With freelancers, contractors and the self-employed grappling with a thirty year high rate of inflation and in turn, a cost of living crisis, a lot was expected from the Chancellor as he delivered his Spring Statement on 23rd March.
In the lead up to Rishi Sunak’s eagerly anticipated ‘mini Budget’, the Chancellor faced calls from business experts to scrap April’s National Insurance Contributions (NICs) and dividend tax rise and impose a windfall tax on oil and gas companies, whose profits continue to soar.
But did the government bow to mounting pressure? Were there any rabbit in the hat moments? Or did the Spring Statement play out as expected?
We round up the key points impacting the self-employed workforce now.
The Chancellor revealed the Social Care Levy will be introduced on 6th April, meaning the rate of NICs and dividend taxation will rise by 1.25 percentage points. This will impact sole traders and umbrella workers who both pay NICs, while contractors will pay more tax on dividends drawn from their limited company.
But while many will be disappointed that tax hikes will arrive at such a challenging time, there was a slight plot twist.
The point at which NICs are payable will be raised in July, from £9,570 to £12,570, which brings it in line with income tax. In short, this means all self-employed workers – irrespective of whether they are sole traders or limited company directors – enjoy a greater tax free allowance.
On the morning of the Spring Statement, rumours were circulating that Rishi Sunak would announce a 1% cut in income tax. This materialised, with the basic rate of income tax to fall from 20% to 19% by 2024.
While a welcome development, critics have argued that this relief is needed now, not in two years. The fact that few limited company contractors – who tend to pay dividend tax mostly – slip between the cracks hasn’t gone unnoticed either.
With the cost of fuel rising at the fastest rate on record, the Chancellor unveiled a 5p cut in fuel duty, which came into effect at 6pm on the day of the Spring Statement and will last for 12 months.
To put this into perspective, the RAC said it would reduce the cost of filling a typical 55-litre family car by £3.30.
The Spring Statement document details a £161m extra investment in compliance resource at HMRC over the next five years.
This points towards a further increase in tax investigations, which jumped by 9% in the six months to December 2021, from 126,000 to 137,000 – averaging out at 1,062 tax investigations a day.
A number of other developments included:
On reflection, while major policy changes weren’t expected in the Spring Statement, the headline grabbing £3,000 rise in the NICs threshold, along with the promised 1% cut in income tax, is unlikely to make up for the introduction of the Social Care Levy, which the Chancellor had been urged not to introduce.
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