Spring Budget 2023: how does it affect you?
With the UK still weathering the cost of living crisis, Chancellor Jeremy Hunt set out his plans to support and grow the economy today (Wednesday 15th March).Sure, there were no rabbits pulled from a hat, but the Chancellor still made some important announcements that affect the UK’s smallest businesses. We’ve handpicked the key information – with a sprinkling of our expertise for good measure – so you know the full story.
Taxes and wages
The tax-free yearly allowance for pensions has increased by 50%, from £40,000 to £60,000. Better still, the Chancellor also abolished the Life Time Allowance (LTA).
Basically, it means you can put more of your hard-earned cash towards your pension without paying tax on the money, either on the annual contribution value or the amount you accumulate over your working life.
It was widely acknowledged that the previous limit on the LTA forced some high earners out of work and into early retirement – otherwise, they would have had to pay tax on the value of their pension pot.
Duncan Craze, Head of Financial Advice at Contractor Wealth, said it was good news for “those of us lucky enough to have this much saved into pensions”.
And there was more good news for drivers and drinkers (but not drinkers and drivers). The fuel duty cut has been extended for another tax year, and from August your local will benefit from lower alcohol duty: 11p in the pound lower than the rate supermarkets pay.
But what about business?
The Chancellor replaced the popular ‘Super-deduction’ with a similar scheme that allows companies to reduce their taxable profits by deducting investment costs made for new machinery and tech. In short, lower profits mean the companies pay less tax, so it’s an intelligent bit of investment incentivisation (try saying that quickly).
Jeremy Hunt also announced 12 new ‘Investment Zones’, with £80m in funding over five years for each zone. These zones – Manchester, Liverpool and Teesside, to name a few – will offer tax breaks and other benefits to attract investment, job creation and economic growth.
Legislation to tackle tax avoidance schemes
The Chancellor also hinted that the government plans to introduce anti-tax avoidance legislation and a regulatory body.
Both measures are welcome and needed to protect workers from tax avoidance schemes and tackle non-compliance across the umbrella industry.
We’re looking forward to hearing more about this – it’ll likely increase transparency, help protect umbrella workers while also reducing tax evasion.
An expert view
While this wasn’t a blockbuster Budget, Joanne Thorne – our Technical Compliance Manager here at Caroola – reckons the Spring Statement was largely positive.
“Self-employed contractors will be pleased to hear the Chancellor confirm the 50% increase to annual pension allowances from £40,000 to £60,000 alongside the abolishment of the lifetime allowance”, she said.
“Recent cuts to benefits such as dividend tax allowances have left many looking at the most efficient way to manage their tax liabilities”, Joanne added.
And while self-employed workers have traditionally been reluctant to “lock money away into a pension”, Joanne believes that “this move will undoubtedly act as a good incentive to invest more in a personal pension, without concerns about tax liabilities.”
“While it’s also positive to see the replacement of the super deduction tax with a policy allowing every pound invested by businesses into IT equipment, plant or machinery can be deducted in full from a company’s taxable profit, the planned Corporation Tax increases due to come in from 1st April will still be a significant tax liability for the self-employed.”
There was room for improvement, though. Despite several welcome policies put forward to “mitigate the impact of tax rises and encourage investment”, Joanne made it clear that the government could and should have done more.
“Today’s announcements still don’t go far enough to ensure the self-employed community is onside – especially with a General Election on the way.”
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