In March 2023 the Chancellor of the Exchequer Jeremy Hunt announced the government's Spring Budget. Within the budget, Hunt stated aims to halve inflation by the end of 2023 and ease the burden of the cost-of-living crisis with changes to everything from corporation tax, pension tax, childcare support to the energy price guarantee being announced.
But what were the key takeaways from the Spring budget for contractors?
In this guide, Umbrella Search takes a closer look at the 2023 budget and explains how it will directly impact contractors.
The UK will not enter recession
One of the key points made by Chancellor Hunt is that according to the Office for Budget Responsibility predictions, the UK is no longer on track to enter into recession this year. This follows forecasts of recession after former Prime Minister Truss' budget at the end of 2022.
The OBR now expects GDP to contract by 0.2% rather than the 1.4% stated in November 2022, and Hunt forecasts that this will be followed by 1.8% of growth next year.
Overall, the economic forecast is looking better in the UK going forward which is great news for everyone, contractors included.
Now let’s look more closely at how the budget will impact contractors specifically.
Corporation tax increase
The Chancellor announced that a rise to Corporation Tax would go ahead in the next tax year.
Rates are set to rise from 19% to 25% for businesses with profits of £50,001 or more. Companies with profits of £50,000 or less will continue to pay corporation tax at the 19% rate.
All companies in the UK pay Corporation Tax on the profits they make, so how does this impact contractors?
Contractors that work through their own limited company will make company profits from the contracts they work on. Contractors whose companies retain profits of £50,000 or more will now face a tax hike of 6%, meaning they will face a far larger tax bill than they previously would have.
Changes to pensions
As anticipated, the Chancellor also announced that the tax-free yearly allowance for pensions would rise from £40,000 to £60,000. This means that you can save up to £60,000 into a pension without paying additional tax, including contributions from yourself and your employer.
It was also announced that the Life Time Allowance which currently sits at £1.07 million would be abolished. The Life Time Allowance is the amount that you can save into your pension pot within your lifetime without facing tax charges when you go to take it out.
This is good news for any contractor that can contribute up to £60,000 into their pension pots, or is close to taking money out of their pension soon but would have been over the previous allowance.
Replacement of the super deduction tax break
In the 2023 Budget Jeremy Hunt also announced the replacement of the super deduction tax relief scheme with a full-expensing scheme as of April 1st 2023.
Under this new scheme, UK companies are able to write off the entire cost of qualifying plant and machinery investment in the year they buy it. These costs can be deducted in full from the company’s taxable profits. This scheme is planned to run until March 31st 2026.
Examples of equipment that qualifies include office equipment, machines like computers and printers, warehouse equipment, tools, construction equipment, vehicles such as vans, lorries and tractors and fixtures.
For contractors, this means they can save on any equipment they require for the contract at hand that qualifies under the government's new scheme.
What about IR35?
Unfortunately for contractors, there was a distinct absence of any mention of IR35 in the budget.
Contractors across the UK were hoping for flaws and issues with IR35 legislation to be addressed in the Spring Budget, but were left disappointed when the Chancellor failed to mention any reforms to the legislation.
Reforms to childcare
Some good news for contractors with children was the extension of free childcare hours to UK parents.
In the Spring Budget the government announced that it would extend the amount of free childcare hours to more parents once they return to work.
New rules introduced will see parents that work 16 hours a week or more and earn less than £100,000 per year become eligible to 30 free hours of childcare each week for children aged between 3 and 4.
This is obviously good news for any contractor that is also a parent.
Take the next steps with Umbrella Search
There are many positives to be found in the Spring 2023 Budget with a more positive economic forecast announced. This is clearly good news for all workers in the UK, including contractors.
There were some positives for contractors in the Spring Budget, including the rise to how much workers can save in their pension pots. However, it is worth noting that only a small percentage of UK workers and contractors can afford to save up to £60,000 in their pensions each year.
There are some drawbacks to the 2023 Budget for contractors in particular, including the rise in Corporation Tax for contractors working through their own limited company and no mention of any reform to infamous IR35 legislation.
With rises to taxes for companies alongside no changes to problematic IR35 legislation, many contractors will be considering taking the leap from limited company and making the move to umbrella.
If you’re in this boat, Umbrella Search is here to help you find the perfect umbrella company for your needs.
Simply get in touch with Umbrella Search’s friendly team of professionals today and we will take on the hard work and due diligence for you, to find an umbrella company that’s the perfect match for your contracting requirements.
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