The Spring Statement isn’t actually supposed to be the time when tax policies are announced.
It’s supposed to be a general update on the health of the UK economy.
However, due to events that have taken place over the last few years and months including the recent conflict in Ukraine and its impact on the world economy, the Chancellor has felt he needs to do something.
Here are the key points that impact your personal finances.
Spring Statement 2022 – key points
To help with the rising cost of fuel the Chancellor has cut Fuel Duty on petrol and diesel by 5p per litre. This cut starts now and will be in place for 12 months.
Obviously this doesn’t really go with the government’s green agenda so to balance this it was also announced that VAT would reduce to zero on energy saving devices.
We already knew from the announcement by the government last year that National Insurance was going up by 1.25% in April this year to help pay to fix the NHS backlog and then towards social care.
Now the Chancellor has increased the thresholds at which National Insurance payments start to £12,570. This is in line with the Income Tax Personal Allowance.
This means that anyone who earns less than around £34,000 will pay less National Insurance than they did last year and anyone who earns more than around £34,000 will pay more.
This will be implemented in July 2022 to give payroll companies time to update their systems.
It means business owners might want to tweak the way they take income out of their company by taking a little bit more salary and less dividends.
The big unexpected announcement came when the Chancellor spoke about Income Tax.
The plan is that Income Tax will be cut for the first time in 16 years.
Basic rate Income Tax will fall from 20% to 19%. BUT….. this is not due to happen until 2024 and ONLY if the economy is in a good place. So no guarantees!
In fact, will this even really be a cut when the majority of tax thresholds have been frozen for until 2026. So actually we will be paying more tax over the next few years anyway.
Plus we need to factor in that tax relief on pension contributions will likely be reduced at the same time as the Income Tax cut meaning it will cost you a little more to pay into your pension.
Spring Statement 2022 – what to do next
So there was not lots of changes in the Spring Statement to get your head around. Just a little trimmed off National Insurance and Income Tax to come.
The Office for Budget Responsibility (OBR) did state that due to the current pressure on energy prices they believe CPI inflation will peak at around 8.7% by the end of 2022 and remain above 7% into 2023.
As a reminder inflation eats away at your savings. If your money is not growing by the same or more than the rate of inflation then you will become poorer each year in real terms.
Ensure you do not have too much money saved in cash. For long term savings you need to be invested at a level of risk that is right for you. It’s the best way of combatting inflation over the long term.
We never know what changes to taxation will happen in the future so make sure you make use of all the allowances and tax relief available to you now including:
- Withdrawing unused Personal Allowance from pension.
- Contributing to ISAs.
- Using your Capital Gains Tax Allowance.
- Dividend allowance.
- Savings allowance.
- Gifting allowance.
Do you know tax?
If you would like a professional overview of your current tax position with a view to reducing your costs then please schedule a no obligation free 15-minute call.
Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.