- From July, the National Insurance threshold will rise to £12,570 (it had been scheduled to rise from £9,568 to £9.880). 70% of people will pay less NI than they do this year.
- Income tax will be cut by the end of the parliament in 2024 – when the basic rate will drop from 20% to 19%.
- The Chancellor chose not to offer any additional help with rising costs through Universal Credit. Instead he doubled the Household Support Fund to £1 billion.
- He cut VAT on some energy efficient measures, such as solar panels, heat pumps and insulation from 5% to zero, and expanded it to include wind and water turbines. He said this could cut the cost of installing solar panels by £1,000.
The Chancellor was welcomed by cheers from his Tory MP peers today when he announced in his Spring Statement that he would set a much higher threshold for when people start to pay National Insurance, from an original £300 rise to a £3000 rise.
“I’m going to increase it by the full £3,000,” said Rishi Sunak.
From July of this year, taxpayers will not have to pay National Insurance or income tax before earning £12,570.
Mr Sunak said the £6bn “personal tax cut” will mean 30 million people will be £330 better off each year.
But the change is not good news for everyone. Hargreaves Lansdown has said that its figures show that someone earning £20,000 will be £267 better off than this year. However, someone earning £50,000 will be £108 worse off than they are right now.
“The NI threshold rise benefits average earners, who are better off despite the 1.25 percentage point rise in NI, said Sarah Coles, senior personal finance analyst. Hargreaves Lansdown.
“Our calculations show that someone earning £14,500 a year will be £336 a year better off than they are right now. The tipping point comes between £40,000 and £50,000, so that someone earning £50,000 will pay more this year than last year. In fact, they’ll pay £108 more,” she said.
The Chancellor had the opportunity to shelve the National Insurance hike altogether this year, which is coming at the worst possible time, slapping us with higher taxes when we’re already reeling from the biggest cost of living squeeze in a generation. Keeping this tax hike will still leave millions of people worse off than they are right now.Sarah Coles, senior personal finance analyst. Hargreaves Lansdown
Basic rate of income tax cut to 19p in the pound
The basic rate of income tax will be cut from 20p by 19p in the pound. This will come in before the end of this parliamentary term, which is 2024.
“The Chancellor may have pulled a rabbit from his hat with the 1% cut to income tax, but the reality is, by 2024, it could be too late,” said IR35 insurance specialist Seb Maley of Qdos. ” What’s more, this headline-grabbing measure will do little for limited company owners who slip through the cracks – just as they did during the pandemic.
“The cost of living crisis called for bold measures and so a £3000 rise in the national insurance threshold was a welcome and dare I say it, surprising development. It’s also one that will ease the pressure of rising costs for all self-employed workers, whether sole traders or limited company contractors.
“Having been hit hard by recent tax reforms, relieving at least some of the recent tax burden will come as a relief to small business owners who were likely fearing the worst,” said Maley.
Coles said that the promise of an income tax cut in April 2024 offers hope for the future, when the basic rate will fall by 1p, to 19p in every pound.
“However, there’s an awful lot of inflationary pain to get through between now and then, and while this tax cut may be a light at the end of the tunnel, it’s a pinprick of light at the end of a very long and increasingly dark tunnel,” said Coles.
Employment allowance also raised
The chancellor has announced that he is increasing the employment allowance to £5,000 for small businesses, which is good news for struggling small businesses and retailers. The change will take place from April.
“From April, the Employment Allowance will increase to £5,000. That’s a new tax cut worth up to £1,000 for half a million small businesses – starting in just two weeks’ time,” said Mr Sunak.
What the Spring Statement didn’t say
“Whilst the Chancellor’s increase in the NI threshold will soften the blow for some, umbrella workers will still suffer as the income received by the umbrella covers the Employers National Insurance reducing the amount available for the workers pay,” said Crawford Temple, CEO of Professional Passport, an assessor of payment intermediary compliance.
He added: “They then pay Employees National Insurance on their income, so he has not gone far enough to help all workers.”
Temple said that it was interesting to hear his plans to increase the employment allowance as the Government is still struggling to find and shut down mini umbrella companies.
The worry is that this latest move by the Chancellor will serve to further incentivise and motivate such firms to create more tax avoidance strategies. There was no reference to any increased resources of budget towards enforcement which is vital in ridding the industry of disguised remuneration schemes and it is not happening quickly enough in my opinion.Crawford Temple, CEO of Professional Passport
“It was also notable that the Chancellor made no reference to the Single Enforcement Body,” said Temple.
Andy Chamberlain, Director of Policy at IPSE had this to say of the Spring Statement and its impact on the country’s millions of freelancers.
“Rishi Sunak’s announcements today still don’t go far enough for thousands of freelancers that are recovering from the economic uncertainty caused by the pandemic. On welfare, for instance, the Chancellor should have taken the opportunity to suspend the Minimum Income Floor, which would have provided a genuine boost to self-employed Universal Credit claimants who are struggling to make ends meet as a result of the cost-of-living crisis.
“Overall, today’s statement will do little to reassure self-employed households, already struggling as a result of existing government policies such as IR35, and now facing historic inflationary pressures.”