The third Spring Budget presented by Rishi Sunak was obviously intended to bring some brightness in what has otherwise been a pretty gloomy start to this year. There were some significant giveaways including the much welcomed reduction in fuel duty as we see the prices at the pumps creeping ever higher on an almost daily basis.
It was again a plan marked as much by what didn’t happen as what was included. There was no backtracking on the 1.25% “NHS surcharge” coming in next month; there was no move to tinker with Capital taxes; and no windfall tax on those that had managed to turn a profit off the back of the global pandemic.
The headline announcement of the increase in the threshold for National Insurance, which is going to be matched to the personal allowance for income tax, will benefit the very low paid and those who are on part time hours. It is also a benefit for middle income earners, despite the additional 1.25% that will be taken from their wages, but once earned income gets above £44,000 the new surcharge will start to reduce the take home pay that workers will see in the coming year.
The jump in the NI threshold isn’t going to start until July. This is somewhat unusual as most changes affecting payroll naturally start in April for the new tax year. It would seem that this change was a very last minute decision which could not be factored in by software houses quickly enough.
Your National Insurance record is linked to entitlement to State benefits, and the commentary available at the moment is indicating that those with income below the threshold will still be able to make low income years count towards entitlement. This relaxation is also being extended to the self employed who will, for the first time, be able to have a tax year count towards State Pension entitlement even if they don’t have to pay the flat rate Class 2 NI contributions.
At this time there seems to be no intention to also move the National Insurance threshold for employers, so employers will pay their contributions at a much lower starting point than employees as these changes unfold. Employers were, however, given a small token of relief from the ever increasing “add on” costs for employees as the employment allowance, which exempts employers from the first £4,000 of National Insurance charges, was increased by £1,000. This is a significant relief for the very smallest of employers, but does little for other businesses paying total salaries in excess of £40,000 who see the rate of Employer NIC increase to over 15% from next month.
The Business Rates reliefs that have helped many small businesses weather the last couple of years, particularly in the leisure sector, is about to end, but the leisure and retail sectors have been given a softer landing with Business Rates being cut by 50% for those sectors.
The remaining announcements were a wish list covering a wide range of topics from improving the scope of the under used Research and Development Tax Credits that are designed to drive innovation, to more investment in tackling fraud, and what seems to be a vote chasing intention to reduce the basic rate of income tax by 1%, which we can expect to come in a month before the next General Election.
As always, the devil is in the detail and we will know more about the perhaps “hidden” agenda that will be contained in the legislation when it goes through Parliament in the next few weeks but, for the time being, the much anticipated hike in taxes to pay for the government’s pandemic spending has not materialised. However, this is not quite the giveaway budget that was implied in yesterday’s speech, given that tax free allowances and lower thresholds are being frozen so that, in real terms, taxes are increasing subtly for the majority of tax payers.
Paula Sparrow
Tax Director
