Spring Statement 2022

Exactly two years since the first lockdown was announced, the eyes of the public were firmly fixed on the Chancellor, Rishi Sunak, as he rose to the despatch box in the House of Commons to deliver his Spring Statement.

Yet again, Mr Sunak found himself addressing MPs against a background of crisis, with the residual impact of COVID, the invasion of Ukraine and the cost-of-living crisis all affecting the economy in different ways.

The cost-of-living crisis will have been weighing especially heavily on the Chancellor’s mind. Just hours earlier, the Office for National Statistics (ONS) had confirmed that inflation had hit a 30-year high of 6.2 per cent. Meanwhile, petrol and diesel were averaging 166p and 178p a litre respectively, and anxiety is rising about the £693 increase to the energy price cap coming into effect on 1 April.

Compounding matters, a 1.25 percentage point increase in National Insurance Contributions (NICs) for employees and employers is set to take effect on 6 April.

Employers will also need to contend with substantial rises in the rates of the National Minimum Wage (NMW) and National Living Wage (NLW) from 1 April.

Individuals and businesses alike were hoping the Chancellor would announce further measures to address the cost-of-living crisis.

However, this was a Spring Statement. While they can morph into mini-Budgets, they typically contain little by way of concrete tax and spending measures.

Instead, the main purpose of a Spring Statement is to set out the latest economic forecasts prepared by the Office of Budget Responsibility (OBR), often followed by the launch of various consultations on the Government’s longer-term plans.

Mr Sunak and his allies had spent the days and weeks ahead of the Statement letting it be known that he wanted largely to stick to his existing plans and resist calls to make major changes.

Delivering the Mais Lecture at Bayes Business School last month, Mr Sunak said:

“And the impact of these trends on people is being exacerbated by high inflation. This is primarily a global problem, driven by higher energy and goods prices.

“The government is dealing with high inflation by helping people with those extra costs, and through the monetary policy framework.

“But over the longer-term, the most important thing we can do is rejuvenate our productivity.”

The suggestion was that Government assistance with the cost-of-living crisis should be limited and that dramatic interventions would not be on the cards.

But the scale of the crisis meant political pressure on the Chancellor from diverse quarters to take immediate action was increasing by the day.

In the event, the Chancellor bowed to pressure and pulled several rabbits from his hat with a focus on supporting workers.

Economic Forecasts

As expected, the OBR’s forecasts for the economy painted a less optimistic picture than they did at the Autumn Budget.

Growth is now expected to be 3.8 per cent in 2022, down from the previous forecast of six per cent, 1.8 per cent in 2023 and 2.1 per cent in 2024.

Meanwhile, inflation is projected to reach 7.4 per cent this year with a peak of 8.7 per cent in Q4, 4 per cent in 2023 and 1.5 per cent in 2024.

The picture in relation to unemployment is generally more positive, with a forecast of four per cent in 2022, 4.2 per cent in 2023 and 4.1 per cent in 2024.


Cost of Living

The Chancellor dedicated a substantial proportion of his speech to the invasion of Ukraine and stressed the impact of the crisis on the global economy and on the cost of living in the UK.

He began with one of the more eye-catching announcements of his speech, and one that hasn’t featured in even a full Budget for many years – a one-year temporary 5p a litre cut in fuel duty applying from 6pm on Wednesday 23 March 2022.

The Chancellor committed to cutting VAT for homeowners installing energy saving measures to 0 per cent.

He also reiterated his February announcement of a £9 billion package to help with rising energy bills following the increase in the price cap.


Tax Plan

Shifting away from a direct focus on the immediate pressures on the cost of living, the Chancellor unveiled his Tax Plan, setting out his intentions for the remainder of this Parliament, which is due to last until 2024 and comprises three elements:

  • Helping families with the cost of living
  • Creating the conditions for private sector-led growth
  • Letting people keep more of what they earn

As well as the temporary cut to fuel duty, the Chancellor said he will increase the annual Primary Threshold and Lower Profits Limit for National Insurance to £12,570 from July 2022, as part of the first commitment. Meanwhile, Class 2 NIC payments will be reduced to nil between the Small Profits Threshold and Lower Profits Limits.

He said that 70 per cent of workers would see their National Insurance payments fall, even after the addition of the Health and Social Care Levy, which comes into effect on 6 April as planned.

Next, he said that the Employment Allowance will rise from April 2022 from its current level of £4,000 to £5,000, saving businesses up to an additional £1,000 on Class 1 National Insurance contributions.

Moving to creating the conditions for private sector-led growth, the Chancellor said his focus would be on “capital, people and ideas”.

He announced his intention to cut and reform taxes on investing in businesses, building on the momentum of the super-deduction.

He also said the Treasury will engage with businesses on ways to cut taxes on investment and will confirm plans later this year at the Budget.

On people, the Chancellor said he would look at ways to offer more high-quality employee training.

On ideas, he said that further reforms to Research and Development Tax Reliefs would be announced at the next Budget, with the Government planning a boost worth £5 billion.

Moving to letting people keep more of what they earn, the Chancellor announced a surprise cut to the basic rate of income tax from 20 per cent to 19 per cent from April 2024.

He said that, alongside this, the Government will look to reform tax reliefs and allowances before 2024.


Conclusions

The Spring Statement was a classic example of the Chancellor managing expectations downwards in order then to exceed them.

In this case, what had been billed as a rather vanilla financial statement containing little by way of substantive change transpired to include not only increases in the National Insurance thresholds for employees and the self-employed and cuts to fuel duty, but also plans to cut the basic rate of income tax in two years’ time.

While this will be good news for the finances of many individuals, notwithstanding the forecast that inflation will reach a peak of 8.7 per cent in the autumn, employers and business owners might be hoping there will be more for them at the Autumn Budget 2022.

Links:

Spring Statement

Tax Plan

SME confidence is on the rise as employers make plans to expand their workforce

Official research has found increasing confidence amongst SME employers, with 26 per cent saying they expect to increase their employee headcounts over the coming year.

The findings from the Small Business Survey, carried out by the Department for Business, Energy and Industrial Strategy (BEIS), show that the number of small employers – those with fewer than 250 employees – that expect to employ more staff is more than two-and-a-half times those who expect to see their payrolls shrink.

Despite the impact of the pandemic, the proportion of employers expecting to take on more staff has already exceeded 2018 levels (25 per cent) and is approaching the 28 per cent recorded in 2019.

Meanwhile, the proportion of employers expecting to reduce their headcounts in the next year has fallen sharply from 16 per cent in 2019 to just 10 per cent this year – despite the furlough scheme coming to an end this month.

The accommodation and food, arts and entertainment, health, information and communication and administration were the sectors most likely to foresee rising numbers of employees.

The survey also uncovered optimism about the prospects for revenue growth, with 41 per cent of SMEs expecting turnover to grow in the coming year, while just 16 per cent expected to see a fall.

Around 67 per cent of SMEs reported that they had made a profit or surplus during their most recent financial year, with profitable businesses being relatively evenly spread across micro, small and medium businesses.

Link: Longitudinal Business Survey: SME Employers – UK, 2020

Minimum wage non-payment excuses ‘outrageous’

The National Minimum Wage has been in place for more than two decades. It currently stands at £8.91 per hour for adults over the age of 23 (The National Living Wage), while the lowest figure is £4.30 per hour for an apprentice.

While a sizeable number of breaches will be down to errors or incorrect interpretation of the rules, a few unscrupulous employers are abusing it and have come up with some dubious excuses for not paying what is a legal requirement.

HMRC has published some outrageous excuses for not paying:

  • She does not deserve the National Minimum Wage because she only makes the teas and sweeps the floors.
  • The employee was not a good worker, so I did not think they deserved to be paid the National Minimum Wage.
  • My accountant and I speak a different language – he does not understand me, and that is why he does not pay my workers the correct wages.
  • My employee is still learning so they are not entitled to the National Minimum Wage.
  • It is part of UK culture not to pay young workers for the first three months as they have to prove their ‘worth’ first.
  • The National Minimum Wage does not apply to my business.
  • I have got an agreement with my workers that I will not pay them the National Minimum Wage; they understand, and they even signed a contract to this effect.
  • My workers like to think of themselves as being self-employed and the National Minimum Wage does not apply to people who work for themselves.

HMRC says it has issued more than £14 million in penalties to employers who failed to pay the correct rate of the National Minimum Wage or National Living Wage in the 2020/2021 tax year.

More than £16 million in unpaid salaries was also recovered which should have been paid to more than 155,000 workers across the UK.

Link: HMRC reveals absurd excuses for not paying National Minimum Wage

Couples could be missing out on tax breaks

Couples may be missing out on tax breaks without realising it, according to HM Revenue & Customs (HMRC).

Savings can be made both with Income Tax and Capital Gains Tax (CGT) by using their personal tax allowance.

For CGT, a couple’s two allowances (each equal to £12,300) can be combined to reduce the final tax bill on a transaction like selling a second home.

But for nearly two million couples who are married or in a civil relationship, the ‘Marriage Allowance’ can also be used and save up to £252 per annum in Income Tax.

This can be backdated to include any tax year since 5 April 2017. If your spouse or civil partner has since died, you can still claim.

If one partner earns below the Personal Allowance threshold of £12,570 and the other is a basic rate payer, then 10 per cent of the lower earner’s allowance can be transferred to the higher earner.

For the current tax year, that figure is £1,260, which means an annual tax saving of £252. Multiply this by the backdated four years and you could have a saving of £1,220.

For couples who have been together for many years, a change in circumstances like the effects of the COVID pandemic, where they may have lost a job but have found lower paid employment, could also mean they are now eligible.

Angela MacDonald, HMRC’s Deputy Chief Executive and Second Permanent Secretary, said: “Marriage Allowance lets eligible couples share their Personal Allowances and reduce their tax by up to £252 a year. Nearly 1.8 million couples are already using the service – it is free, quick and easy to apply, just search ‘marriage allowance’ on GOV.UK.”

Claims are automatically renewed yearly but couples should notify HMRC if their circumstances change.

Visit GOV.UK to find out more about Marriage Allowance.

Link: 1.8 million couples benefitting from extra tax relief

New weapons in the war on cybercrime

It is a nightmare that plagues both business and private users alike, but cyber security experts are continuing to fight back against the online crooks using email scams targeting their organisations.

The UK’S cyber police force, the National Cyber Security Centre (NCSC), has published guidance for businesses on a new reporting tool that can be added to their organisation’s Microsoft Office 365 accounts where potential scams can be reported directly to the NCSC’s Suspicious Email Reporting Service (SERS).

It is just one weapon in the long battle against online criminals and comes as the cost to the UK from cybercrime incidents amounts to £5.7 million this year.

More than ever the internet is vitally important to the UK economy but is also exploited by those wishing to cause harm – with cybercrime being largely invisible but having devastating effects on companies and their employees.

A generation of tech-savvy younger people has also become a prime target for scammers and phishers.

Phishing is when attackers attempt to trick users into disclosing personal information by clicking a malicious link that will download malware, or directing them to an insecure website.

There have been 14,883 cybercrime incidents involving scammers and phishers since the start of the year, with one-third of the total losses, £1.9 million, coming from businesses, according to fraud prevention experts PPC Shield.

Since 1 January this year, their survey shows that 43 per cent of reported incidents involve hacking, fake social media posting and email scams.

Since its launch in April 2020, the Suspicious Email Reporting Service has received over 6,500,000 reports from the public – resulting in the removal of more than 97,000 scam URLs.

Link: UK reports £5.7 million of losses due to cybercrime

Beware of rising house prices increasing Inheritance Tax liability

While rising property values may seem like good news, as prices go through the roof it could land you with a hefty Inheritance Tax (IHT) bill.

The latest data from HM Revenue & Customs (HMRC) show that the average IHT tax bill stood at nearly £210,000.

IHT is a charge on the value of the estate of someone who has died and includes all their assets, from property to investments and vehicles.

The current threshold stands at £325,000, below which you do not pay anything except in certain circumstances.

A 40 per cent tax charge then applies to anything over that value if no planning is undertaken, such as gifting to charity.

The £325,000 threshold might be even higher if you gift your home to a direct descendant such as your children or grandchildren, where a further residence nil-rate allowance of £175,000 takes the figures to £500,000 before tax, or up to £1 million if you are a surviving spouse or civil partner.

As property values increase, people who are leaving a home in an estate could find they are moving into the IHT bracket unexpectedly.

The new figures from HMRC, which are taken from the 2018/2019 tax year, show that the average IHT bill rose by six per cent compared to the previous year.

The figures indicate that the average IHT bill for that year was £209,502, a significant rise from the previous year, which averaged out at £197,521.

The sudden rise in house prices may mean that more individuals face an IHT bill if they leave property or other assets to beneficiaries – despite the increase to the residence nil-rate threshold.

Government data shows that revenue from IHT receipts from April to May 2021 were £966 million – £340 million higher than the same period last year, partly due to the sharp increase in property prices.

Link: Average IHT bill now above £200k

Frustrated SMEs turning to unsecured loans to grow businesses

As the UK emerges from the economic crisis caused by the pandemic there are many positive indicators of financial recovery, such as a fall in COVID-induced public spending, a rise in job vacancies and a decline in unemployment, all of which are encouraging businesses to grow.

The economic indicators are good news for SMEs with people spending on home improvements and leisure, as cash saved during the lockdown flows back into the economy.

The SME market makes up over 95 per cent of UK businesses and they are vitally important to the UK economy.

Despite earlier optimism about growing their businesses, many have felt frustration in their ability to obtain business loans from traditional banks and finance firms.

Now a new report suggests that many who are struggling with day-to-day cash flow and the ability to make quick decisions on finances are turning to unsecured loans to take their business forward.

No security is needed for an unsecured business loan, which means the borrower does not have to put assets at risk to secure the funding and allowing for quicker decisions to be made.

Unsecured business loans allow for greater flexibility and give business owners the opportunity to quickly fund their company with the minimum of fuss.

The list of businesses who can apply includes self-employed individuals, sole traders, partnership firms and private limited companies engaged in the business of trading, manufacturing and services.

The report by finance firm iwoca suggested they are now turning to credit brokers, with more than a third applying for loans over a four-week period in May.

Over half of respondents reported that the most commonly requested unsecured loan amount they’d applied for on behalf of their clients was under £50,000, with around 17 per cent requesting £25,000 or less.

Link: iwoca SME Expert Index find 1 in 3 brokers see rising demand for unsecured finance

HMRC auto-correcting 2020-21 SEISS tax returns

Where grants claimed under the self-employment income support scheme (SEISS) do not correspond with records held by HM Revenue & Customs (HMRC), it will auto-correct 2020-21 tax returns and issue a new SA302 calculation to both taxpayer and acting agent.

Corrections may be necessitated if:

  • The grant amount was omitted;
  • The amount received appears in the wrong box on the return; or
  • Where HMRC believes a taxpayer was not eligible for the SEISS because of missing self-employment or partnership pages.

If your return is auto-corrected to include details of an SEISS grant, but you did not receive a grant, you should speak with your agent or HMRC immediately as this could point to fraudulent activity.

2020-21 self-assessment tax returns should accurately report the first three SEISS grants, as the grants are taxable in the tax year that they are received.

HMRC has only been auto-correcting returns since 19 June, meaning that any received before this date will still require manual input and so the wait time for processing these may be longer.

If you receive notification that your tax return has been auto-corrected, you may choose to either accept the correction and amend the return, if appropriate, or dispute it.

If you intend to dispute a correction, you should ensure this is notified to HMRC within 30 days of the correction notice and in writing, where possible.

A careful review of your records, and the right professional advice where necessary, should enable you to determine the applicable response.

Where you have received any SEISS or other taxable grants, your accountant or adviser should be made aware of these to enable them to accurately prepare your tax returns.

Link: Tax returns auto-corrected for SEISS grants

SMEs optimistic and frustrated as economy set to thrive

With predictions that the UK economy is set to grow at its fastest pace in 80 years and could recover to its pre-pandemic size by the end of this year, SME owners are feeling more optimistic and are keen to invest in growth.

However, they are also frustrated by the mix of financial options open to them, according to a survey from the Association of Chartered Certified Accountants (ACCA) and The Corporate Finance Network (CFN).

Their wish to invest is buoyed by the latest figures from the Office for National Statistics (ONS) which show UK gross domestic product (GDP) for the second quarter is estimated to have increased by 4.8 per cent, which is now 4.4 per cent below the pre-pandemic level at the end of 2019.

There have been increases in services, production and construction output over the quarter, with the largest contributors coming from wholesale and retail trade, accommodation and food service activities and education.

This will be a boost for the large majority of SMEs who are now planning for expansion, with new research from Paragon Bank showing that six in 10 are increasing their innovation budget compared to pre-Covid levels.

More than 75 per cent of business owners list innovation as a key priority to recovery.

But they say they are struggling for financial help in the form of overdrafts and other options like mortgages and leases.

This has not been helped following the winding down of many of the Government-backed support schemes. They are also frustrated at being unable to find the right blend of financing for success.

According to the joint survey this has caused mental health problems with bosses feeling more stressed and anxious.

The difficulties of obtaining finance could not come at a worse time as they are desperate to get back to some normality and go for growth in the future.

Link: SMEs feel confident but frustrated by lack of financial backing

Taxman says help available as debt collection resumes

HM Revenue & Customs (HMRC) has warned that debt collection will resume as the UK emerges from the pandemic and it will be contacting taxpayers who have fallen behind with their taxes.

HMRC says it will take an understanding and supportive approach to dealing with those who have tax debts or are concerned about their ability to pay their tax.

During the pandemic, HMRC tax debt collection was put on hold. But on 30 June 2021, HMRC announced that it was restarting its debt collection work as economic activity resumed.

In its latest announcement, HMRC stated: “If you can pay your taxes then you should do so – but if you are struggling, we want to work with you to agree a plan based on your financial position.”

HMRC will be contacting all taxpayers with outstanding debts to discuss payment options and they have been warned they must respond to these notifications as soon as possible.

Taxpayers may be offered a short-term deferral, with no further action to collect the tax debt until that time has lapsed.

As part of agreeing to Time to Pay arrangements with businesses, HMRC will also talk about other forms of support they may be eligible for.

HMRC added that it will take an understanding and supportive approach to dealing with those who have tax debts or are concerned about their ability to pay their tax.

It also warned that it will do everything it can to help businesses with temporary cash-flow issues to survive as the economy grows, but where businesses have little chance of recovery, it has a responsibility to act – not least to protect viable businesses in their supply chains.

Link: Debts owed to HMRC due to COVID-19