On Wednesday 23 March Rishi Sunak delivered the Spring Statement. The Spring Statement is seen as a mini budget and although the announcements were not ground breaking they will affect your finances in the upcoming 2022/23 tax year.

Tackling the rising cost of living was the main topic of discussion while strengthening the UK economy as it is still in recovery after the pandemic.

Cut in fuel duty

Fuel duty cut by 5p per litre

He says, on average, the cut will save the average car driver £100 over the next year, while van drivers could save around £200.

This is an immediate change If the news reports are to be believed motorists are not benefiting from the reduction as fuel stations are only passing on up to half of the duty relief.

Rise in base level National Insurance

From July, the threshold at which workers will start making Class 1 and Class 4 National Insurance contributions (NICs) will increase to £12,570. This matches your personal allowance.

The significance of this is yes you will save a small amount of tax as NI is triggered at a higher amount but more importantly if you own your own business your tax optimal salary can increase from July.

If you aren’t sure what I mean by tax optimal salary, if you are eligible, i.e. your company has sufficient reserves you can pay yourself a lower salary and supplement the difference with dividends.

For example, if you wish to take home £100k a year from your company. Your options are:

  1. Take £100k salary – not overall efficient as income tax rates are high
  2. Take £100k dividends – overall is ok tax wise but may not be realistic as you must check your reserves before each and every dividend is declared so your books must be up to date with real time information to avoid an “illegal dividend”
  3. Take a small salary up to NI lower earnings threshold and the balance as dividends. This maximises your personal allowance limit and the balance is taxed at the lower dividend rates.

With option 3 from July your salary can increase to £12,570 for the 2022/23 tax year.

Talk to your tax adviser and payroll provider to make sure the change is processed.

VAT cut for energy saving

Given the rise in energy bills this is a welcome change.

There’ll be 0% VAT to pay for homeowners investing in energy saving materials such as solar panels, heat pumps or insulation for the next five years. Up to this point, VAT had been charged at 5%.

On the horizon

Income tax rate cut in 2024, basic-rate income tax is due to be cut to 19%, down from the current rate of 20%.

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