How will the Spring Statement impact your business?
The problem of rising inflation
Although not usually as comprehensive as the autumn Budget announcement - the Spring Statement is used as an update on the condition of the economy – there's increasing anticipation surrounding this one to see if the Chancellor will offer any help to cut rising living costs.
To give you an idea of how households could struggle in the coming months, forecasts from the Resolution Foundation suggest that average incomes could drop by £1,000 a year.
The independent think-tank, which focuses on improving living standards for those on low to middle incomes, largely puts this down to rising inflation. Prices rose at their fastest rate for 30 years during the 12 months to February, as soaring fuel, energy and food costs contributed to a 6.2% increase in living costs.
It’s being forecast inflation could reach 7.4% this year. As a business owner, this not only means you might need to pay more for materials, products, and stock, but it also means that employees might need a pay rise to compensate for an increase in the cost of living.
Help is needed for both households and businesses, but did the Chancellor deliver with this Spring Statement?
What does the Spring Statement mean for SMEs?
There wasn’t too much that differed from what was announced in the Autumn Budget back in October last year. And once again, there was no help for businesses faced with soaring energy bills.
Here’s a rundown of what Rishi Sunak has announced in the 2022 UK Spring Budget statement, with a focus on what it all means for business owners across the country.
Fuel duty will be cut by 5p per litre from 6pm tonight (March 23) and will be in place for the next 12 months. This is the biggest ever cut in fuel duty rates and is a tax cut worth over £5 billion.
The planned business rates reduction will kick in from April. This means any business in the retail, hospitality and leisure industry will get a 50% cut in their business rates, up to £110,000.
This could see hundreds of thousands of small businesses across the UK save thousands of pounds. A typical pub will save around £5,000 a year.
The increase in National Insurance Contributions (NICs) will go ahead as planned. But from July, the NICs threshold will increase by £3,000 to fall in line with the Income Tax threshold.
This means that employees won't pay anything in NICs until they're earning £12,570 a year. This works out as a tax cut of £330 per year for employees and will offset the NIC increase for anyone earning less than £35,000 a year.
As an employer, you will still pay NICs at a rate of 15.05% (up from 13.80%) for all employees that earn more than £8,840 per year (excluding those aged 21 or under and apprentices aged 25 or under).
But this might be offset by the Employment Allowance being raised to £5,000 in April. This means eligible employers can cut their employer NICs bills by up to £5,000 per year, a tax cut worth up to £1,000 per employer.
But what if you’re self-employed? Unfortunately, self-employed workers that pay "Class 4" rates won’t benefit from a threshold increase and will still pay 10.5% on earnings above £9,568 from April. This means freelancers and the self-employed will pay significantly more from April than employed workers.
Income tax will stay at 20% but the Chancellor pledged to cut it to 19% by 2024 (probably in time for the next general election).
As planned, the standard VAT rates of 20% will return from April 1, 2022. The rate was cut to 5% on July 14, 2020, then was increased to 12.5% from October 1, 2021.
Business training, innovation, taxes and investment allowances
The Research and Development tax credit scheme will be reformed to include data, cloud computing and pure mathematics projects. This is a type of Corporation Tax relief for businesses that work on innovative projects in science and technology.
Business investment tax rates will be cut from autumn and the annual investment allowance, which means you can deduct the full value of any qualifying item from your profits before tax, will be increased to £1 million.
The Chancellor also pointed out that small businesses can get help from a number of Help to Grow schemes:
- The Help to Grow management scheme offers a mini MBA – an accelerated MBA program that concentrates one to two years of tuition into approximately 40 hours - that is 90% funded by the government. This benefit can work out at several £1,000s.
- The Help to Grow digital scheme offers a 50% discount on software up to the value of £5,000.
Let’s take a look at household energy bills first, something that is front-of mind for everyone who will see their domestic energy bills rise when the price cap increases on April 1.
Having already announced a financial support package worth up to £350 to help households with rising energy bills - £200 of which is in the form of a ‘loan’ that will cut bills this year but will then add an extra £40 on to everyone’s bills for the next five years – it was hoped the Chancellor would announce additional financial support.
Instead, he announced that VAT on the installation of solar panels, heat pumps, wind and water turbines will be cut to 0%. This equates to tax savings of £1,000 and a £300 cut in energy bills for the average household that has solar panels fitted to their property.
The Household Support Fund will double to £1 billion, with £500 million going to local authorities to distribute from April. Money will be given to vulnerable households in the form of small grants that can be used to meet daily needs such as food, clothing, and utilities.
No support has been offered to business owners facing spiralling energy costs. Switching to a better-priced fixed rate deal before the end of your current contract is still the only way to beat rising energy costs. To get a quote, give the business energy experts at Bionic a call now on 0800 860 6833.