Budget day: Brown to encourage IT start-ups

Chancellor Gordon Brown is expected to offer encouragement for IT entrepreneurs in his Budget speech, which starts at 3.30pm GMT this afternoon.

One area in which the IT industry is hoping for change is to employers' National Insurance contributions on share options.

Employers must currently pay 12.2 per cent of salary to their staff's national insurance accounts, on top of the payments taken from employees' pay packets. Unlike staff National Insurance, which is only levied on pay below £26,600, there is no limit to company contributions.

Groups including the Computing Services and Software Association argue that these contributions are hobbling start-ups, as the firms must be able to pay the 12.2 per cent on the share options when they are cashed in making it an expensive choice if the share price soars.

Share options are generally used as a way for companies with very few assets to give staff a cheap incentive to make the firm successful.

The IT industry may be hit if Brown makes any moves on taxing areas such as gambling. By siting businesses off-shore, web users can avoid UK gambling taxes of nine per cent. Brown may seek to tackle this.

IT firms based outside the boomtime south-east of England may benefit from regional assistance for business, which UK government sources have floated in advance of this afternoon's speech.

The Chancellor is also likely to make tax payment easier, through allowing online filing of tax returns. He floated the idea in last year's Budget.

A discount of £50 per business has been suggested for such filing. In Australia, the vast majority of tax returns are filed electronically.

The legislation which follows the Budget, the Finance bill, will contain the final piece of enabling legislation for contractors tax change IR35, which was attacked by Conservative leader William Hague last week. Unless revoked by the Chancellor or defeated in Parliament, neither of which is likely, the measure will come into effect in April.

The Chancellor has intervened in the IT industry recently. In February, he suggested that BT should give up its monopoly on local phone lines early - a comment which caused the telco's share price to dive. This month, Brown advised investors to be cautious when looking at internet-related companies.