– No significant changes.
– Lots of fiscal drag. i.e., tax thresholds frozen for multiple years, so inflation makes modest earners drift into higher tax brackets.
With this being the fourth ‘budget’ of the year, we wouldn’t be surprised if you’re dizzy from the ever-changing information, we certainly are! The latest statement aims to buffer the current economic downturn through a mixture of spending cuts and tax rises. We’ll focus on the key topics for contractors/freelancers but for a more general breakdown of the other points, please see the summaries from BBC/Sky.
The personal allowance and higher rate thresholds have been frozen until April 2028, along with the main NI thresholds.
From April 2023, the additional rate threshold has been reduced from £150,000 to £125,140 (excluding Scotland). Above this threshold, the income tax rate is 45% compared to 40% in the higher rate band.
The reduction to the additional rate threshold will also apply to dividends. Above £125,140, dividends will be taxed at 39.35% (including for Scottish taxpayers) compared to 33.75% in the higher rate band.
The tax-free dividend allowance (currently £2,000) will be cut to £1,000 from April 2023, and £500 from April 2024.
There were pre-budget murmurs of a general increase to dividend tax rates, but no announcements were made to this effect.
Capital Gains Tax
Rates are staying the same. The tax-free annual exemption (currently £12,300) will be cut to £6,000 from April 2023 and to £3,000 from April 2024.
The UK is now in a recession. This occurs when a country’s GDP (the typical measurement of an economy) falls for two consecutive quarters. We’re seeing rising interest rates and are experiencing a period of high inflation leading to an increased cost of living.
· VAT registration threshold remains the same (£85,000) until April 2026.
· The national living wage increases to £10.42/hour for people aged over 23, from April 2023.
· Company car benefit-in-kind rates are due to rise 1% each year from April 2025 up to a maximum of 5% for electric cars and 21% for ultra-low emission cars in the 27/28 tax year. All other vehicle bands will increase 1% in 25/26 and then be fixed until April 2028.
With the current state of the economy, we would recommend being cautious. Potentially worth reviewing our list of typical expenses, here, which can be paid for through your business. For those trading through a limited company, we’ll be looking to review your income levels around February/March to advise of any relevant tax-planning points.