Budget (Spring 2022): 5 things you need to know
The Chancellor made a number of important announcements in his Spring statement. We run through the key items including ones that are likely to affect the Muslim community most from both a personal and business perspective. There's also a something for charities buried away too regarding gift aid.
The Chancellor pitched it as a “Tax Plan” and said he was using one of the most important economic “levers” that he has at his disposal: the tax system.
Overall, the theme of the Statement seemed to be one that offered some relief to all of us. But at the same time, the Chancellor warned that the war in Ukraine “presents a risk to our recovery” and it was “too early to know” the full impact that it will have on our economy.
Let’s run through what you need to know.
1. You will pay £330 less National Insurance each year from July 2022
The threshold for paying National Insurance has gone up by a whopping £3,000. The original plan had been to gradually raise the threshold year-by-year but the Chancellor has gone all out.
It'll help 70% of people to save taxes according to the Chancellor. That's because if you remember the Chancellor also recently announced increases to the rates of National Insurance. Take with one hand and give with the other, eh?
Hargreaves Lansdown calculate that if you earn £50,000 or more, you'll be paying £108 more than you do right now and the tipping point from positive to negative is at £40,000.
"From this July, people will be able to earn £12,570 a year without paying a single penny of income tax or National Insurance." - Rishi Sunak.
2. You will pay less income tax (from 2024)
A key part of the Tax Plan was to reduce basic rate income tax from the current rate of 20% down to 19%.
That's the rate of tax that affects most households so it will be a very welcome boost to the pocket.
The amount that you save will depend on how much you earn. For those of you who use this entire bracket (i.e. you earn £50,270 or more), you'll save £377.
If you earn the median salary of £31,772, you'll save £192.01.
Of course this assumes that this bracket will stay the same. By the time 2024 rolls around, the bracket could be larger so the tax savings could be greater.
Interestingly for charities, the gift aid rebate amount remains at 20%.
3. Fuel duty goes down
It felt a little bit like a whisper in a rainforest, but the Chancellor announced "the biggest cut to all fuel duty rates – ever".
This was somewhat underwhelming given that petrol prices are reaching all-time highs.
Overall comment so far
Before we dive into the last two points which are more business-focussed, a quick word on the points we've heard so far.
Unfortunately, the soaring living costs are real and going to affect Muslims more than most.
That's because Muslims in the UK earn disproportionately less and have much around 3x higher instances of household poverty than non-Muslims.
These tax plans are welcomed, but as a wider point, a lot more needs to happen to help the poorest in society to see through the tough times that are ahead.
4. Increase in Employment Allowance
For those of you who run businesses and employ people, the Employment Allowance has been increased from £4,000 to £5,000 effective April 2022.
That puts £1,000 back in to business owners' pockets and is very welcome indeed for small businesses in particular.
5. Business investment tax reductions coming in the Autumn budget
"Once the Super Deduction ends next year, our overall tax treatment for capital investment will be far less generous than other advanced economies."
The Chancellor has pledged to bring in tax changes in the upcoming Autumn Budget to make business investment more tax-efficient.
Another key note for business owners is that dividend rates will stay the same from April 2024 despite the reduction in income tax.
An interesting Spring Statement from the Chancellor from both the personal and business angle. Muslims in particular are affected by the rising living costs and we hope these changes will help. But much more needs to be done, for sure.
Muslim business owners will also benefit from the changes and pledges made on the business side but - again - with a disproportionately high number of small Muslim business owners who will themselves be facing supply constraints, increased costs, cash flow issues and all that with the backdrop of reduced consumer demand due to the rising living costs, they will also need all the help they can get.
We caught up with Ruzwan Boota, Tax Senior Manager at Mazars, who emphasised the need for business owners to "proactively have conversations around tax savings with your accountant or tax adviser". He warned that many business owners wait for "someone else to tell them" about potential tax savings but in these hard times it's important to get ahead.