The Spring Statement 2022: Immediate Actions for Your Business
- Mar 25, 2022
- 7 min read
Updated: May 6
The Chancellor Rishi Sunak published his Spring Statement on 23rd March 2022. In this article the Directors of The Uncommon Practice give their ‘Uncommon Views’ on the principal announcements and crucially, recommend the actions you should carry out in your business now.
AN EMBARRASSMENT OF RISHI’S FOR BUSINESS…
In the midst of a global pandemic, a major rise to cost of living and the war in Ukraine, this was a dreary Spring Statement from the Chancellor at a time when businesses want certainty and strong, bold measures that will have a sustained impact.
Rishi Sunak says he wants to “Speak to business” but the reality is that he needs to start listening to business. The anticipated rise in National Insurance will still go ahead despite objections from many businesses, at a time when costs are rising at an unprecedented rate and when many companies are just beginning to recover from the immense challenges of the last 2 years.
This extraordinary time required a radical intervention, and this Spring Statement was not it. It was an embarrassment of Rishi’s for business.
Here are the key announcements and the immediate actions we recommend for your business…
INFLATION
The annual inflation rate was 6.2% in February and is likely to average 7.4% for the rest of this year, peaking at around 9% in the final quarter of 2022, the highest level for 40 years.
The Uncommon View…
“There’s no escaping the fact that the next 12 months will be hard for businesses, and their customers, with sharp inflation – which we expect to be more than the 9% predicted – disrupted supply chains and soaring utility bills. The fall in real household disposable incomes is also likely to challenge many businesses’ growth plans. We also expect a rise in interest rates as the Bank of England tries to deal with the jump in inflation.”
Actions:
Assess your pricing models: Can you sustain your current margins with higher input prices, or do you need to pass down the cost to your customers?
Re-evaluate the correlation between profits and retaining talent: With increased cost pressures, there is likely to be a lively job market as people seek more gainful employment. You should be proactive in identifying your top performers and recognising the value they bring to your business. For some companies, this may mean sacrificing margin in the short term to retain your best talent for the long term. Our consulting team can help you with this exercise.
Evaluate your current capital structure and borrowing options: With an interest rate rise expected, we suggest you look at your current capital structure and consider moving towards fixed rate, fixed term loans to reduce your exposure to a unpredictable lending market.
Identify your core metrics and KPIs: The businesses who will cope best with the uncertainty of the next 12 months will be those who understand every aspect of their business and finances in real time. The Uncommon Practice can help you to identify and understand the core metrics and KPIs for your business.
Make sure you have necessary liquidity provisions: With the costs of goods and utilities rising, combined with wage inflation, there will be an unprecedented demand for working capital in the next 12 months.
FUEL DUTY
Fuel duty will be cut by 5p per litre until March 2023 starting from 6pm on Wednesday 23rd March 2022.
The Uncommon View…
“The Treasury suggests that this measure will save the average haulier around £1,500 and the average van driver around £200. Of course, any saving is welcome, but when petrol prices have risen 30p since January and continue to rise at unprecedented rates, it’s likely that most businesses will simply be paying the same for a litre of fuel on Thursday 24th March as they were paying on Monday 21st!
The rise in fuel costs has had a significant effect on all businesses. Far more radical intervention is required.”
Action:
Maximise the reliefs and allowances you are entitled to: Have you made the most of your Annual Investment Allowance? Have you maximised any available business rates relief? Have you made the most of the temporary Super-Deduction? If you don’t recognise some of these terms, need help, or would like to find out more, contact us now as there are deadlines for many of the available reliefs.
NATIONAL INSURANCE
The expected rise in National Insurance of 1.25% will take effect for employees and employers from April 2022. However, from July, the point at which people start paying National Insurance will move from £9,568 to £12,570. This change will raise the NICs threshold in line with the point at which people start paying income tax. Combining both changes means that if you earn £35,000 or less then you will pay less National Insurance in 2022-23.
The Uncommon View…
“While most of the discussion after the Spring Statement has been about the effect on employees, the rise in National Insurance – which is paid by employers as well as employees – will have the greatest impact on small businesses who are already stretched.
Just as many companies are starting to recover from an extremely challenging couple of years, the government announces another cost for businesses to bear. Funding for social care is crucial, but this decision makes it more expensive for businesses to take on staff and could lead to higher prices for consumers, lower wages for staff and reduced investment.
We are still unsure as to how the £12,570 threshold increase will be applied to self-employed.
At a time when businesses are already facing huge cost pressures, the timing of this NI rise is questionable and very odd.”
Actions:
Understand the changes: Speak to your payroll provider to understand the costs you and your employees will face from the NIC change. If you don’t have a payroll provider, speak to our payroll team at The Uncommon Accountants for advice.
Update your payroll: Make sure that your payroll is updated to take account of the NIC changes. You will have to make changes both in April 2022 and again in July 2022 as the threshold changes. If you need any payroll support, then contact our team.
Examine your employer pension contribution and salary sacrifice schemes: Employees and employers can reduce the amount of National Insurance they have to pay using salary sacrifice schemes or by paying more into a workplace pension scheme that is free of income tax and national insurance.
BUSINESS RATES
From 1st April 2022, the Chancellor announced a temporary 50% business rates discount for the retail, leisure, and hospitality sector but with a cap of £110,000 per company. The Chancellor also announced that Business Rates will be re-evaluated in 2023, based on rental values of 2021, and that the business rates multiplier will be frozen in 2022-23.
The Uncommon View…
“It is disappointing that once again business rates were largely ignored by the Chancellor when we can see the ongoing impact that very high rates bills have on businesses.”
Actions:
Maximise the reliefs on offer: As we said before, if your business rates remain very high, speak to your accountant to make sure you are maximising the reliefs and allowances that are available to you.
EMPLOYMENT ALLOWANCE
From April, the Employment Allowance – which allows eligible businesses to reduce their National Insurance Contributions – will rise from £4,000 to £5,000.
The Uncommon View…
“It’s not much help to small businesses but it’s better than nothing!”
Action:
Speak to your payroll provider: Make sure you are claiming all the Employment Allowance you are entitled to. Speak to your payroll provider if you need help understanding the changes and to see if you can back-date any claims.
GREEN TECHNOLOGY
From April 2022, making green technology such as solar panels and heat pumps will be exempt from business rates. The Chancellor also said that he will scrap VAT on energy efficiency measures such as solar panels, heat pumps and insulation installed for five years.
The Uncommon View…
“We are all for green initiatives but the exemption to business rates will only help a few businesses and scrapping VAT will only help those who can afford these green initiatives. For those who are struggling with energy bills, purchasing solar panels is unlikely to be on their agenda.”
Action:
Claim the relief you are entitled to: If you are manufacturing green technology, then maximise the relief available!
R&D TAX CREDITS REFORM
Research and development (R&D) tax credits are to be reformed with draft legislation expected in the summer. From April 2023, businesses will be able to claim relief on the storage of their vital data and on pure maths research.
The Uncommon View…
“The changes announced by the government should be of interest to those businesses working in AI, cloud computing, data, robotics, manufacturing and design. R&D tax credits are a great initiative for many businesses, and we hope that the government makes the level of credit available to companies even greater. The UK R&D tax credit regime is not generous by international standards. We certainly wouldn’t want to see the R&D tax reliefs cut.
In a time of uncertainty for many businesses, it would have been helpful for the government to signal their intention to businesses now rather make them wait until later in the year. The increased uncertainty around R&D tax credits will impact companies’ investment decisions.”
Actions:
Check if your business is eligible for R&D tax credits: If you are unsure, contact us and we will be happy to help you.
INCOME TAX
The Chancellor announced that he would reduce the basic rate of income tax by 1p in the pound (from 20p to 19p) before the end of the Parliament in 2024.
The Uncommon View:
“At least we now know when the next General Election will be! It’s also worth pointing out that in April last year (2021) the Chancellor froze the thresholds at which income tax would be paid for 5 years, which means that more people will be pushed into higher bands as their pay goes up.”
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