountant. The interplay between salary, dividends, and pension contributions could significantly reduce your overall tax burden.

Self-employed traders should note that Class 2 NICs remain broadly unchanged at £3.45 per week, but Class 4 contributions are affected by profits thresholds. It’s worth reviewing your quarterly payments if you’re registered for Self Assessment.

Income tax thresholds frozen until 2026

Another critical announcement: personal allowances and higher rate thresholds remain frozen at their current levels through to April 2026. This frozen allowance is a quiet but substantial tax rise for many, especially when inflation climbs. The standard personal allowance stays at £12,570, and the higher rate threshold at £50,270.

What this means in practice is “fiscal drag”—as your salary increases with inflation, a larger portion of your income becomes taxable. If you’re a higher earner, this deserves careful planning. Consider maximising your pension contributions under the annual allowance (£60,000 in 2022/23), as these reduce your taxable income and provide genuine tax relief at your marginal rate.

For self-employed individuals, this frozen threshold is equally important. If your business profits are rising, more of that growth will be taxed. Review your expenses claims carefully to ensure you’re capturing all allowable deductions.

Corporation tax and the super-deduction extended

The super-deduction on capital expenditure—allowing companies to deduct 130% of qualifying plant and machinery costs—has been extended to 31 March 2023 (though at a reduced rate of 50% from 1 April 2023). If your limited company is considering significant equipment purchases, investment machinery, or vehicles for business use, accelerating these purchases before the year end could generate meaningful tax relief.

The allowance for investment allowance (AIA) remains at £1 million, providing additional flexibility for capital purchases under this threshold. This is particularly relevant for Worcester-based manufacturers, logistics firms, and any business with significant equipment needs.

Meanwhile, corporation tax rates themselves are set to rise from 19% to 25% for larger companies (those with profits over £250,000) from April 2023. Smaller companies with profits below £50,000 remain at 19%. This is a material change, and companies caught in the middle should be planning their profit extraction strategy and reviewing their future cash flow projections now.

Energy bills support and other reliefs

The government’s £9 billion energy bills discount scheme provides some relief for households and businesses, though businesses may face continuing uncertainty. If you operate from commercial premises, seek clarity on what support you might qualify for—the picture remains complex for mixed-use properties.

Additionally, various temporary reliefs and grants announced previously (such as the business rates relief for retail, hospitality, and leisure sectors) continue with modifications. Check your eligibility carefully, as these are time-limited and claim-dependent.

What you should do now

Spring statement changes require prompt action across payroll, tax planning, and capital investment decisions. The frozen allowances create urgency around pension planning and income splitting strategies. The NIC rises need reflection in your budget. And the corporation tax increase demands forward planning from any limited company director.

Your tax position is rarely one-size-fits-all, and the Spring statement announcements affect different people in very different ways. For tailored advice on how these changes apply to your specific situation—whether you’re an employee, self-employed, or running a company—we’d recommend reviewing your tax strategy sooner rather than later.

For tailored advice, contact Severn Accounting — we’re here to help.