Spring Statement 2022

Rishi Sunak presented the 2022 Spring Statement Budget on Wednesday 23 March 2022.

The Spring Statement is not a full budget – it normally gives an update on the state of the economy and sets out future plans.  Major changes are usually reserved for the main Budget in the Autumn.

However, given the current state of the economy, the Spring Statement this year did include some more immediate and significant changes which are summarised below.

National Insurance

The increase in national insurance for the health and social care levy will still go ahead.

However, the Chancellor announced that the primary threshold for national insurance (the level at which employees start to pay national insurance on their salaries) will increase from £9,880 (as previously announced from 6 April) to £12,570 with effect from 6 July.

This means that, for the 13 weeks to 6 July 2022, employees will pay national insurance (at the new rate of 13.25%) on income over £190 per week (£823 per month).  From 6 July, they will pay on income over £242 per week (£1,048 per month).

Good news too for the self-employed – the Class 4 National Insurance threshold (lower profits limit) will increase to £11,908 for the tax year 2022-23 (being 13 weeks at £190 and 39 weeks at £242).

The primary threshold for company directors will also be £11,908 (because their national insurance is calculated cumulatively over the year rather than on a monthly basis).

These measures bring the primary threshold for national insurance into line with the personal tax free allowance and the Chancellor announced that they would now remain aligned.

Class 2 National Insurance

More good news for lower earning self-employed individuals: currently, if your income is more than the small profits threshold (£6,725) you have to pay Class 2 National Insurance (which gives credit for state pension and other contributory benefits) at £3.05 per week.

The Chancellor announced that the self-employed will no longer have to pay class 2 national insurance if their earnings are between the small profits threshold and the lower profits limit (ie £6,725 to £11,908 for 2022-23), but they will still receive national insurance credits. (This brings them in to line with employees who have always received credits when earning between the two thresholds.)

Presumably, those with profits less than £6,725 will still have to pay voluntary class 2 national insurance at £3.05 per week if they want credits for their pension/contributory benefits.

Employment allowance

More help was announced for employers too.  Their national insurance thresholds remain unchanged, but the Employment Allowance (the amount of employer national insurance that small employers do not have to pay over to HMRC) will increase from £4,000 to £5,000 for 2022-23.

Fuel Duty

There will be a temporary 5p per litre cut in fuel duty from 6pm tonight for 12 months.

VAT on energy saving materials

VAT on the installation of energy saving materials (solar panels, heat pumps, insulation etc ) will be reduced to zero from April for the next five years.

(Note: Some measures currently qualify for a 5% VAT rate rather than 20%, but the rules are complex – the bottom line is that you won’t generally see prices reducing 1/6th as you would expect if 20% VAT was being removed).

Income tax

The ‘big’ accouncement was that the basic rate of tax will be reduced from 20% to 19% from April 2024.

Student Loan reform

Not announced in the Spring Statement, but still worth a mention are changes to Student Loans announced last month.

The repayment thresholds for plan 2 and plan 3 student loans have been frozen for the 2022-23 tax year, which gives an effective increase in repayments to students in real terms.

There are currently two main plans for student loans: plan 1 (loans taken out between 1998 and 2011) and plan 2 (loans since 2011) (there are also plan 3 (post graduate), plan 4 (Scottish) and pre 1998 loans).

For plan 1, graduates pay back 9% of income over £19,895 (£20,195 from 6 April 2022) per annum and are charged interest on the loan at the lower of RPI (retail price index inflation) or the Bank of England base rate +1%.

Plan 1 loans are written off either at age 65 (if you took the loan out in 2005-6 or earlier), or 25 years after the April in which the first payment was due (for loans 2006-7 or later).

For plan 2, graduates pay back 9% of income over £27,295 (no change from 6 April) per annum and are charged interest at RPI plus up to 3% (RPI+3% during your course up until 5 April after the end of the course, and then varying rates after that depending on your income – eg for income less than £27,295, interest is at RPI, if your income is over £49,130, the rate is RPI+3%).

Plan 2 loans are written off 30 years after the April in which the first payment was due.

For those starting university from September 2023 onwards, there will be a new plan.   The repayment threshold will be £25,000 and interest will be charged at RPI.  The length of time taken before a student loan is written off will increase to 40 years.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: