Amidst a challenging economic and political environment, the UK government plans to provide relief measures that would cut the individual income tax rate by 2024 and raise the National Insurance (NI) threshold in line with income tax, according to The Spring Statement given Wednesday by Chancellor of the Exchequer Rishi Sunak.
Sunak made a clear intention to simplify and reform taxation and announced some targeted relief to help small and medium-size businesses and families with the rising cost of living. The key announcement was raising NI thresholds in line with income tax thresholds.
There was also a clear focus in the chancellor's speech on driving up skills and capital investment to improve UK productivity and a clear focus on resilience, which shares goals that the Association of International Certified Professional Accountants expressed in its Spring Statement Submission.
Income tax cut advanced
The key points and policies advanced in the speech include:
- A basic rate of income tax cut from 20% to 19% by 2024. This is a preannouncement of the Chancellor's intention to cut the basic rate of income tax by 1p before the end of the Parliament.
- The National Insurance threshold will be raised by £3,000. This means people can earn up to £12,570 before paying either income tax or NI. This change brings NI in line with income tax. This does not come into effect until July this year.
- Value-added tax (VAT) will be scrapped on home energy-saving measures such as insulation, solar panels, and heat pumps.
- Fuel duty cut by 5p a litre. This will last until March 2023.
- Employment Allowance, which gives relief to smaller businesses' NI payments, will increase from £4,000 to £5,000 from April.
- Retail, hospitality, and leisure sectors will receive a 50% discount in Business Rates up to £110,000.
- New green Business Rates reliefs will also be brought forward by a year to come into effect in April 2022.
- The Household Support Fund that supports local councils in helping the most vulnerable will be doubled to £1 billion from April.
R&D, skills, and capital investment
- R&D reliefs will be reformed to deliver better value for money for the taxpayer while being more generous where R&D will make the most difference. Simultaneously, the scope of reliefs will be expanded to cover data, cloud computing, and pure maths. In the autumn there will be consideration given to whether the R&D expenditure credit could be more generous.
- Reforms will be considered, aiming to encourage employers to invest in adult training, which will include looking at the operation of the Apprenticeship Levy.
- The government will consider whether further intervention is needed to encourage employers to offer the high-quality employee training the UK needs. This will include examining whether the current tax system — including the operation of the Apprenticeship Levy — is doing enough to incentivise businesses to invest in the right kinds of training.
Public finances and public-sector efficiencies
- Almost £200 million will be provided to HMRC and the Department for Work and Pensions to improve compliance, with the objective to deliver significant savings of over £3 billion by the middle of the next Parliament.
- A new Public Sector Fraud Authority will be set up, with the aim to improve efforts to reduce fraud and error.
- Efficiency targets will be increased, with the National Health Service (NHS) efficiency target doubling so as to free up £4.75 billion to fund priority NHS areas over the next three years.
- Launching a new Innovation Challenge across central government departments to crowdsource ideas for how government can operate more efficiently
- The chancellor will chair a new Cabinet Committee on Efficiency and Value for Money to drive efficiency across the public sector and ensure departments demonstrate clear value for money for the taxpayer in government spending.
You can view the full spring statement here.
You can read the full speech here.
Commenting on the Spring Statement, Michelle Mullen, vice president–Global Advocacy for the Association, said: "Business and the public are facing increasing uncertainty. Our members are at the heart of business in the UK, and globally. As the chancellor reflects and prepares for a more significant budget in the autumn, we encourage government to reflect on the increasing importance of our members to managing risks, building business resilience, generating productivity, and promoting a growth strategy."
Tax certainty: The Association's submission called for more tax certainty for businesses so they can better prepare business and investment decisions. It said that the UK tax plan should be outlined for the next two years.
The chancellor announced a 12-page tax plan that sets out a three-part plan to strengthen the UK economy during the remainder of this Parliament. You can view this Tax Plan here.
While this is not exactly what the Association called for, it is in line with what we called for and provides businesses and citizens alike some certainty of the government's direction on tax for the next few years, with some firm announcements over future tax measures.
Tax simplification: The Association's submission called for some tax simplification around margining income tax and NI together. While that did not happen, the chancellor has raised the NI threshold in line with the income tax threshold. The Spring Statement also talks about simplifying the tax system. This is a step towards what the Association called for.
Apprenticeship Levy: There was an announcement for a review of the Apprenticeship Levy to see how it can better support training. The Association has long called for the introduction of an Apprenticeship and Skills Levy (changing the current levy to allow funding for further/other skills training) and making it easier for employers to access. While the outcome of this review is uncertain, this seems to be a step in line with Association advocacy.
R&D: The focus on R&D described above is an issue the Association raised in our productivity report late last year.
— Ross Archer is director, public policy in the Global Advocacy Team at the Association of International Certified Professional Accountants, representing AICPA & CIMA. To comment on this article or to suggest an idea for another article, contact Ken Tysiac at Kenneth.Tysiac@aicpa-cima.com.