The accountancy sector has passed a mixed response to the chancellor’s new tax plan set out in his Spring Statement yesterday (23 March) with the head of tax at the ICAEW labelling parts of the approach as “puzzling”.
The comment from Frank Haskew, head of Tax, ICAEW, comes after the chancellor confirmed an increase to the national insurance threshold by £3,000. That means employees will be able to earn £12,570 without paying any National Insurance tax, with 70% of workers set to benefit from the tax cut.
Sunak also promised that before the end of this parliament in 2024, the basic rate of income tax is to be cut from 20p to 19p in the pound. Meanwhile, R&D tax credits are also set to be reformed, with Sunak stating he will “consider the generosity” of R&D expenditure in the autumn.
However, these tax changes come in the face of the upcoming Health and Social Care Levy which will see all working members of the British public pay a 1.25% tax on their earnings.
Haskew said: “This is the start of another round of tax changes that we’re going to see over the coming months. With his new tax plan, including the rise in the NIC threshold and the one per cent reduction in the income tax rate from April 2024, the chancellor appears to be effectively undoing some of the changes he introduced with the Health and Social Care Levy.
“The government will be giving away a significant proportion of the Levy it will be raising, a somewhat puzzling approach to tax policy which calls into question why the Levy was introduced in such a hurry in September 2021.”
Yet Haskew did welcome the alignment of NI and income tax thresholds: “We’re pleased that National Insurance Contributions and income tax thresholds will align. This move will particularly benefit those at the lower end of the pay scale and simplify the tax system too. The £1,000 increase in the employment allowance to £5,000 will also be well-received by SMEs, and is expected to benefit around a half a million smaller businesses.”
Additionally, Jon Richardson, Tax leader for Policy, Reputation, Regulation and Risk at PwC UK, welcomed the chancellor’s focus on innovation and capital.
He said: “The chancellor’s Tax Plan focuses on innovation, capital and skills, which are the right things to focus on when it comes to fostering growth and productivity, and will be largely welcomed by business. The gains in productivity and growth planned by the chancellor will not happen overnight but the Chancellor has focused on the right priorities.
“The Tax Plan also expresses a desire to reform and simplify the tax system. It looks like the focus will be on reducing the myriad of tax reliefs and allowances – we will have to wait and see who will be the winners and losers from this simplification.”
Despite this he also claimed the chancellor may have to do more when it comes to his R&D promises.
He added: “The UK R&D tax credit regime and tax allowances for capital investment are not generous by international standards so there is a need to do something, otherwise the UK will not be competitive from April 2023 when the super deduction ends and the corporation tax rate increases to 25%.”