The Chancellor of the Exchequer delivered his Spring Statement to Parliament on 23 March 2022. Announcements relevant to charities are listed below. A number of these are included in a new Tax Plan published by Government.
Most importantly for charities the Government has announced a three year transition period for Gift Aid when income tax reduces from 20% to 19% in April 2024. This is an important announcement and highlights the consideration that has been given to charities as part of a broader policy decision on income tax. CTG representatives have spoken to HMRC officials this afternoon and understand that the transitional relief mechanism will operate in the same way as it did previously. CTG will continue to work closely with HMRC officials in advance of the change and the notice charities have will be helpful. At this stage we understand that it will only apply to Gift Aid and we are seeking clarification on the application to GASDS – based on past experience however, changes to this relief cannot be made via the Finance Bill process.
The Government has also announced new VAT relief for energy saving materials and an increase to the Employment Allowance. The Spring Statement confirms that the Health and Social Care Levy will remain, but some charities will benefit from the increase in the Employment Allowance and reduction in the threshold for paying National Insurance.
CTG Chair Richard Bray commented:
“On its own the announcement that the rate of income tax will decrease from 20% to 19% in April 2024 would have cost the charity sector approximately £250m in lost Gift Aid over three years. However, the proposed transitional relief will safeguard over £250m of charity income. CTG both suggested and campaigned hard for transitional relief when the basic income tax rate was last decreased in 2007 and we are grateful that the Government has had the foresight to introduce a similar measure to protect Gift Aid now. CTG will continue to campaign for an improved Gift Aid system that can result in more Gift Aid being claimed by the time the transition period ends”.
“The Chancellor’s Statement introduces a number of important measures, some of which will help charities as employers. He has also shown flexibility on VAT and R&D tax reliefs to stimulate investment in renewable energy and in R&D. In the wake of a global pandemic, we urge the Chancellor to take the opportunity to reintroduce R&D tax credits for charities and to recognise the Government’s ability to introduce new VAT rates that could benefit those charities providing much-needed services”.
Announcements of interest to charities
- Basic rate of income tax – The Government will reduce the basic rate of income tax to 19% from April 2024. This is a tax cut of over £5 billion a year, and represents the first cut in the basic rate of income tax in 16 years. This will apply to the basic rate of non-savings, non-dividend income for taxpayers in England, Wales and Northern Ireland; the savings basic rate which applies to savings income for taxpayers across the UK; and the default basic rate which applies to a very limited category of income taxpayers made up primarily of trustees and non-residents. The change will be implemented in a future Finance Bill. A three-year transition period for Gift Aid relief will apply, to maintain the income tax basic rate relief at 20% until April 2027. The reduction in the basic rate for non-savings-non-dividend income will not apply for Scottish taxpayers because the power to set these rates is devolved to the Scottish Government. Under the agreed Fiscal Framework the Scottish Government will receive additional funding, worth around £350 million in 2024-25. It is for the Scottish Government to use this additional funding as they choose to, including on reducing income tax or other taxes, or increased spending.
- VAT relief for energy saving materials (ESMs) – The Government will reverse a Court of Justice of the European Union ruling that restricted the application of VAT relief on the installation of ESMs. This will mean wind and water turbines will be added to the list of ESMs and the complex eligibility conditions will be removed. The Government will also increase the relief further by introducing a time-limited zero rate for the installation of ESMs. The changes will take effect from April 2022. The Northern Ireland Executive will receive a Barnett share of the value of this relief until it can be introduced UK-wide.
- Increasing National Insurance thresholds – The annual National Insurance Primary Threshold and Lower Profits Limit, for employees and the self-employed respectively, will increase from £9,880 to £12,570 from July 2022.
- Reducing Class 2 NICs payments for low earners – From April, self-employed individuals with profits between the Small Profits Threshold and Lower Profits Limit will not pay class 2 NICs, meaning lower-earning self-employed people can keep more of what they earn while continuing to build up National Insurance credits. Over the year as a whole, the Lower Profits Limit, the threshold below which self-employed people do not pay National Insurance, is equivalent to an annualised threshold of £9,880 between April to June, and £12,570 from July.
- Increasing the Employment Allowance – The Employment Allowance will increase from April 2022, meaning eligible employers will be able to reduce their employer NICs bills by up to £5,000 per year – a tax cut worth up to £1,000 per employer. As a result, businesses will be able to employ four full-time employees on the NLW without paying any employer NICs. This measure will benefit around 495,000 businesses, including around 50,000 businesses which will be taken out of paying NICs and the Health and Social Care Levy entirely.
- Announcement of Tax Plan – This incorporates a number of the announcements made and includes the following references for reform: “Alongside tax cuts, we want to make the tax system simpler, fairer and more efficient. There are over 1,000 tax reliefs and allowances in the tax system. They play an important role but can also be costly and complex. We have already reformed some reliefs and allowances and will look to go further ahead of 2024”
- Temporary cut to fuel duty – The government will cut the duty on petrol and diesel by 5p per litre for 12 months. This will take effect from 6pm on 23 March on a UK-wide basis. Where practical, a proportionate cut will also apply to fuel duty rates which are lower than the main rates for petrol and diesel, including red diesel.
- Green reliefs for Business Rates – At Autumn Budget 2021 the government announced the introduction (in England) of targeted business rate exemptions from 1 April 2023 until 31 March 2035 for eligible plant and machinery used in onsite renewable energy generation and storage, and a 100% relief for eligible low-carbon heat networks with their own rates bill, to support the decarbonisation of non-domestic buildings. The government is bringing forward the implementation of these measures and is announcing that they will now take effect from April 2022.
- R&D tax relief reform – Following consultation with stakeholders the Government has confirmed that from April 2023, all cloud computing costs associated with R&D, including storage, will qualify for relief. The government remains committed to refocus support towards innovation in the UK, ensuring that the UK more effectively captures the benefits of R&D funded by the reliefs. The Government recognises that there are some cases where it is necessary for the R&D to take place overseas.
To ensure the effective targeting of the UK’s R&D relief the government will consider increasing the generosity of RDEC to boost R&D investment in the UK. This would rebalance the schemes and make RDEC more internationally competitive.
In addition to making the RDEC scheme more attractive, the Government will consider what more can be done to tackle the abuse of R&D tax reliefs, particularly in the SME scheme, ahead of Budget 2022.
The Government is continuing the review of R&D tax reliefs and further announcements will be made in the autumn.
- Additional compliance resource for HMRC – The Government is investing £161 million over the next five years to increase compliance and debt management capacity in HMRC. This investment is forecast to bring in more than £3 billion of additional tax revenues over the next five years, by funding additional HMRC staff to provide greater support to taxpayers seeking to pay off accrued tax debts, and to tackle the most complex tax risks, ensuring large and mid-sized businesses pay the tax they owe.
- Tackling Fraud – The Government is providing £48.8 million of funding over 3 years to support the creation of a new Public Sector Fraud Authority and enhance counter-fraud work across the British Business Bank and the National Intelligence Service. The investment enables government and enforcement agencies to step up their efforts to reduce fraud and error, bring fraudsters to justice, and will recover millions of pounds.
- Levelling Up Fund second round – The Government is launching the second round of the Levelling Up Fund and publishes a refreshed Prospectus, inviting bids to come forward from all eligible organisations across the UK. This Fund provides £4.8 billion for local infrastructure projects, with £1.7 billion already allocated to 105 successful projects from the first round.