Making business cheaper to found

Tom Welsh
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THERE’S been a lot of talk about whether the Budget was good for entrepreneurs. Much is hot air – start-ups are influenced by the same policies as other firms (or individuals), and shouldn’t expect special treatment. Many entrepreneurs set up as sole traders, for instance, meaning they pay income rather than corporation tax. As such, a good number will benefit from the income tax personal allowance rising to £10,000 a year earlier than planned.

But will the measures make it easier for people to start new companies? According to O2, the average working capital required to start a firm stands at £17,095. Although the figure is skewed towards investment in offices, or manufacturing or IT equipment, it does demonstrate the barriers potential entrepreneurs must surmount.

There are some signs that the Budget will help to chip away at these initial costs. Although we’re still waiting for the details, it looks like the £2,000 national insurance contribution deduction will make it cheaper for companies to take on staff. It will apply to businesses of all sizes, but £2,000 is disproportionately more money to a micro firm than to, say, Coca Cola, so it arguably has more power as an incentive.

Little covered, but firmed up in the Budget, was an increase in the allowable tax deduction for capital expenditure. This has risen from £25,000 to £250,000 and will make it easier for profitable firms to offset the cost of capital spending against tax. It won’t shake the world, but is another potentially relevant incentive that could reduce the long-term drag of initial costs.

Most interesting, however, may be rules to support privately-owned businesses set up employee share schemes. One of the largest difficulties facing new high-growth firms is how to pay for the best staff. Although the “shares for rights” scheme is currently uncertain, given a defeat in the House of Lords on Budget day, proposals to offer extra tax relief for giving up employment rights should be attractive to employees joining high growth start-ups.

Tom Welsh is business features editor at City A.M.