Small Business Accountants

Key Changes in the Spring and Autumn Budget 2023 for Contractors

The Spring Budget and Autumn Statement 2023 introduced important changes for UK contractors. Key updates included National Insurance contribution adjustments, dividend allowance cuts from £2,000 to £1,000 then £500, Corporation Tax rising to 25% for larger profits, pension Annual Allowance increases to £60,000, MTD for ITSA delays and expanded free childcare for working parents.

By Jordan Macey MAAT Reviewed by Noor Fiaz Updated 16 Apr 2026 3

Key takeaways

The dividend tax-free allowance was cut from £2,000 to £1,000 in April 2023 and further reduced to £500 from April 2024, increasing tax bills for contractor directors.
Corporation Tax rose to 25% for companies with profits above £250,000 from April 2024, while the small profits rate remained at 19% for profits under £50,000.
Pension tax changes removed the Lifetime Allowance charge and raised the Annual Allowance from £40,000 to £60,000, giving contractors more scope for tax-efficient retirement saving.
Making Tax Digital for Income Tax Self Assessment was delayed to April 2026 for businesses and self-employed individuals with annual income exceeding £50,000.
The National Living Wage for workers aged 23 and over rose to £10.42 per hour from April 2023, with minimum wage rates increasing across all age brackets.

The Spring Budget 2023 and Autumn Budget introduced several significant changes that contractors must be aware of. This article will provide a comprehensive overview of the announced key changes, including tax rate adjustments, thresholds, and regulations that may impact your contracting business. Let's delve into the details.

National Living Wage and National Minimum Wage

The National Living Wage and National Minimum Wage will increase from April 1st, 2023.

Rates for different age groups are as follows:

Apprentices: £5.28 per hour
16-17-year-olds: £5.28 per hour
18-20-year-olds: £7.49 per hour
21-22-year-olds: £10.18 per hour
23 years old and over: £10.42 per hour

NIC Changes

Class 2 NICs will increase to £3.45 per week from April 2023.
Class 3 NICs will increase to £17.45 per week from April 2023.

Company Cars and Fuel

Tax rates for company cars will remain frozen until 2024/25.
Fuel duty will be frozen, extending the 5p cut on petrol and diesel for another 12 months.

Dividends

The dividend allowance will be reduced from £2,000 to £1,000 starting in April 2023.

From April 2024, the dividend allowance will further decrease to £500.

Dividends will be taxed at the following rates:

Basic rate: 8.75%
Upper rate: 33.75%
Additional rate: 39.35%

Pension Tax

Changes to pension tax regulations will come into effect from April 6th, 2023.

Measures include:

Ensuring no one faces a Lifetime Allowance charge.
Changing the taxation of certain lump sum benefits to an individual's marginal tax rate.
Increasing the Annual Allowance from £40,000 to £60,000.

Corporation Tax

The Corporation Tax rate will remain at 19% for the financial year 2023-24.
From 1 April 2024, the Corporation Tax rate will increase to 25% for companies with profits of over £250,000.
Small companies with profits of £50,000 or less will continue to pay Corporation Tax at a rate of 19%.
Companies with profits between £50,000 and £250,000 will pay a tapered rate, which will increase from 19% to 25% as profits increase from £50,000 to £250,000.

Making Tax Digital (MTD)

MTD for Income Tax Self-Assessment (ITSA) has been paused until April 2026.
From April 2026, businesses, self-employed professionals, and landlords with income over £50,000 will be required to join.
A review will assess how the MTD for ITSA service can better meet the needs of SMEs.

Simplification Measures to Tax System

The government is introducing simplification measures to the tax system for smaller-sized businesses.

Changes include:

Allowing tax agents to payroll benefits in kind on behalf of clients.
Simplifications to customs import and export processes.
Further reforms may follow after consultations are complete.

Childcare

Working parents will have access to 30 hours of free childcare per week for 38 weeks of the year.
Eligibility and availability stages are as follows:

From April 2024: All working parents of two-year-olds will be eligible for 15 hours per week.
From September 2024: All working parents with children aged nine months up to three years old can access 15 hours per week.
From September 2025: All working parents with children aged nine months up to three years old can access 30 hours per week.

Conclusion

The Spring Budget 2023 and Autumn Budget brought significant changes for contractors, including alterations to tax rates, thresholds, and regulations. Contractors must stay informed and adapt their financial strategies accordingly. To fully understand the implications of these changes and receive personalized

Frequently asked questions

What were the main changes in the Spring Budget 2023 for contractors?

The Spring Budget 2023 introduced Corporation Tax rising to 25% for profits above £250,000, pension tax reforms removing the Lifetime Allowance charge, an increased Annual Allowance of £60,000, National Living Wage rises, company car tax freezes and the dividend allowance cut from £2,000 to £1,000. It also froze fuel duty and extended the temporary 5p per litre cut.

How did the 2023 budgets change dividend allowances for contractors?

The tax-free dividend allowance was reduced from £2,000 to £1,000 from April 2023 and then cut again to £500 from April 2024. Dividend tax rates stayed at 8.75% for basic rate, 33.75% for higher rate and 39.35% for additional rate taxpayers. Contractors drawing income through dividends faced higher tax bills as a result of these allowance reductions.

What Corporation Tax changes took effect from the 2023 budgets?

Corporation Tax remained at 19% for the 2023-24 tax year and then rose to 25% from April 2024 for companies with profits over £250,000. Companies with profits of £50,000 or less continued to pay the small profits rate of 19%. Marginal relief applied to profits between £50,000 and £250,000, providing a graduated increase rather than a sharp jump.

How did the 2023 budgets affect pension tax rules?

The Spring Budget 2023 removed the Lifetime Allowance tax charge, meaning contractors could build larger pension pots without penalty. The Annual Allowance also rose from £40,000 to £60,000, and the Money Purchase Annual Allowance increased from £4,000 to £10,000. These changes gave contractors and company directors significantly more room for tax-efficient pension contributions.

What happened to Making Tax Digital after the 2023 budgets?

Making Tax Digital for Income Tax Self Assessment was paused and rescheduled to April 2026. From that date, businesses, self-employed individuals and landlords with annual income over £50,000 are required to keep digital records and submit quarterly updates to HMRC. The delay gave contractors more time to prepare their bookkeeping systems and choose compatible software.

What National Insurance changes were introduced in 2023?

Class 2 National Insurance contributions rose to £3.45 per week and Class 3 voluntary contributions increased to £17.45 per week from April 2023. The Autumn Statement 2023 later announced a 2 percentage point cut to employee Class 1 NIC from January 2024 and a 1 percentage point cut to Class 4 NIC for the self-employed from April 2024.

How did the 2023 budgets affect company car tax for contractors?

Company car benefit-in-kind tax rates were frozen at their existing levels through to 2024-25. Fuel duty was also frozen, and the temporary 5p per litre cut introduced earlier was extended for another 12 months. These measures meant contractors with company cars faced no additional increase in motoring-related tax costs during the 2023-24 tax year.

What childcare support was announced in the 2023 budgets?

The government announced an expansion of free childcare for working parents in England. From April 2024, eligible working parents of two-year-olds received 15 hours of free childcare. This extended to all children from nine months old from September 2024, rising to 30 hours of free childcare by September 2025. The measures aimed to reduce costs for contractor parents.