Chancellor Rishi Sunak revealed the contents of his Spring Statement on 22nd March. With the cost of living crisis at the front of the mind of UK taxpayers, the question was whether the Chancellor would be able to provide any meaningful help. A topic of much debate was the question of whether the Chancellor would cancel the Health and Social Care Levy which imposes a 1.25% increase in National Insurance and dividends tax from 6 April 2022.
The main purpose of the Spring Statement is to give an update on the current position and future expectations of the nation’s finances. Major plans for changes to spending or taxation are normally delivered in the Autumn Budget, but the Statement provides an opportunity for the Chancellor to react to events which could not have been predicted six months previously.
Changes which are announced by the Chancellor do not necessarily impact Scottish taxpayers in the same way as they do for taxpayers resident in other parts of the UK. The rates and bands for personal income tax, and land and buildings transaction tax, are devolved to the Scottish parliament. Scottish income tax applies to earnings of Scottish taxpayers arising from employment, self-employment, pension income and property income. Scottish taxpayers continue to be subject to UK income tax rates for savings and dividend income.
The impact of the UK on Scottish taxpayers following the Scottish Government’s Budget on 9 December 2021 is covered in more detail in our Scottish Budget report.
The Chancellor announced in 2021 that income tax thresholds and allowances would be frozen until 2026. This did however leave him with the option of changing income tax rates, and the Chancellor proposed a reduction of 1% in the basic rate of income tax from 20% to 19% with effect from 6 April 2024.
The reduction will apply to non-savings non dividend income of taxpayers resident outside Scotland and to the savings income of UK taxpayers. It will be for the Scottish Government to determine whether a reduction in the rate of income tax will apply to the income of Scottish taxpayers which is charged to Scottish income tax.
The reduction to the basic rate will impact charities which can claim from HMRC the basic rate tax on Gift Aid donations. A three year transition period for Gift Aid relief was announced with the income tax basic rate relief remaining at 20% until 2027.
The Chancellor chose to retain the 1.25% increase in NIC but reduced the effect by announcing an increase in the NICs primary threshold, and the lower profits limits for employees and self-employed from £9,880 to £12,570. The change will take effect from 6 July 2022 and will bring the NIC threshold in line with the personal allowance for income tax. As the change does not take effect until after 6 April, the effective threshold for NIC in 2022/23 will end up being £11,908. This is because for the first 13 weeks of the year NIC will be paid on earnings above £190 per week rising to £242 per week from 6 July.
The impact of the 1.25% increase in the rate of NIC coupled with the increase in the NIC threshold will broadly mean that an employee with earnings of less than £34,000 will pay less NIC in 2022/23 than in 2021/22.
The Chancellor restated his desire to consider reforms to tax allowances and reliefs over the next two years, noting that there are over a thousand reliefs and allowances which have a considerable fiscal impact and can create complexity, uncertainty and inconsistency in how individuals are taxed.
Fuel duty will be cut by 5p per litre with the measure remaining in force until March 2023.
The business tax related measures announced at the UK Budget included:
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