As we prepare for the start of a new tax year, many self-employed freelancers, contractors, sole traders, and small businesses across the UK are eagerly anticipating the Spring Budget. Chancellor Jeremy Hunt recently delivered his highly anticipated budget, which he dubbed “a budget for growth.”
UK Economy Outlook
In general, the UK economy’s outlook for 2023-24 is promising. With a focus on reducing debt, halving inflation, and creating prosperity with a purpose. The primary takeaway from the budget announcement that is most significant for small businesses is that the UK is expected to avoid a technical recession in 2023. This aligns with the priorities of getting the economy back on track. Hunt stated that “we are following the plan, and the plan is working.”
Stability and Normality
Jeremy Hunt is only the second of the last five chancellors to have held the iconic red box outside Number 11 for the Spring Budget announcement. With an average tenure of just nine months, the previous five chancellors have caused U-turns and uncertainty. This figure is in stark contrast to the previous five chancellors who were in office for a total of 26 years. Hunt aimed to reassure the UK of stability and normality, stating that “we are proving the doubters wrong.”
Government’s Financial Goals
Despite being the only G7 economy that is still smaller than it was before the Covid-19 pandemic, the UK economy grew by 4% last year. The Treasury’s recent announcements contain numerous reasons for optimism, and Hunt asserts that the UK economy is on the “right track.”
The UK government is on track to achieve its goal of reducing underlying debt to 92.4% of GDP by next year. With the figure expected to decrease annually until 2027-28. In addition, Hunt announced that underlying debt in three years will be lower than it was in the autumn of last year.
Budget Priorities
Hunt’s budget was divided into three priorities: providing help with the cost of living crisis, reducing debt, and growing the economy.
Inflation Rate
As we head into the 2023-24 tax year, it’s worth noting that the inflation rate is expected to fall to 2.9% from 10.7%. This is excellent news for everyone, as it will help mitigate the rise in prices.
In conclusion, the Spring Budget announcement contains several reasons for optimism. The UK economy’s outlook is positive, and the government is taking steps to reduce debt and inflation while promoting economic growth.
Priority 1 – help with cost of living crisis
reduce debt – Priority 2
Priority 3 – grow the economy
Let’s take a look at what will affect you going into the 2023-24 tax year…
Inflation is set to fall to 2.9% by the end of the year
Great news for everyone is that the rate of price rises, or inflation, is forecast to fall to 2.9% from 10.7%.
Economy forecast to grow by 1.8% next year
After this year the UK economy will grow in every single year of the forecast period. By 1.8% in 2024, 2.5% in 2025, 2.1% in 2026 and 1.9% in 2027.
Energy bill support
The Energy Price Guarantee will remain at £2,500 for the typical household for the next three months. This means that the average family will save a further £160 on top of the support measures already in place.
Small Business Investment increased to £1m
The Annual Investment Allowance has increased to £1m for small businesses. Meaning 99% of all businesses can deduct the full value of all their investment from that year’s taxable profits. This new policy aims to see full capital expensing for the next 3 years. With an intention to make it permanent as soon as responsibly possible. This means every £1 a company invests in IT equipment. Plant or machinery can be deducted in full and immediately from taxable profits.
Tax boost for smaller and medium businesses
The chancellor has announced that small or medium-sized businesses will be able to claim a credit worth £27 for every £100 they spend if they spend 40% or more of their total expenditure on Research and Development.
12 new Investment Zones
The government said the scheme, which is backed by £80m of investment over five years in each of the new high-growth zones. Is designed to accelerate research and development in the UK’s “most budding industries”. They will be spread across the West Midlands, Greater Manchester, the North East, South Yorkshire, West Yorkshire, East Midlands, Teesside and Liverpool. There will also be at least one in each of Scotland, Wales and Northern Ireland.
Corporation tax to increase to 25%
Corporation tax for businesses is to increase from 19% to 25%. Firms which make a profit of more than £250,000 will pay 25% tax on their profits from April.
Extending a cut to fuel duty
To help households under pressure from living costs. Fuel duty will remain frozen and the 5p reduction will be maintained for a further year. This will save the average motorist £100 next year.
“Returnerships” for Over 50s wanting to re-enter the workplace
3.5m people of pre-retirement age but over 50 are not working. Jeremy Hunt claimed that “Older people are the most skilled and experienced people we have” and “no country can thrive if it turns its back on such a wealth of talent and ability”. A new apprenticeship scheme for over 50s that want to return to work called “returnerships”.
Pension Taxes
The chancellor has abolished lifetime allowance on amount workers can save in pensions without paying tax. Hunt says he will increase the pensions annual tax-free allowance from £40,000 to £60,000 and will abolish the Lifetime Allowance – previously set at £1.07m.
Free childcare for working parents
To help parents get back to work, starting from April 2024. Every child over 9 months will receive 30 hours of free childcare per week. Government will pay the costs upfront and increase funding by 30% per year. Incentives of £600 for those that move into the childcare profession.
On top of this, there will be funding for schools to provide wraparound care so children can be dropped off and picked up from 8am to 6pm.
Other key takeaways
- Defence spending to increase by £11b over the next 5 years
- £63m fund to keep public leisure centres and pools afloat
- The Voluntary sector will get money to help with suicide prevention, assigning £10m for the next 10 years.
- Jeremy Hunt allocated £400m in funding to increase the availability of mental health and musculoskeletal resources for workers.
- Universal Credit sanctions to be ‘applied more rigorously’
- Duty on pint is frozen- from August 1st, duty on draught products in pubs will be 11p lower than the duty in supermarkets.
- Potholes fund increased by £200m
How Account-Ease can help you
Our expert accountants are on-hand to answer any queries you have regarding the budget. If you’re looking for expert advice around the complexities of tax and accounting compliance, and need someone who you can rely on with your finances, Account-Ease are specialists in your field. Contact us today, or join us here.
