What Budget 2011 means for freelancers and small businesses

In today’s Budget speech, George Osborne said that he wants to “make Britain the best place in Europe to start, grow and finance a business”.

What does that mean in practical terms, for freelancers and small businesses?

Tax simplification

The recommendations of the Office of Tax Simplification have been read and there’s to be a consultation process to combine income tax and National Insurance.

There hasn’t been a timescale set for when this might happen, but it has to be good news, because it will reduce administration for small businesses.

The BBC’s Stephanie Flanders correctly points out that this will be “incredibly difficult” to put in place, because there are so many anomalies and issues to work through.

Watch this space.

Extension of reliefs for small businesses

Currently, if you have a small business with a property with a low rateable value, you might qualify for relief on your business rates.

That relief is to be extended for another year until October 2012.

If your business is eligible for research and development tax credit, this will go up to 200% from next month and 225% from April 2012. It’s currently 175%.

Entrepreneurs’ relief, which is a relief often available on capital gains tax when a business, or part of a business, is sold, will be increased from the first £5 million worth of qualifying gains to the first £10 million worth of qualifying gains, as from 6th April 2011. 

Creation of Enterprise Zones

Ten new urban Enterprise Zones will be created in the following locations:

Birmingham and Solihull; Leeds City Region; Sheffield City Region; Liverpool City Region; Greater Manchester; West of England; Tees Valley; North Eastern; the Black Country; Derby, Derbyshire; Nottingham and Nottinghamshire.

(The government said 10 new zones but I actually make that 11. Unless Tees Valley and North Eastern are one and the same.)

There’s also to be a zone in London, and another 10 zones to be established by other Local Enterprise Partnerships.

What will these zones actually mean?

If you have, or could have, business premises in a zone, then it could be good news, because:

• Businesses that move into a zone during the course of this Parliament will effectively not have to pay business rates for 5 years.
• For at least 25 years, any increase in business rates will have to be spent within the zone to support economic growth.
• Planning will be radically simplified in the zones.

And for nearly every small business, there’s the good news that the government will support the roll-out of superfast broadband in the zone. 

Motor travel

Fuel duty will be cut by 1p a litre from 6pm this evening (23rd March). This is great news for anyone who uses their car on business.

“Hang on, I use the mileage method, what about me?”

The mileage rate approved by HM Revenue, which effectively applies both to employees claiming mileage travelled in their own car and to sole traders and partnerships using the mileage method, will be increased from 6th April 2011.

This is very welcome news as I certainly can’t remember it being increased before, despite rising costs of running a car.

The rate for the first 10,000 miles will go up from 40p a mile to 45p a mile.

Unfortunately though, the rate for the 10,001st mile onwards will stay at 25p.

Changes to tax rates and allowances

The basic personal allowance will rise to £8,105 from April 2012. (I wonder if this will be accompanied by another cut in the basic rate tax band, like this year’s, so that more people fall into the higher rate tax bracket?)

Corporation tax will be reduced by 2% rather than 1% from 1st April 2011 – but sadly this is for larger companies only. The small company rate of corporation tax has not been reduced any more than was originally promised and will be 20% from 1st April 2011.

Funds available to small businesses

Project Merlin promised that the 5 largest UK banks will make a total of £76 billion available in new credit for small businesses this year.

The Enterprise Investment Scheme (EIS) which encourages investors to buy shares in small companies by offering tax relief, and the Venture Capital Trusts scheme (VCT) which encourages investors to put money into funds that are then made available to small companies, will both be reformed and extended. The aim of this is to encourage more wealthy individuals to invest, directly by EIS or indirectly via VCT, in small, higher-risk businesses.

What didn’t happen in today’s Budget?

There was speculation that maternity and paternity leave entitlement for employees of small businesses would be reduced. There was no sign of that today.

There was also no extension to the National Insurance holiday. According to Ed Miliband’s reply to the budget speech, only 1,500 businesses have so far benefited from that, which doesn’t surprise me. After all, how many businesses take on 10 employees within their first year of trading? At FreeAgent our first non-founder employee (David) joined more than 2 years after the company was formed.

I’d also have liked to see a commitment to establish superfast broadband in rural areas. At the moment the only commitment is to support the roll-out of superfast broadband in Enterprise Zones, which, so far, are all urban.

Is this budget pro-small-business?

The approach is cautious and there hasn’t been anything sweeping.

George Osborne mentioned a new initiative for “Start-up Britain”, to help people starting a business. This initiative will be launched by David Cameron and Vince Cable next week.

I’m intrigued to see what this will contain.