March 2023 Budget – how does it affect contractors?

The Chancellor delivered his Budget speech today at 12:30 pm. Here we look at how the measures he announced will affect contractors and other small business owners.

What did we know already?

The rate of Corporation Tax is set to rise from 19% to 25% from April 1st for annual profits of £250,000 or more. It will remain at 19% if your profits are £50,000 or less. Between these thresholds, there will be an effective CT rate of 26.5%. You can read all about this pre-announced measure here.

The Energy Price Guarantee will be extended until the end of June. Announced just now, this means that the average household’s annual bill will continue to be capped at £2,500. Wholesale energy prices are then forecast to fall from July anyway.

Further notes from today’s Budget

• The lifetime allowance for pension tax relief has been abolished completely. It had been set at £1.073m. The annual allowance rises from £40,000 to £60,000.
• Those who are already drawing a pension but want to continue saving will be able to invest £10,000 more each year tax-free, up from £4,000. This is known as the Money Purchase Annual Allowance.
• The Tapered Annual Allowance will also rise from £4,000 to £10,000 from April 2023.
• A new system of full expensing will allow businesses to deduct the cost of qualifying plant and machinery expenditure from profits immediately, rather than over the lifetime of the asset. This scheme will continue until the end of March 2026.
• The 50% First Year Allowance (FYA) has been extended – also for three years. This lets businesses deduct half the cost of other types of assets right away from their profits, and then by 6% in subsequent years.
• Fuel duty has been frozen for a further 12 months.
• Eligible loss-making companies, who spend 40% or more of their expenditure on R&D can claim £27 from HMRC for every £100 of R&D investment.
• Working families with three and four-year-olds will be eligible for 30 hours of free childcare each week. This will be phased in over the next two years.
• So-called Draught Relief has been extended. From August 2023, the duty on a pint will be 11p lower than in supermarkets.
• Various measures to simplify business taxation were also announced.
• No mention of the IR35 or Off Payroll rules.

Read the full Budget on the GOV website.