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On Wednesday 23rd March, Rishi Sunak, the Chancellor of the Exchequer, delivered the Spring statement 2022. This will be followed by the full budget in Autumn. Sunak began by voicing his support for Ukraine, stating “we stand with Ukraine”.
This year’s spring statement takes place in a time of rising costs; fuel costs are rising, the cost of living is up and inflation is set to increase further. Sunak attributed these rising costs to the longer-term effects of the Covid pandemic and supply chain issues.
Sunak has announced new measures of support, however, Andy Vessey, Kingsbridge’s Head of Tax commented that “I found myself agreeing with a lot of what Rachel Reeves had to say about the Chancellor’s lack of grasp and understanding about the gravity of the cost of living crisis and that his reality is very far detached from everyone else”.
What were the key points from the Spring statement for contractors?
Changes to Taxation and National Insurance
Sunak announced that the income threshold for National Insurance will rise to £12,570 in July, putting it in line with the threshold for income tax. “The alignment of the Class 1 NIC primary threshold with the personal allowance for income tax is to be welcomed. Again, this was something that was muted beforehand to help cushion the blow of the NIC increase of 1.25%”, comments Vessey. Vessey also notes that whilst this is a welcome shift, “the self-employed will also benefit with changes to Class 2 and 4 NIC. Let us not forget, however, that Sunak previously froze the personal allowance and higher rate thresholds for four years from 2022/23 – 2025/26.”
Next on the agenda for tax was the news that Employment Allowance would be increasing from £4,000 to £5,000 from April. Again, this will have little impact for contractors with Vessey stating that an “increase in the employment allowance is helpful to businesses but Personal Service Companies (PSCs) haven’t been able to claim this since 2016/17.”
Sunak finished his statement pledging to reduce income tax from 20p to 19p. Crucially, this will not take effect until 2024, with Vessey speculating that this “is not what I would describe as radical and is an attempt to help secure votes in the next General Election.”
No mention of specific support for contractors and the self-employed
As touched upon above, self-employed contractors and freelancers were once again neglected in Sunak’s statement. As well as the tax changes, Vessey commented that “changes to the capital allowances regime, whilst again helpful, will have little or no impact on PSCs. Overall, the statement was massively disappointing to the average working person.”
IR35 not mentioned in Sunak’s Spring statement
IR35 was once again not mentioned by Sunak, which won’t come as a surprise to most contractors. HMRC has warned that the soft-landing of IR35 would end in April 2023, so it’s fair to assume that this is still the case.
Vessey commented that “£161 million is being given to HMRC over the next 5 years to increase compliance and debt management capacity which is expected to yield more than £3 billion. However, this is expected to come from a collection of accrued tax debts and tackling more complex tax risks involving large and mid-sized businesses.”
Sunak introduces three new measures of support
Sunak announced help to tackle the rising costs of fuel as the first measure. Fuel duty will be cut by 5 pence per litre on petrol and diesel, effective from 6pm on the 23rd March. Sunak stated this is a tax cut worth over £5 billion, but Vessey expressed that this will be “meaningless if fuel prices continue to increase.”
Sunak followed this up by declaring a new energy efficiency scheme. For the next 5 years, homeowners installing energy efficient materials such as solar panels and heat pumps will not pay VAT. “Sunak could have zero-rated VAT on domestic energy to help those struggling with fuel bills”, notes Vessey. “Instead, Sunak opted for VAT relief on energy efficient materials that may only provide assistance to a small minority rather than a vast majority.”
The final measure Sunak revealed was that local authorities will receive another £500m for the Household Support fund.
Inflation is predicted to reach a high of 8.7% this year
Inflation was at 6.2% in February and is likely to average 7.4% for the rest of the year, according to the Office for Budget Responsibility (OBR). This is forecasted to peak at 8.7% in the final quarter of 2022.
Other notable points for contractors from the statement included:
- Unemployment rate is predicted to lower every year, according to the OBR forecast
- In the next financial year, it is forecasted there will be a spend of £83 billion on debt interest. Sunak said this highlights the need for caution in spending ahead
- The economy is predicted to grow by 3.8% in 2022, compared to the 6% predicted at the time of the budget last October
With no changes to the IR35 legislation, Kingsbridge is here to support contractors with IR35. Our award-winning Kingsbridge IR35 Status Tool gives an instant and automated IR35 result, with any indeterminate results passed to our expert IR35 team for manual review.
This can also be backed up by IR35 insurance, providing additional protection when the soft-landing ends next month. Find out more about our IR35 solutions here.
Kingsbridge can also assist you with your contractor insurance. To find out more about our insurance cover for contractors, get a quote or contact us.
