Another year… another Budget! The Chancellor’s most recent announcement has been viewed by most as a ‘steady’ Budget, perhaps for the best given the drama of the last year.
As was expected, there is a strong focus on increasing productivity, by helping early retirees and newer parents back into the workforce.
Here, we’ll focus on the key topics for contractors and freelancers. For a more general breakdown of the other points, please see the summary from BBC.
One headline of the Spring Budget was that the annual pension allowance is increasing to £60,000 (up from £40,000 to date) from 06 April 2023.
For most taxpayers, this is the overriding limit on gross pension contributions from all sources that can be made during a given tax year, without incurring a charge to income tax.
Hence, taxpayers are broadly able to contribute more into their private pensions each year, without being subject to additional income tax. For limited company owners (and tying into the Corporation Tax changes, mentioned below), it may be worthwhile to consider making employer pension contributions. If you’d like to discuss further, get in touch.
On a similar note, many expected the Chancellor to raise the lifetime allowance in his statement – instead this will be abolished from 06 April 2024.
Currently £1.0731m, the lifetime allowance caps the amount of pension savings that an individual can accumulate, without having to pay an additional income tax charge (made on the ‘excess’ savings, above the allowance). The charge itself is being scrapped from 06 April 2023, so those affected will feel the benefit in advance of the allowance being abolished.
Realistically, this will only affect a minority of taxpayers. However, if you’re aware that you’ve already built up a significant pension pot, the changes should allow scope for you to make further contributions without the tax burden being as heavy as in the past (barring any future changes).
A few other key points announced in the Spring Statement:
- As was rumoured beforehand, the Budget included some details of the government’s plan to increase the number of free childcare hours available, whilst extending the rules to include younger children.
A phased introduction is expected, starting in April 2024 when eligible children aged 2+ will get 15 hours/week of free childcare. In September 2024, this is due to be extended to children aged >9 months. From September 2025, the number of hours/week for all eligible children is planned to increase from 15 to 30.
- The energy price guarantee has been extended until the end of June 2023, capping typical household gas and electricity bills at around £2,500 annually.
- It’s predicted that the UK will avoid recession in 2023, despite the economy shrinking by 0.2% at the same time.
As confirmed in the Autumn statement, the main rate of Corporation Tax will increase from 19% to 25% on 01 April 2023.
However, the impact on your company may not be as large as you think. Some companies will continue to pay Corporation Tax at 19%, whilst others will benefit from the introduction of the 25% rate being tapered.
If you’d like to know more about the increase and how it might affect your business, see our corporation tax blog post here.
Income Tax & Capital Gains Tax
Aside from the relatively few ‘big’ changes announced by Mr Hunt, now is a good time to refresh your memory on other notable tax changes taking effect from 06 April 2023:
- The dividend allowance is being reduced from £2,000 to £1,000. This means that taxpayers will receive fewer of their dividends tax-free, once the 23/24 tax year has begun. The allowance remains available to all taxpayers, regardless of income. From 06 April 2024, this is expected to reduce to £500.
- The additional rate threshold will be lowered from £150,000 to £125,140. Whilst this will only affect higher income individuals, it means that the additional rate of income tax will ‘kick in’ immediately after the personal allowance has been eliminated (which reduces gradually in line with income, as it climbs above £100,000).
- The annual exempt amount for capital gains tax (CGT) is falling from £12,300 to £6,000. Taxpayers with gains above this amount will be subject to CGT on the excess. From 06 April 2024, this is expected to fall to £3,000.