How the Spring Budget Affects the Self Employed

The spring budget is typically announced by the UK government in March each year and includes updates on tax, national insurance, and other economic policies.

More articles on the 2023 Spring Budget

We have produced a number of articles on the spring budget that you can find below:

• The Spring Budget 2023 - A General Overview

• The Spring Budget 2023 - How does it affect Self-Employed Individuals

Background

In general, the budget can have an impact on the self-employed depending on any changes made to tax rates, allowances, and other policies. These changes can affect the amount of tax that the self-employed have to pay, their access to financial support, and their ability to invest in their business. 

The energy price cap increase is going ahead in April. This means that businesses will receive a discount on wholesale prices of gas and electricity rather than a fixed price. If a self-employed individuals operate a business that uses a significant amount of energy, such as a manufacturing or production facility, a discount on wholesale prices could potentially lead to a cost savings. On a negative side, a discount on wholesale prices could also potentially lead to higher energy bills if prices increase unexpectedly. This could be particularly concerning for self-employed individuals who may have limited cash flow and may struggle to pay higher energy bills. 

Tax on Pensions

The tax on pensions is changing. The chancellor Jeremy Hunt, has announced that the pensions Lifetime Allowance will be abolished. This could have different effects on the self-employed. The abolition could mean that individuals who have built up substantial pension savings would no longer face punitive tax chargers if they exceed the Lifetime Allowance (LTA)

On the negative side, the abolition of the LTA could potentially lead to increased tax bills for those with smaller pension savings. This is because the current system allows individuals to benefit from tax relief on pensions contributions, up to certain limits, and the LTA acts as a cap on the amount of tax relief that can be claimed.

Corporation Tax

The Chancellor confirmed that the main corporation tax rate will increase from 19% to 25 with effect from 1 April 2023. Since self-employed people frequently don't use a limited company structure, which is liable to corporation tax, this increase is unlikely to directly affect them. Instead, the income tax system is typically used to tax the earnings of self-employed people. However, based on the broader economic effects of the tax increase, there might be some indirect effects on those who are self-employed. These are:

1. Government support - Increased government income from the higher corporation tax could conceivably be used to pay for self-employment assistance programmes. The government could, for instance, use the extra tax revenue to finance training initiatives, business loans, or other forms of assistance for independent contractors.

2. Costs of goods and services - Self-employed people who depend on those products or services to run their company may be impacted if businesses pass along the increased tax costs to consumers in the form of higher prices. For instance, if the price of raw materials rises, this may have an effect on the profitability of independent contractors working in the manufacturing or building sectors.

3. Economic growth - The self-employed market may be negatively impacted if the increase in corporation tax slows economic development. For instance, independent contractors might have a harder time finding new clients or contracts if there is less demand for products and services.

Research and development

Enhanced credits for businesses that have Research & Development as 40% of turnover. Self-employed people may gain from the enhanced credit plan in a variety of ways if it causes businesses to spend more in R&D projects. For example:

1. Increased demand for services - The desire for specialized services or knowledge in fields like engineering, software development, or product design may rise if businesses increase their R&D spending. The increased demand for their services could possibly be advantageous for self-employed individuals who work in these fields.

2. Industry growth - If the enhanced credits programme increases R&D spending throughout the economy, this could possibly have a positive impact on other areas of the economy, such as productivity, competitiveness, and economic development. This might improve the environment in which self-employed individuals can run their companies. 

3. Job opportunities - Increased R&D spending may also result in more employment possibilities, especially in sectors like technology, engineering, or pharmaceuticals. This may open up new possibilities for self-employed individuals seeking contract work or project-based assignments. 

It is crucial to remember that the impact of the enhanced credits scheme on the self-employed will vary depending on the particulars of their company and the sector they work in

Need More Help?

It is important for self-employed individuals to stay informed about any changes that may affect them and consult with financial experts for advice on how to adapt to these changes. If you need more help regarding the recent changes or anything else that may affect U.K. taxation do not hesitate to contact us.

Spring Budget 2023

What you need to know

What is the Spring Budget and what does it mean for you? The Spring Budget is typically announced by the UK Government in March each year and includes updates on tax, national insurance, and other economic policies.

Detailed Articles on the topic

We have produced a number of detailed articles relating to how the 2023 spring budget affects individuals differently. If you would like to find out how the spring budget may affect you more directly view one of the articles below:

• How the Spring Budget 2023 affects Self-Employed individuals

• How the Spring Budget 2023 affects Employed Individuals

Background - the energy crisis

According to research by the International Monetary Fund, the energy problem is having a greater impact on household budgets in the UK than in any other nation in western Europe.The UK heavily relies on gas to heat homes and generate electricity at a time when gas costs are skyrocketing due to Russia's conflict in Ukraine. Furthermore, the houses in the UK are the least energy efficient in all of western Europe. As retailers pass on the price increases, rising energy expenses also raise the cost of other goods. Indirect impacts like these will reduce household spending in the UK by an additional 2% in 2022. The IMF analysis considers how people may use less energy as prices increase.

Energy Costs

Energy costs have fallen significantly: In 2023, the average wholesale price is now predicted to be £1.50, which is less than half of the £3.40 assumed in November.

Childcare

Including the extension of the 30 hours per week of free childcare presently offered to many families with 3 and 4 year olds to younger children.

Work Coach’s support

More long-term ill and disabled individuals will receive a work coach's support. Work coaches provide individuals with guidance, coaching, and support to help them find employment.

Capital Allowance

Beginning in April and continuing for the following three years, businesses will be able to deduct 100% of all plant and machinery investment costs when determining taxable profits.

Alcohol duty reform

Alcohol duty rates and Alcohol duty reform - Drought Relief will reduce the tax burden on alcoholic drinks sold on tap – but alcohol duties will still rise with inflation. This can have both positive and negative impacts on various stakeholders.

These changes are used to increase the financial revenue that the government to be used to pay for infrastructure and public services.  However, because the government may spend a larger percentage of their money on alcohol, low-income households may be disproportionately affected by rising alcohol duty rates. Additionally, it can result in an increase in cross-border shopping and the smuggling of alcohol, especially if one country has much greater duty rates than its neighbors. The government may receive less money as a consequence, and there may also be an increase in crime and its risks.

Need more help?

If you need more help regarding the recent changes do not hesitate to contact us. We have over 15 years of experience helping our clients save on their tax liability.

What to do if you can’t afford tax due in the u.k.

If a taxpayer finds themselves in financial difficulties which result in an inability to pay off their tax bill on time or in full, firstly, they should always ensure that they submit their tax return before the deadline of 31 January. Late filing will result in a penalty of £100 if the tax return is up to 3 months late. There are additional penalties if the tax return is filed later than 3 months. Also, a taxpayer will be charged an interest on late payments. Therefore, an early submission can significantly reduce the total tax bill owed to HMRC. Furthermore, this provides additional time to properly plan future payments of the tax liability. 

HMRC help and support

HMRC can offer help if a taxpayer finds themselves unable to afford paying their tax bill. The help HMRC provides will depend on each taxpayer’s needs and circumstances and they should always contact HMRC as soon as possible to discuss the best way forward. As interest is charged on any overdue payments it is always best to avoid delay.

HMRC can offer different tools to help and support the client via:

• Offering a payment plan based on client’s financial position called a Time to Pay Arrangements.

• Using any overpaid tax to clear other outstanding tax debts a client has.

• Tax code adjustments to collect outstanding tax debts through PAYE income.

However, if a client does not engage with HMRC or refuses to pay their tax, HMRC can either visit them at home to understand the circumstances and financial situation to work out the arrangement to pay the tax or use their debt collection agencies to settle the tax debt. 

Time to Pay Arrangements

Time to Pay Arrangements are affordable monthly payment options for clients who find it difficult to make tax payments. The payment arrangements are based on the specific financial circumstances of the client according to how much they can afford and how much time they will need. The arrangement is flexible and can be amended over time depending on the financial situation of the client (it can be extended or shortened). 

The payment plan can be set up online or by a contacting HMRC.

A client can set up a payment plan online if:

• They owe £30,000 or less.

• They do not have any other payment plans or debts with HMRC.

• Their tax returns are up to date.

• It is less than 60 days after the payment deadline.

Interest will be charged on these payment plans.

Reducing payments on account

One of the ways to reduce the tax bill is to lower payments on account. If a taxpayer expects their earnings are going to be lower than during the previous fiscal year, they can claim to reduce their payments on account. There are two payments in total - the first payment on account is due by 31 January and the second payment on account is due by 31 July. Each payment is half of client’s previous fiscal year’s tax liability. However, to avoid an interest charge by HMRC, a client should keep their earnings under review. If the actual level of income changes, adjustment to the second payment on account can be implemented.

Suspension of tax collection

In certain situations, HMRC can temporarily suspend customer’s tax collection. However, such action will result in additional costs in the form of interest charged.

Summary

Firstly, a client should always file their tax return on time, even if they know they will have difficulties to pay their bill. Failing to submit the tax return on time will result in addition costs in the form of penalties.

If a client knows that they will be unable to pay their tax bill they should contact HMRC as soon as possible. It is always beneficial to deal with these issues as early as possible so that plans can be put in place to pay the tax and that interest and penalties can be minimised. Failure to be proactive when dealing with HMRC can result in enforcement powers being implemented to recover the debt.

Struggling to pay your tax?

If you are struggling to pay your tax it is vital that you contact HMRC at the earliest possible date. If you find yourself in this situation, you can also consult a professional tax advisor on the matter.