As Jeremy Hunt, the Chancellor of the Exchequer, stood up to make his first Autumn Statement yesterday the nation was already braced for tax increasing strategies that were later described by commentators as rolling back to the austerity of the 1950s. The measures should raise around £55bn in an attempt to bridge the deficit of £60bn in the UK’s finances. There is no doubt that the measures announced will affect all working households, which will be keenly felt by those in the middle wage bands.
The key changes announced by the Chancellor yesterday, affecting contractors, are detailed as follows:
- The income tax additional rate threshold reduces from £150,000 to £125,140 meaning nearly a quarter of a million more rate taxpayers will be created.
- Income tax thresholds have been frozen until 2028 meaning workers will pay more tax. As salaries and rates increase to combat the cost of living increases.
- National Insurance thresholds will remain at their current thresholds for an additional two years until April 2028. This means that there will be an increase to the amount of NIC collected from low earners over time but freezing the Upper Earnings limit at £50,270 will benefit those who earn above this level or increases beyond it before 2028.
- Dividend and CGT allowances will be halved in 2023/24 and 2024/25 affecting further those using a limited company to operate their contracting through.
- The domestic energy price guarantee will continue but increase from £2,500 to £3,000 from April 2023 meaning less subsidy than originally promised in the mini budget.
- The investment zones announced by Kwasi Kwarteng in his mini budget have been scrapped.
The measures that were announced yesterday are expected to shrink household incomes by 7% over two years, according to the OBR. The Budget is described as being the bleakest Tory budget for a generation leaving the optimism of the last chancellor’s mini budget a vague and distant memory.
Although the Chancellor has described his Autumn Statement as offering stability, growth and public services with a view to “get us through choppy waters” many are struggling to agree with a call for the government to urgently put in place plans for economic growth to create a “better outlook” and to gain public confidence.
The new budget highlights the fiscal drag phenomenon, meaning that UK tax payers will all pay more tax as inflation pushes more people into higher rate tax brackets, leaving less money in household purses.
Regarding public services, Hunt announced that public spending will continue to increase in real terms every year for the next 5 years but at a slower rate. Government department are being asked to make efficiencies. The schools budget will benefit from an extra £2.3 bn a year to accommodate increased costs. Regarding the health sector the chancellor announced that he is allocating £1bn more next year and £1.7bn the year after to free up hospital beds. There will be a £3.3bn increase in NHS funding.
For UK households it is clear that with increases in mortgage rates for those owning their own homes, together with increased taxes and energy bills the months ahead will be challenging. Careful negotiation of contracts could yield higher rates for contractors, making the most of their skillset and time. This may be great ion is easier said that done when British business is also feeling the heat from the Autumn Statement and a continuing hard line on using limited company contractors.
Umbrella companies continue to be a good support option for time-poor contractors – taking away a lot of the administration behind contracting and leaving them more. If you want to get the best deal on the market at the moment call us to discuss your options.
Not sure how the Autumn Statement may affect you if you’re starting a new contracting role? Umbrella Exchange has access to a wide range of contractor services to help your contracting career. To talk to a member of our team, please call: 0203 393 3881