The Spring Statement 2022 has been announced, but how will this impact individuals?

The Spring Statement 2022 has been announced, but how will this impact individuals?

The headline grabbing announcement from the Chancellor’s speech yesterday, was the promise to cut the basic rate income tax by 2024 to 19%, a reduction of 1% and the first cut to the basic rate of income tax in 16 years.  It is always interesting to see how the devolved powers respond to announcements like this – in Scotland there is already a 19% rate of tax, which is labelled as the starter rate, with basic rate standing at 20%, and in Wales basic rate is also 20%.  This is clearly aspirational from the Chancellor and interesting that he has made the announcement today against the current backdrop of war in Ukraine, which could lead to the next two years being very uncertain economically.

The cut to the basic rate of tax brings other issues to the fore. In particular, payments made to charities under the gift aid scheme are treated as being made net of basic rate tax, as are many personal payments to pension plans.  No mention has been made of the position with regards to pension contributions, however the Government has confirmed that there will be a three-year transition period for Gift Aid relief to maintain the income tax basic rate relief at 20% until April 2027.  This will support almost 70,000 charities.  

The other key announcement today for individuals, both those who are employed and the self-employed, is the alignment of the National Insurance and personal allowance thresholds.  The personal allowance was increased to £12,570 for the current tax year and frozen at that level until 2025/26. The National Insurance threshold for the individual has always been lower than this, and for the current year has been £9,880.  This means that an individual earning say £10,000 would pay no tax but would be due to pay a small amount of primary National Insurance.  The National Insurance threshold for the self-employed was also £9,880 meaning that a sole trader or partner would pay no NI up to that level, but would pay Class 4 NIC thereafter.

The Chancellor’s announcement today means that from 6 July this year, the primary threshold for employees and the lower profits limit for the self-employed will increase from £9,880 to £12,570 aligning the NI threshold with the personal allowance. As a result, someone who is an employee or self-employed earning £10,000 will now receive this income free of tax and National Insurance.  

On the face of it this sounds positive, however we must also keep in mind that the Health and Social Care Levy will be introduced from April 2022, and this will see the rates of National Insurance for both the employed and the self-employed rise by 1.25%.  The measures announced today will not fully mitigate the inflationary impact of this levy from April this year.  

We now need a period of tax certainty as the UK continues on its path towards recovery, so businesses can plan with confidence as they revive, refocus and rebuild, and individuals can take advantage of the tax landscape to protect their wealth.

Get in touch

If you have any questions regarding the 2022 Spring Statement or would like further information on any of the areas raised above, please speak with your local Tax Advisor or a member of our Private Client tax team.

When it comes to tax, our specialist team is dedicated to supporting individuals and businesses save money, time and inconvenience.