Spring Budget: will we be better off?
The Spring Budget offered a few reasons to celebrate, but freelancers should prepare for some tax and interest rate hikes over the course of 2023
- Alcohol tax to jump to 10% in August
- Draft beers pulled in pubs will be 11p cheaper than in supermarkets
- Cigarettes will rise by RPI plus 2%
- The temporary cut in the rates of Fuel Duty was introduced in March 2022 for a further 12 months, maintaining fuel duty rates at current levels
- Annual pension allowance will rise from £40,000 to £60,000
- Universal Credit childcare cost maximum amounts to £951 for one child and £1,630 for two children from July 2023 and increases them by CPI each year thereafter until 2027-28
- Reforming film, high-end TV and video games tax reliefs to expenditure credits with a rate of 34%. Reforming animation and children’s TV relief to expenditure credits with a rate of 39
- The Chancellor has chosen to leave Lifetime ISA thresholds unchanged. This means the penalty for early access remains at 25% despite calls for it to be reduced to 20%. The £450,000 limit on the value of first home bought with a LISA has not been increased since LISAs were first introduced
Source: Gov.uk, Hargreaves Lansdown, BBC
The good news is that inflation is set to decrease to 2.9% by the end of the year, according to OBR estimations, indicating that the UK will dodge a technical recession. But interest rates are expected to rise further this year as Central Banks focus on keeping a lid on inflation. These are just some of the latest highlights that have come out of today’s Spring Budget.
More retired contractors could come back to work
There were some signs of hope emerging from the budget. More retired contractors could come back to the jobs market now that the annual pension allowance will rise from £40,000 to £60,000.
“This will be of benefit to all high earners and is a common tax planning technique for contractors, both those operating via a PSC or umbrella,” says Matt Fryer, managing director of Brookson Group, of the pension allowance changes.
“In my view, it is likely to attract some over 50s back into contracting, even into inside IR35 contracts via umbrella companies,” says Fryer.
“This is because high-earning umbrella employees will perhaps be the biggest beneficiaries of this measure as they will now be able to access even greater tax and NIC savings if they are able to enter into pension salary sacrifice agreements with their employer,” he says.
The Government has however missed the opportunity to tidy up some of the complications associated with the off-payroll rules, he says.
“There was no mention of umbrella company regulation, however, it is widely expected that this is something which will be progressed in the near future,” says Fryer.
Bummer about the booze, huh?
While the rate of inflation is set to decrease by late summer, we won’t be able to pop open too many bottles of bubbly to celebrate. The tax on alcohol will rise 10.1% in August, just when Chancellor Jeremy Hunt is hoping inflation will have dropped considerably.
Our beer-drinking, pub-frequenting freelancer friends should be relieved that there will be a separate rule for draft beers in pubs, which will mean the duty on draft pints is 11p lower than in supermarkets.
“There’s also the hope that the delay in rising duty will protect the nation’s drinkers while inflation is so high, and only kick in when it has started to fall back,” says Sarah Coles, Hargreaves Lansdown’s personal finance expert.
“For smokers, however, the pain will be immediate, and the duty on cigarettes will rise by RPI plus 2%, which is almost 15% and could add around £1.75 to the price of cigarettes,” says Coles.
Fuel prices: how low could they go?
Many of us are still grappling with the cost of petrol and diesel prices. According to the RAC, prices have dropped from a high point of over £1.91 per litre in July to around £1.48 today – similar to the level we saw about a year ago.
“However, it’s still way ahead of the levels we saw just before the pandemic, of around £1.25, so it would have been difficult to convince drivers that now was the time to add another 5p on top of this,” says Coles.
The RAC is expecting diesel prices to drop from their average price of 166.05 pence per litre. Unleaded and leaded petrol have no forecasted price changes.
More free childcare could encourage more parents back to work
Childcare costs like most things these days have been rising, making it hard to justify some parents going back into the workforce while their children are under school age. But in an effort to see the UK economy grow the Chancellor has delivered more government-subsidised childcare. Here are some of the changes:
- Working parents of two-year-olds will get 15 hours of free care from April 2024
- Children from nine months will get 15 hours free childcare from September 2024
- All eligible under-5s will get 30 hours free childcare from September 2025
What have you found positive about the Budget and what would you have liked changed or addressed?
To find out the latest income tax rates for the 2023/24 year, click here.