Yesterday was Budget Day, and with a backdrop of economic instability and an ongoing cost of living crisis, many observers and commentators will have views and opinions on what the budget means. It can be easy to see the big and often opininated headlines, and feel anxious about what the changes mean for you. We've aimed to highlight the key announcements which will affect freelancers and self-employed.
For most of us who work from home and are paying consumer tarriffs, the government confirmed an extension of the Energy Price Guarantee, to help avoid against any increases in the wholesale price of energy. Whilst energy prices are now falling again, this will be a welcome relief for anyone who has seen their energy bills increasing over the last 12 months.
There's a new provision for 30 hours a week of free childcare for parents of children aged 9m-2years old, and the cap on childcare support for those on Universal Credit is also increasing. This will be hugely beneficial for parents of younger children.
For those of you who are investing in IT equipment, plant or machinery. For those innovating and investing their expenditure into R&D, there are new tax credits available too.
The pensions lifetime allowance has been abolished, and the annual tax-free allowance has increased from £40,000 to £60,000. Pensions are a fantastic way of reducing your annual tax liability, as well as investing in your own future - although less than 18% of the self-employed have pensions.
Whilst not technically an announcement from this budget, the Corporation Tax increase is going ahead from April 2023, as announced back in March 2021. This is a shift from 19% to 25% - although the rates are tiered, similarly to income tax.
Companies with lower profits (below a £50,000 threshold) will continue to pay 19%. The full 25% rate will only apply to businesses with profits over £250,000 annually. Between these two rates, a 'marginal relief' system in place - which you can calculate, or work with your accountant to understand. The government expects 70% of companies will still be paying the 19% rate.
Whilst not strictly part of this years budget, the continued increase in cost of living and the increase in Corporation Tax which will affect some individuals could be concerning, further eating into emergency funds or taking more of a chunk out of take-home pay. Financial anxiety is one of the most significant influences to self-employed mental health - and it's important to take some time to think about how these changes might affect you.
Firstly - consider what the changes actually mean to you and your business. Whilst the headline increase from 19% to 25% feels significant, it doesn't affect the majority of small businesses who are making below £50,000 annual profits. Don't forget that profit is after any costs your business has - which includes your salary, pension contributions, costs of running your business, etc. Use online tools to calculate what impact it will likely have to get an accurate picture of the change - rather than worrying without knowing the real numbers. Speak to your accountant, who can help you forecast the impact of the changes, as well as give you guidance on investing your profits in a tax efficient way.
It's really easy to bury your head in the sand, so it's important to try and understand where your financial anxieties really lie - is it about regularity of income, is it day to day management of your finances, is it simply not knowing what your income and outgoings are? Try and identify some of the specific things which you're worrying about - and then you have a better sense of what you might need to focus on. For example, for many years I had a 'number' in my head that I needed to hit every month in terms of income - but that number was wrong, I had never spent the time to actually figure out how much I needed to make before tax, and ensure I had after tax. Once I'd realised that I'd been worrying about a figure that was too high, it reduced my anxiety.
Many of us will avoid understanding how things like tax, pensions, budgeting and investment works - because we've told ourselves for years that "we're not good when it comes to money". It can feel like a complex and mysterious world with lots of jargon and moving parts, and its very easy to "just let the accountant deal with it", but taking the time to learn some of the basic concepts, understand how to reduce tax liabilities, where your money goes and flows within your business, and shift your mindset about money being something you don't like dealing with, can be empowering. Giving yourself a little bit of time each month to learn more about your business, and actively engage with financial to-dos, will help it feel less overwhelming over time.
If you haven't already considered increasing your prices - now could be a good time to do so. Many businesses, including your clients, may be reacting to the increase in corporation tax as a prompt to think about how they pass that cost on to their customers. If your clients are charging more, it only seems fair for you to charge more too. Even if you don't want to increase your prices due to tax and cost of living increases - consider giving yourself a pay rise. If you haven't increased your prices in more than 12 months, you're not reflecting the increase in your experience. Just as you'd respect a peer having higher prices if they have more years of experience, you deserve the increase as you develop too.
As the main change from April 2023 will be an increase in tax on your profits - one of the best ways of reducing your profits whilst still benefiting from the income, is to invest in yourself and your business. Training and development is a great way to reinvest your profits in your business and your growth. Likewise, thinking about the future and investing in to a pension could be another great way of reducing your tax burden, whilst benefiting in the long-term. Upgrading some of your computer equipment can help reducing your tax liability, whilst improving your ability to work too. Some forms of professional insurance and health insurance can be tax deductible too - depending on how you're legally classified.
Some articles you might find useful to read further into the topics above.
FreeAgent's blog on the Budget: https://www.freeagent.com/blog/spring-budget-2023/
Corporation Tax: https://www.bytestart.co.uk/how-will-the-april-2023-corporation-tax-rise-affect-small-businesses
R&D Tax Relief: https://www.simplybusiness.co.uk/knowledge/articles/2021/09/guide-to-r-and-d-tax-relief/
Financial confidence and navigating your tax obligations are an essential topic when self-employed - so don't shy away from understanding it.
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