On Wednesday 23rd March 2022 the UK’s Chancellor, Rishi Sunak, delivered the UK Spring Statement 2022. Despite it being two years to the day since the UK initially went into lockdown the world is still tackling the Covid-19 pandemic, the appalling humanitarian crisis in Ukraine and the knock-on effects to the global economy rightly took centre-stage. With UK inflation figures hitting a 30-year high, the Chancellor’s focus was divided between international emergencies and the growing cost of living crisis in the UK.

With the majority of UK tax announcements typically contained in the Budget (due in the Autumn) few changes were expected. Speculation prior to the Spring Statement focused on whether the previously announced 1.25% increase in NIC (due from April 2022) would be implemented with commentators arguing that now was not the time for increased taxation. Yet, the Chancellor remained committed to the increase, instead choosing to support individuals by increasing the threshold at which NIC are due from July 2022, aligning it with the income tax threshold. Both the NIC primary threshold and lower profits limit will be increased from £9,880 to £12,570. The net result being low earners see a reduction in NIC, with middle to high earners experiencing a smaller than expected increase.

However, the biggest give away was a promised reduction to basic rate income tax from 20% to 19% before the end of the Parliament (in 2024). A tax cut for workers, pensioners and savers of over £5Bn a year, which represents the first cut in the basic rate of income tax in 16 years. Additional support was also provided in the form of a 12-month fuel duty cut of 5p per litre equating to over £5Bn and the doubling of the Household Support Fund to £1Bn. The measures all form part of a Tax Plan which the Chancellor described as delivering the biggest net tax cut for personal taxes in over quarter of a century.

With jeers of “is that it?” from the opposing benches, opinion will be split as to whether the plan goes far enough. Those hit the hardest by the cost of living crisis are those on the lowest incomes, but for those on benefits the Chancellor offered little support. The cut in fuel duty only directly helps individuals with cars, and critics would argue that in fact the biggest consumers of fuel are the wealthiest. No windfall taxes for oil companies were announced despite bumper profits, again a step that some had called for to no avail. It may well be that further action is required in the Budget later in the year.

In order to build a stronger more secure economy the Tax Plan seeks to build a new culture of enterprise in the UK, improving productivity to deliver sustainable economic growth and increase living standards through higher real wages. In his Mais Lecture earlier in the year the Chancellor set out three priorities:

Capital — cutting and reforming taxes on business investment to encourage firms to invest in productivity-enhancing assets;

People — encouraging businesses to offer more high-quality employee training and exploring whether the current tax system – including the operation of the Apprenticeship Levy – is doing enough to incentivise businesses to invest in the right kinds of training; and

Ideas — delivering on the pledge to increase public investment in R&D and doing more through the tax system to encourage greater private sector investment in R&D.

The last of these three priorities may particularly benefit the intellectually rich world of asset management. There are promises that R&D tax reliefs would be reformed and it was confirmed that from April 2023 all cloud computing costs associated with R&D, including storage, will qualify for relief. Furthermore, to support the growing volume of R&D underpinned by mathematical advances, the definition of R&D for tax reliefs will be expanded by clarifying that pure mathematics is a qualifying cost. Where required, legislation will be published in draft before being included in the next Finance Bill.

Apart from this there were few other take-aways for the asset management industry. We had anticipated potential tax changes for individual partners in LLPs at some stage as the Chancellor had hinted that the gap between employees and the self-employed needed to be corrected, however he has remained silent on this point. The increase in NIC next month applies to the self-employed, employees and employers with no upper limits – meaning a 2.5% charge for employment relationships.

UK asset managers will again be looking at the comparison between LLP and Ltd structures, factoring in both the proposed changes and previously announced increases in corporation tax. The net impact is the spread of effective tax rates first contracts in 2022-23 but widens far further in 2023-24 in favour of an LLP structure for profit extraction. The effective tax differential between profit allocations to self-employed individuals and employees will also increase from April 2022, from 6.43% to 6.77%. As such HMRC’s interpretation of the salaried and mixed member rules and associated scrutiny placed on managers is set to continue. The widening gap feels ripe for filling with something equivalent to the employer’s NIC, albeit this needs to be balanced with the lack of optionality to roll-up profits under the mixed membership rules.

Disappointingly there was a missed opportunity to provide the asset management industry with certainty on the taxation of digital assets or indeed the VAT treatment for UK fund structures. The absence of such measures hampers the UK’s ability to expand the industry further still. The action taken to support the industry with new fund vehicles and regimes is to be applauded, but if the fundamental issues remain than little progress can be made. Uncertainty on these points and HMRC’s attitude to the industry all feed into the UK’s competitiveness and its ability to attract and retain the best talent. Despite the headlines of tax reductions, those in the asset management industry will be subject to a steady increase in taxation over the coming year.