What did the 13/14 budget mean for micro businesses?

BudgetJust under two weeks ago, George Osborne arose in the Commons to deliver his fourth budget, designed to build an ‘aspiration nation’ and help those ‘who want to get on’. As such, this year’s budget carried some good news for the UK’s micro businesses, Osborne appearing eager to ease up some of strains facing SMEs.

Notably though, those at the smaller end of the microbusiness scale went a little unnoticed. Freelancers and contractors didn’t receive quite as much good news, despite their growing importance to the UK economy.

Sifting through the political posturing then, what exactly did the 2013 budget entail for the UK’s micro businesses? Well, below is a brief overview…

A new Employment Allowance

Good news for bigger micro businesses employing staff came in the shape of a new employment allowance.

Operating from April 2014, this change in legislation means that SMEs will avoid paying the first £2,000 in employer national insurance contributions. Essentially then, any microbusiness taking on an employee on up to £22K, won’t need to pay anything in employment tax.

It’s a move that should help small businesses keen to hire their first employee or expand their workforce. According to the treasury’s sums, any business with 10 members of staff or fewer (that’s micro businesses) will see their employer NICs bill cut by £805. All in all, that’s a pretty tidy saving.

A rise in Personal allowance

Outlined in 2013’s budget was a proposal to raise the Personal Allowance – the amount of cash a UK employee can earn before paying income tax – to £10,000.

This new rate will come into force from April 2014. This additional rise marks an increase from £9,440, that rate coming into effect this month. Essentially, it’ll allow low and mid-tier earners to take home a little more of their pay.

The (eventual) introduction of a new business bank

This was announced in autumn of last year, and then things went eerily quiet on it. In fairness there seems to have been work going on behind the scenes and it’s expected to be unfurled over the next year to eighteen months…although the coalition said that when it was announced.

The brainchild of Business Secretary Vince Cable, its aim is to provide a comprehensive package of support by bringing together all the different schemes out there, with £300m of investment set to be committed by the end of the current financial year.

According to Cable the Business Bank will ‘bring together £1bn of new Government capital and £2.9bn of existing capital’ which will ‘work alongside private sector contributions with the potential to be enhanced by guarantees’.

If it lives up to its billing, the Business Bank could prove amongst the biggest announcements in this year’s budget, easing the lending problems facing micro businesses. Let’s hope it’s not just a lot of hot air.

…and several more bits and bobs

Elsewhere, if you take the time to leaf through the budget document, you’ll find an assortment of legislative titbits that snuck under the radar. Amongst them;

Page 49: The introduction of Growth Vouchers

Details are vague but according to the budget document…

To provide further support for SMEs, the Government will provide £30 million for a Growth Vouchers programme in England. This programme will test a variety of innovative approaches to helping SMEs overcome barriers to achieving growth, such as limited use of external advice. It will target a number of specific areas of advice such as making a successful loan application to a bank or taking on an employee.’

Page 74: Loans from your company

At the present time, the government allows companies to loan their staff money for things like Train season tickets. Currently these loans are exempt from tax up to £5,000 and the budget aims to increase this amount to £10,000 as part of the Finance Bill 2014. Depending on whether you’re a freelancer, contractor or a micro business with staff, this may have differing implications, so bear it in mind!

Page 79: Disincorporation relief

For those wishing to switch back to sole trader from limited company, there’s some good news in that for five years from April 2013 you’ll be able to do so without paying Corporation Tax, should certain items be given to shareholders. According to the document…

The relief will allow a company to transfer goodwill and an interest in land to its shareholders so that no corporation tax charge arises on the company on the transfer.  At the present time ‘the relief will be available to businesses with total qualifying assets not exceeding £100,000’

Page 86: VAT Registration Threshold goes up again

Self-explanatory, the document states that ‘From 1 April 2013 the VAT registration threshold will be increased from £77,000 to £79,000 and the deregistration threshold from £75,000 to £77,000.’

Page 93: Faster payments:

And finally there’s good news on the cash flow front in the respect that the Government has secured a commitment’ from the payment card industry to ‘reduce the time it takes for credit and debit card payments to reach SMEs’ bank accounts by up to three days’. So hopefully you’ll get paid sooner, rather than later!

As is the case with any budget, opinions will differ dramatically on whether Osborne served up enough, or in fact very little. He certainly could have made strides to tackle the problem of late payment, promising to enforce the Prompt Payment Code better, whilst there could have been more immediate action on easing access to credit for SME’s, a perpetual problem since the downturn.

Ultimately though, the introduction of the Employment Allowance and changes to the Personal Allowance should help micro businesses across the spectrum, whilst the business bank may make things a little easier financially. Things like the little adjustments to payment card wait times and the introduction of Growth Vouchers should help micro businesses, too.

The coalition promises to go even further in cutting red tape (page 49-50) but as the introduction of RTI reflects and the gradual unfurling of pension auto-enrolment illustrates, despite Osborne’s best efforts, a complex financial picture remains for Britain’s micro businesses… (more on these coming up)

Mark James

Mark James is an in-house Writer for Crunch, accountants for contractors. He specialises in small business and has aspirations of his own start-up one day.

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Comments

  1. Hi Mark

    Good article and a good summary of the main measures. The additional measures which would have helped micro businesses and small business owners would have been:

    1. A reduction of VAT to 15%
    2. A reduction of the small rate Corporation Tax to say 15%
    3. An increase of the 1% stamp duty threshold to say £300,000
    4. A more generous allowance to limit the impact of capital gains tax for people working from home.

    I think this budget tends to favour larger corporations in order to encourage investment into the UK. This budget has been called an “aspiration” budget for people wanting “to work hard and get on”. However, people who want to work hard and aspire to something greater are rarely motivated by the budget. This is why I believe budgets have limited powers to help the economy in general, but this of course is only my opinion.

    With regard to transfer of assets from a limited company, although the company may get relief, it is my understanding that the individual shareholders receiving the assets may have to pay capital gains tax based on the “Transfer of Value” rules. It would be helpful if you could check this for me.
    Giuseppe Colombi recently posted..Registering for VAT: Is it right for you?My Profile

  2. Hi Giuseppe,

    Agreed both in terms of the additional measures and your overall sentiment. The economic policy of Osborne et al certainly appears more geared towards big business than small, despite SMEs huge contribution to the UK economy. On the evidence of this budget they appear to be realising that strong SMEs mean a strong UK but a little more legislative help wouldn’t have gone amiss. SMEs will soldier on regardless though.

    With regards to your question I’m not too sure… it’s something that’s well worth bearing in mind though as that may well be the case. I’d speak to HMRC but I’m not sure that’ll help either!
    Mark James recently posted..2013 Budget – the Crunch roundupMy Profile

  3. Hi Mark

    I agree with you. SME and micro businesses are the back bone of any economy and not enough recognition is given to the overall importance they have in the economy.

    With regard to my previous comment about the “Transfer of Value” I am sure that individual shareholders receiving business assets when a business ceases to trade will pay capital gains tax. However, they can claim “Entrepreneurs’ Relief” and pay capital gains tax at the reduced rate of 10%. Here is the link to HMRC which explains how the entrepreneurs’ relief actually works.
    http://www.hmrc.gov.uk/cgt/businesses/reliefs.htm

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