The Chancellor’s budget today centred on achieving growth by “removing obstacles that stop businesses investing; by tackling labour shortages that stop them recruiting; by breaking down barriers that stop people working; and by harnessing British ingenuity to make us a science and technology superpower.”
And although the spending deficit has improved, following a rise in tax receipts ( mainly due to higher than expected inflation over the last year), the Chancellor has continued to adopt a prudent approach with limited tax reliefs for businesses and individuals in the short term.
How will it affect you?
As previously announced, the continued theme concerning personal finances is the extended freezing of various allowances (namely income tax and inheritance tax) beyond which taxes are levied-the impact of this, of course, is that more people will be dragged into paying the 40 per cent higher-rate income tax bracket, and many more will start paying income tax for the first time. The personal allowance is set to remain at £12,570 until 5th April 2028.
For businesses, the formerly announced increase in the rate of mainstream corporation tax will have an impact, however, for smaller companies, with marginal profits, efficient tax planning can help to maintain the small companies rate of corporation tax at 19%. To compensate for this impact, the Chancellor has reinforced the capital allowances regime so that small companies will continue to be able to fully capital expense any investment in respect of I.T, plant and equipment.
The chancellor has also looked to Investors and shareholders to bear the additional tax burden who will also feel the impact of the reduction in the annual capital gains tax allowance and dividend allowance.
However, the chancellor announced today, from 6th April 2023, the abolition of the pension’s lifetime allowance cap, currently set at £1,073,100. In addition, the annual allowance – the most a worker can save in their pension pot in a year before paying tax has increased to £60,000 from its current mark of £40,000, providing greater freedom for workers to boost their pensions.
The measures announced in the former 2022 Autumn Statement will now be felt from 6th April 2023 in that everyone is paying more tax, but this is especially true of contractors and the self-employed. Due to the structure of their businesses, independent contractors are particularly hit from 6th April 2023 by the cut to dividend allowances (reduced to £1,000) and the previously announced increase in corporation tax rates.
This is short-sighted. The economy needs flexible talent to support growth, including the infrastructure and energy independence projects that the Chancellor has prioritised. Contractors are available to work as and when their skills are required, and the personal risks associated with this flexibility should be reflected in the tax system.
Some may decide to seek permanent employment as a result of this budget, but contracting is not just about the money; it is a flexible lifestyle choice. If the Government is not going to incentivise the flexible workforce, businesses need to consider what else they can do to continue to make it an attractive option. This might include access to improved services or benefits, in compliance with the off-payroll working rules.
However, the abolition of the pension lifetime allowance and the increase in the annual pension allowance announced today does allow a measure of comfort to contractors to plan for their future by increased investment in their pension provisions.
Key points to take away as follows for individuals to consider from 6th April 2023:
- Those earning more than £125,140 to pay income tax at the additional rate of 45%. This was previously triggered only for those earning £150k plus;
- Tax free dividend allowance reduced to £1,000 from £2,000;
- Annual capital gains allowance reduced from £12,300 to £6,000;
- Income tax and National Insurance bands will remain fixed until April 2028;
- Increase in pension annual allowance from £40,000 to £60,000 – and the abolition of the pension life-time allowance cap from 6th April 2023.
The key takeaway from the Spring Budget is the continued requirement for businesses and individuals to contribute to the tax shortfall in equal measure. More than ever, Brookson can assist with ensuring that you maximise income and reliefs to full effect as a result of these budgetary changes.