In the Spring Statement, the Chancellor Jeremy Hunt announced a range of measures to support with the cost of living and get people back into work. He shared that inflation has peaked and the UK will avoid entering a “technical recession” later this year. In this post, we look at the key tax changes that contractors need to know about.
Headlines for contractors:
“The budget has been widely condemned by the contracting community as a wasted opportunity. There was no mention of IR35, no mention of the Single Enforcement Body, or much needed umbrella company regulation. Other than the energy support extension and pension allowance increase, there was nothing in the budget for contractors and small businesses.”
Spring Budget 2023 Key Points:
Corporation Tax is going up as expected from 19% to 25%. Firms making more than £250,000 profit will pay 25% tax from April 1 2023.
Capital allowances: Full expensing
Businesses will be able to claim a 100% capital allowance for the next 3 years from 1 April, reducing their overall tax bill.
From 1 April 2023 until 31 March 2026 investments made by companies in qualifying plant and machinery will qualify for a 100% first-year allowance for main rate assets. This means companies across the UK will be able to write off the full cost in the year of investment, known as full expensing.
Companies investing in special rate (including long life) assets will also benefit from a 50% first-year allowance in the year of investment.
For contractors, IT equipment, such as a new computer or server, for use in your business can be claimed.
Energy price guarantee extended for a further three months
The Energy Price Guarantee will be maintained at £2,500 for a further three months. This was due to rise to £3,000 on 1 April.
Also announced was a plan to bring energy pre-payment meters in line with direct debits from July.
Pension tax reform
There were two key changes to pension tax in the Budget:
The Annual Allowance will increase from £40,000 to £60,000 from 6 April 2023
The Lifetime Allowance charge will be removed from April 2023 before the Allowance is abolished entirely from April 2024
The aim of these reforms is to ensure that high skilled individuals such as doctors are not disincentivised from working.
The government also announced it will increase the Money Purchase Annual Allowance from £4,000 to £10,000 and the minimum Tapered Annual Allowance from £4,000 to £10,000 from 6 April 2023. The adjusted income threshold for the Tapered Annual Allowance will also be increased from £240,000 to £260,000 from 6 April 2023. This is the amount you can put in your pension once you’ve already taken a lump sum out.
This is good news for contractors who will be able to save more into pensions.
12 new Investment Zones across England will be backed with £80m of funding, including “generous tax incentives”.
Also announced was £200m for local regeneration projects.
It’s worth keeping an eye on these developments when planning your strategy, particularly if you are using profit from your contracting company to invest in property.
Eligible working parents will be entitled to 30 hours a week of free childcare for 38 weeks a year, for children aged 9 months to 3 years.
This will be rolled out in phases from April 2024 and is in addition to the 30 hours a week already provided for eligible working parents of 3 to 4-year-olds.
Also announced was funding for schools and local authorities to increase supply of wraparound care so all parents of school-age children can drop their children off between 8am and 6pm.
Fuel duty cut extended
The fuel duty freeze will remain in place and the 5p cut in tax will be maintained.
Tax optimisation for contractors and consultants
See our guide on choosing a tax efficient salary to explore different salary strategies for contractors and consultants.