We have picked out the areas with particular relevance to sole traders and generally taken together we feel the picture is mildly favourable. The stand out features of the budget are as follows:
Economic outlook: The Treasury predicts growth of 0.8% in 2012, 2% in 2013 and 2.7% in 2014. Inflation is predicted to fall from 2.8% this year to 1.9% next. I suspect that for most sole traders fears of a double dip recession are now fading.
Income Tax: For sole traders the Chancellor had excellent news. From April 2013 the personal allowance (the rate of income at which no income tax is charged) goes up from £7,475 (2011-12 rate) to £9,205. That leaves most of us £346 better off straight away. Not many sole traders fall into the highest rate tax earner bracket of personal income (over £150k), but for those that do, there was the good news of a reduction of the rate from 50% to 45%.
Simplification of accounts for small businesses: From April 2013 unincorporated businesses (ie sole traders) with turnover of less than £77k will be able to file accounts based on cash accounting. The present invoice accounting system is more complex and requires you to take into account unpaid invoices, prepayments and resources you have received without receiving a bill. The announcement should reduce admin somewhat.
VAT threshold: The threshold for registration increases from £73k to £77k from Apr 2012. For some small businesses on the edge of needing to register this is an important figure to know.
Child Benefit: The previous threshold which proved so controversial has been changed. Now as long as no individual of the household earns more than £50k, the full child benefit can be claimed. For those earning over £50k child benefit reduces by 1% for every £100 earned above that £50k. This means that at £60k child benefit reduces to £0.
Tax investigations: The Chancellor reminded us that the number of HMRC inspectors opening investigations has double recently and are specifically targeting artificial tax avoidance schemes. This is not necessarily bad news for sole traders. See my previous blog on this topic. However it does mean that we are more likely to get investigated at some point. At Crunchers we see it as our job to give you the best chance to avoid a penalty if the tax man comes to call. If you have any doubts about being at risk on this score, pick up the phone.
The changes that were made are generally favorable but some what would really help sole traders most in terms of tax was unchanged: Class 4 National Insurance. This one tax affects sole traders more disproportionately more than any other. A change on this really would be worth celebrating.