With Spring Budget 2024 upon us, some contractors must hope the rumour mill is just in overdrive, churning out never-gonna-happens

As Spring Budget 2024 is just a little over 48 hours away, the rumour mill is massively in overdrive with speculation of what chancellor Jeremy Hunt could unveil.

And not just unveil for contractors, writes Angela James of Yolo Wealth.

Six million VAPERS are expected to face a “vaping products levy;” EMPLOYEES are tipped to get another 1p shaved off National Insurance, and DRIVERS are on course for a £1billion a year fuel duty freeze.

Stagnant

Mystifyingly, the backdrop to those two giveaways on Wednesday March 6th is what Parliament observes in its freshly published Spring Budget briefing as “stagnant” economic growth “since the beginning of 2022”, which tipped into recession into Q3 and Q4 of 2023.   

Further problematic to Mr Hunt and his Conservative Party, this isn’t just a ‘Recession Spring Budget.’

It’s also a ‘Pre-Election Spring Budget.’

UK inflation is more under control

Will that political context bring some welcome tax cuts sweeter than a strawberry-sherbet vaping liquid? Suggesting so, is that inflation and rates do feel more settled than at the chancellor’s last statement in the autumn.

Hunt even half-boasted to those of us who follow him on LinkedIn, just two weeks ago:

“Inflation has fallen from 11.1% to 4%, with forecasters predicting it may hit the Bank of England's target of 2% in the next few months, a welcome relief for families and businesses.”

But the chancellor used a Sky News interview just YESTERDAY to dial down expectations.

‘Deeply unconservative’

He talked about taking “prudent” spending decisions on Wednesday, adding that it would be “deeply unconservative” to unleash unfunded tax cuts.

Actually, it would be great to see some tax cuts – I’d wager such cuts are first on most contractors’ wishlists, too.

But how likely are tax cuts following what feels like a prolonged period of tax increases and spending squeezes?

The income tax that never was (or so it seems)

Reported by The Times as now dismissed because it would have cost a mega £13.7 billion a year, a 2p income tax cut was probably the favourite mooted move of a chancellor who likes to be cheered rather than heckled.

But an income tax cut of even a penny now feels unlikely, as it would be applicable to all income and most likely too costly in the current climate.  

More palatable/affordable could be a further reduction in National Insurance Contributions (mentioned at this article’s intro), or even a cut to basic rate tax from 20%.

Personal allowance increase? Hopefully

Probably likely to generate even louder applause – including from contractors, is if the chancellor increases the tax-free personal allowance to keep up with inflation.

The personal allowance for 2024/25 is £12,570.

The removal of what is effectively an allowance ‘freeze’ until 2028 would be a welcome relief. It would also help Hunt with his aim of reaching and boosting the finances of households up and down the country.

With those same ‘voters’ – sorry ‘taxpayers’ in mind -- child benefit could be in the chancellor’s sights.

Child benefit reform would be popular

Child benefit is an area suggested to be under internal review, and there’s specific disquiet around the threshold for families impacted where the highest earner earns £50,000 or more.

To those unfamiliar with the current system, child benefit is reduced by 1% for each £100 of earned income between £50,000 and £60,000, meaning potentially no child benefit if the main earner exceeds this figure. However, if you are a two-income household each earning £49,000, then you wouldn’t be affected by this reduction. Some commentators would therefore like to see a more balanced approach to child benefit, such as a joint income cap and/or an increase to the earnings threshold before the reduction is applied.  

IHT: One of the usual suspects when the chancellor stands

But maybe Hunt has instead had enough with inheritance tax?

IHT is one of the usual suspects at both Spring Budgets and Autumn Statements, and I’d say it’s a tax overdue for review.

Some commentators are hopeful IHT could be abolished altogether at Spring Budget.

But an outright axe to IHT is unlikely, particularly as a new government would almost certainly reinstate it – and as contractors know all too well, even the same government with different personnel is  unafraid to reinstate what they perceive as their colleagues’ mistakes!

An inheritance tax cut would provide a relatively inexpensive change for a UK government to make, especially when compared to other tax cuts. But that’s because IHT impacts a much smaller pool of people. So the benefits of a small IHT cut wouldn’t be felt across the wider population. 

If not tax cuts, chancellor, give us tax simplification instead

Currently, IHT applies to estates valued at more than £325,000, at a flat rate of 40 per cent. 

If the chancellor can’t afford tax CUTS on Wednesday than tax SIMPLIFICATION would be a close second. Sticking with IHT, perhaps an increase to the £325,000 threshold would be sensible, given that there’s been no change to the threshold since 2009? Or perhaps a reduction to the 40% rate, which applies to the value exceeding the threshold?  Or perhaps the annual ‘gift’ exemption of £3,000 – a sum which can be given each tax year without incurring any IHT, might be increased? This exemption can already be carried forward to the following tax year if unused, so that’s one tweak we can rule out.

My contractor clients are more likely to want to see simplification brought to Individual Savings Accounts.

ISAs (cont.)

That’s partly because ISAs have been reformed at the last few budgets quite a bit, such as with the introduction of the Flexible ISA (permitting you to withdraw and replace allowances within the tax year).

There’s also new flexibility for account holders, so you could have multiple ISAs across cash and investment across multiple providers within the tax year.

We’ve also been given by chancellors the Lifetime ISA and Junior ISA but what we haven’t been given – for SEVEN years, and what savers deserve, is an increase to the ISA allowance.

Indeed, with interest rates higher and the freeze of income tax thresholds, it would be encouraging to see an increase in this valuable, tax-free allowance. Yet to keep up with inflation, an increase would need to be as high as an additional £5,000 – so we’d be looking at a fatter, £25,000 ISA.  

One in the eye of contractor pension-holders is already planned

Or will pensions be tweaked at Spring Budget 2024?

Contractors will be painfully aware that the abolition of the lifetime allowance is still set to go ahead -- from April 6th 2024.

However for those fortunate enough to have a relevant level of pension savings, careful planning is still required to get under the skin of what the abolition really means, for them and their tax-free cash available at retirement.  

In 2023/24, we gratefully received an increase to the annual pension allowance from £40,000 to £60,000. We all hope that this allowance will be renewed. But I feel it’s unlikely the chancellor will ‘top up’ this allowance any further on Wednesday.

Not a Budget for pensions

Overall, the whispers on the pension front are a lot quieter for this Budget than most I can remember. Maybe we will hopefully hear more about the single pension ‘pot for life’ concept floated by Hunt at Autumn Statement 2023.  

Last month, online, the chancellor began in a post: “As someone who has started a number of his own businesses in the past, I know the hard work and dedication it can take.”

While the rest of the post won’t massively interest limited company contractors, two rumours doing the rounds in the business community probably will.

The first concerns the VAT threshold, because some small businesses want the £85,000 turnover-ceiling increased. The second concerns small companies with profits of £50,000 or less, because some (non-business) commentators think their 19% tax rate ought to be increased.

A threat to limited companies with profits under £50,000…

Both stem from a feeling that outfits sitting around the two threshold deprioritise growth purely to maintain their tax position and minimise HMRC liabilities. Some might say that’s just good business sense; others might say it’s part of the system which the government itself created -- but a chancellor on the scrounge for every pound would likely disagree and move to legislate. For lifestyle businesses, first-timer contractors, and even some established PSCs with profits sub-£50k, let’s hope I’m right – that the rumour mill is just massively in overdrive, now churning out nonsenses and never-gonna-happens.