Spring Statement 2022: tax comment
Tim Sarson, Partner and UK Head of Tax Policy at KPMG, said:
“The Chancellor has trailed for months that he wouldn’t be making any significant fiscal changes in the Spring Statement. But the cost-of-living crisis has forced his hand into making a major announcement on National Insurance and Income Tax thresholds albeit the basic rate reduction is another two years away. On paper these are pretty expensive rabbits to be pulling out of the hat, though the impact of fiscal drag in a high inflation environment has given more than enough headroom to do this.
“Tax advisors across the country no doubt got excited on hearing that there would be a new ‘tax plan’, but what actually landed was light on detail, making it still quite difficult to read the tea leaves when it comes to the government’s long-term tax strategy.
“There were very few clues as to how the government plans to address the numerous cliff edges and distortions that exist in our tax system. Standing firm on the national insurance rise will likely increase division between the taxation of employment income and those that receive pensions or rental income.
“The Chancellor did offer some hints on where he is heading on corporate tax. His preference seems to be to keep the rate hike to 25% next year, but compensate for this with a narrowing of the tax base. The references to the US tax system and the similarities in approach between this plan and the long-standing policies of that country are noteworthy. This looks to be paving the way to a system where a high headline rate is complemented by a proliferation of targeted reliefs.
“A lot of difficult decisions have been kicked into the autumn but the Chancellor’s promise to consult with businesses before introducing significant tax policy changes is encouraging – although perhaps not for those tasked with responding to the mountain of tax consultations that are inevitably in store.”
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