Jon Stevens, Global Deputy Head of Tax & Private Capital at DWF, comments on the change in National Insurance Contributions (NIC) threshold and Tax Plan announced by the Chancellor at the Spring Statement. He said:
"While the increase of the NICs thresholds to align with the income tax personal allowance continues to narrow the tax base, could it make it easier to merge income tax and NICs in the future? The increase in the rate of NICs (to be replaced with the Health and Social Care Levy) and the reduction in the basic income tax rate from 2024 favours unearned income over earned income, something that already needs to be addressed in our current system.
"It doesn't feel like it is in line with the Chancellor's three objectives of helping hard working families, increasing growth and sharing the proceeds fairly. The Spring Statement Tax Plan's proposal to make the tax system simpler, fairer and more efficient is welcome but I've heard this every year I have been in practice but the tax legislation continues to grow in length. We look forward to the consultation on business investment."
Caroline Colliston, Tax Partner, adds:
"Aligning NICs and income tax is good but, NICs have gone up with the health and social care levy. However, the income tax personal allowance is frozen for 22/23 - the Government wins given the trajectory of inflation.
"The Taylor Review and House of Lords review of IR35 called for greater alignment of income tax and NICs but it is technical and challenging to achieve.
"Employers who rely on employees running cars are going to face pressures as the approved mileage allowances for tax purposes remain unchanged. Also employers asking for employees to return to work will face cost of living push back with commuter costs rising even before the current crisis. A real challenge for business.
"Corporation tax rises from next year and employer NICs costs are rising this year which means no tax cut for business…we need business to be strong for sustained employment and growth. All of this is against a backdrop of c.23% increase in corporate insolvencies in February."
Joanne Frew, Global Deputy Head of Employment and Pensions at DWF, comments on the employment implications of the announcements made by the Chancellor today at the Spring Statement. She said:
"It is clear from the Spring Statement that the government recognises that the rising cost of living is a real concern to the UK population. With the headline of the government press release reading "Chancellor announces tax cuts to support families with cost of living", the government is seeking to allay those fears and provide reassurance that help is on its way. The Chancellor has announced tax cuts for nearly 30 million UK workers through the rise in National Insurance thresholds, saving the typical employee over £330 in the year from July. The Spring Statement increases the annual National Insurance Primary Threshold and Lower Profits Limit from £9,880 to £12,570, from July 2022. It is important however to remember that National Insurance contributions will rise by 1.25% from April this year under the Health and Social Care levy. The Chancellor has also set out plans to cut the basic rate of income tax from 20p to 19p from 2024, the first cut to the basic rate in 16 years.
"Although the Spring Statement will bring much needed welcome relief to many, it is questionable what assistance it gives to those employers who are struggling to recruit and retain the best talent. With such a competitive market many employers have been struggling with labour supply which inevitably has led to pay increases in certain sectors. Against a backdrop of a relatively robust labour market throughout the pandemic, pay increases are anticipated at 3% for 2022 reflecting a record breaking high according to the CIPD."
"While the increase of the NICs thresholds to align with the income tax personal allowance continues to narrow the tax base, could it make it easier to merge income tax and NICs in the future? The increase in the rate of NICs (to be replaced with the Health and Social Care Levy) and the reduction in the basic income tax rate from 2024 favours unearned income over earned income, something that already needs to be addressed in our current system.
"It doesn't feel like it is in line with the Chancellor's three objectives of helping hard working families, increasing growth and sharing the proceeds fairly. The Spring Statement Tax Plan's proposal to make the tax system simpler, fairer and more efficient is welcome but I've heard this every year I have been in practice but the tax legislation continues to grow in length. We look forward to the consultation on business investment."
Caroline Colliston, Tax Partner, adds:
"Aligning NICs and income tax is good but, NICs have gone up with the health and social care levy. However, the income tax personal allowance is frozen for 22/23 - the Government wins given the trajectory of inflation.
"The Taylor Review and House of Lords review of IR35 called for greater alignment of income tax and NICs but it is technical and challenging to achieve.
"Employers who rely on employees running cars are going to face pressures as the approved mileage allowances for tax purposes remain unchanged. Also employers asking for employees to return to work will face cost of living push back with commuter costs rising even before the current crisis. A real challenge for business.
"Corporation tax rises from next year and employer NICs costs are rising this year which means no tax cut for business…we need business to be strong for sustained employment and growth. All of this is against a backdrop of c.23% increase in corporate insolvencies in February."
Joanne Frew, Global Deputy Head of Employment and Pensions at DWF, comments on the employment implications of the announcements made by the Chancellor today at the Spring Statement. She said:
"It is clear from the Spring Statement that the government recognises that the rising cost of living is a real concern to the UK population. With the headline of the government press release reading "Chancellor announces tax cuts to support families with cost of living", the government is seeking to allay those fears and provide reassurance that help is on its way. The Chancellor has announced tax cuts for nearly 30 million UK workers through the rise in National Insurance thresholds, saving the typical employee over £330 in the year from July. The Spring Statement increases the annual National Insurance Primary Threshold and Lower Profits Limit from £9,880 to £12,570, from July 2022. It is important however to remember that National Insurance contributions will rise by 1.25% from April this year under the Health and Social Care levy. The Chancellor has also set out plans to cut the basic rate of income tax from 20p to 19p from 2024, the first cut to the basic rate in 16 years.
"Although the Spring Statement will bring much needed welcome relief to many, it is questionable what assistance it gives to those employers who are struggling to recruit and retain the best talent. With such a competitive market many employers have been struggling with labour supply which inevitably has led to pay increases in certain sectors. Against a backdrop of a relatively robust labour market throughout the pandemic, pay increases are anticipated at 3% for 2022 reflecting a record breaking high according to the CIPD."
