How does the Spring Budget Affect The Employed? A Closer Look
The spring budget is typically announced by the UK government in March each year, and can have an impact on employed individuals in a number of ways.
More articles on the 2023 Spring Budget
We have produced a number of articles on the spring budget that you can find below:
Pension Lifetime Allowance
The Pension lifetime allowance, which was previously set at £1,073,100, has been eliminated, allowing employees to contribute more to their pensions without having to pay more taxes. The fee is intended to deter employees from cutting back on their hours or taking early retirement to prevent having significant tax burdens placed on their pension. The pension changes made by the chancellor are intended to encourage individuals to work longer or to postpone retirement. They will therefore primarily have an impact on people who are retired or nearly retired. The main goal of the pension changes is to enable individuals to contribute more to their plan. In actuality, this means that those who can afford to take full advantage of the new allowances and have higher salaries or larger pension plans are more likely to profit from the changes.
Changes to Sickness benefit Payments
Changes to the way sickness benefit payments are calculated, enables claimants to keep receiving a part of their benefits even after they start working again.
Personal Allowances have been frozen
The personal allowances have been frozen, meaning more employees are now subject to higher tax rates. This is also referred to as "bracket creep." The higher rate level and the personal allowance were set to remain unchanged for a four-year period, from 2022/23 to 2025/26, according to the announcement made by the then-chancellor Rishi Sunak in the spring 2021 budget. This measure was anticipated to generate £1.56 billion in 2022–2023 and increase to £8.18 billion by 2025–2026, according to the Treasury's Budget report at the time.
Increases to Pension Contributions
The amount you can contribute to a pension each tax year and still receive tax benefits, known as the pension annual allowance, has risen from £40,000 to £60,000 annually.
Money Purchase Annual Allowance
An increase from £4,000 to £10,000 has been changed to the Money Purchase Annual Allowance (MPAA) and the tapered annual allowance.
Alongside skills boot camps and sector-based work academies, "returnerships" for individuals over 50 will be made available.
Jeremy Hunt provided £400 million in funding to increase the number of resources for employees' musculoskeletal and mental health. He added that a £3 million pilot programme will be implemented to assist the integration of individuals with special needs into the workforce.
Corporation tax
The Chancellor confirmed that the main corporation tax rate will increase from 19% to 25 with effect from 1 April 2023. There are a few ways this would impact employees:
Wage increases - To keep talent and remain relevant in the labor market, some businesses may decide to raise wages. However, whether or not the business can absorb the higher tax costs without lowering profits would rely on its financial situation.
Prices of goods and services - A business may see a decline in demand for its goods or services if it passes on the higher tax costs to customers in the form of higher prices. This could have an effect on the company's income, which could then have an effect on its ability to make investments in its workforce or raise wages.
Job creation - A company may have less money available to create new jobs or to keep hold of current employees if it encounters higher tax bills as a result of an increase in the corporation tax. If the business is already experiencing constrained margins, this could result in reduced hiring or even layoffs.
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