Having been inundated with e-mails from various accounting firms providing both the highlights and the details of last week’s budget, I thought I would take a bit of time to digest them all before making any comment. That, and the fact that because of the Easter weekend, the last day to get anything done in the current tax year to mitigate the impact of the new 50% tax rate is actually April 1st.
Of course given that there is an election imminent, any thoughts that I might have could be totally redundant, as could the Chancellor and many of his colleagues. However, as this was probably one of the more SME friendly budgets of recent years, it is worth looking at some of the proposals put forward by the Chancellor last week.
The headline grabbers were the doubling of entrepreneurs’ relief, for those who sell their business, to £2mio, the cut in business rates from October 2010, and the doubling of the annual 100% investment allowance to £100,000. The latter is only a short term cash benefit rather than a subsidy, but very helpful if you were going to undertake that capital investment anyway. If you are only going to do it for the tax break, then the best advice is probably don’t.
There was an extension of the “time to pay” scheme in respect of business taxes for the lifetime of the next parliament (which in the case of a hung parliament may not be that long). This can be a very useful scheme, but its use needs to be used as part of an overall business restructuring plan, and not as a way of delaying the last rites of a failing business. Getting a scheme past the Revenue is also becoming more challenging.
There were a number of schemes aimed at providing loans and investment to smaller businesses, including a new national investment corporation, a new “green bank” and more money for university spin-outs. Reading the small print, many of these new funds are dependent on private sector and European Union funding as well as government money. However, assuming the application process is not too tortuous, these could provide useful funds to early stage businesses.
There will also be yet more pressure brought to bear on the banks to lend, including a “Credit Adjudication Service” who will deal with complaints from SMEs which have been refused bank loans, and who will have legal powers to “enforce its judgements” if credit has been “wrongly denied”. I can’t wait to see this in action, although I suspect the biggest business beneficiaries of this scheme will be the accounting and legal professions.
The elephant in the room for SMEs (and many larger businesses) remains the 1% increase in National Insurance that will kick in from April 2011. However you dress it up, it is a tax on employment, which seems perverse to me given that the economic confidence which comes from having a job will be a vital part of any recovery.
So yes there were some very interesting proposals in the budget for smaller businesses and entrepreneurs but sadly, given the impending election, they are only proposals and will only be implemented if Labour is re-elected. In the end the whole thing was possibly a waste of time, money and paper and maybe the government should have just enacted legislation to enable them to continue to collect taxes.
Personally I am looking forward, if that is the right phrase, to a proper budget once the election is out of the way, regardless of who wins, so I can start planning with some certainty.
Tuesday 30 March 2010
Friday 19 March 2010
Crystal Ball Gazing…….
I am often invited by banks to hear the latest views of their in-house economists, and this week was the turn of the Royal Bank of Scotland and David Fenton, Head of Microeconomics. In his opening remarks, David noted that it was St Patrick’s Day, and he hoped that the Irish patron saint’s ability to explain the complexities of the Holy Trinity through the three leaved shamrock would rub off on him in his efforts to explain the current economic situation in simple terms.
By and large he succeeded in his aim. He said that the recovery did start in the fourth quarter of 2009, but he felt that growth was likely to be sluggish, with the economy likely to take about 5 years to return to its 2008 peak. Growth had previously been driven by consumer and government spending, and a sustained recovery would depend on some rebalancing back to other areas of the economy, such as investment and export.
He said that the recent trade figures may have made disappointing reading, but export led growth requires global demand as well as currency depreciation, and with the pound unlikely to return to its more normal levels until some time in 2011, there was still time for this to have an effect.
He noted that the consumer was still in saving mode. Historically for every £100 earned, £4 was saved and this had currently risen to £7, a far cry from the days when the consumer was apparently spending £104 for every £100 earned! How this would change would depend on employment and interest rates, and he did not see the latter moving up again until well into 2011.
Sector winners were likely to be manufacturing and construction, although these will be coming off of a very low base, while sectors such as hotels and restaurants and health and education were likely to remain sluggish. Geographically London, the North West, East Midlands and East of England will be leading the way, while the South West, Wales, Northern Ireland and the North East will be lagging behind.
All in all a timely reminder of where we are at present, and the continuing uncertainties and risks that face the UK economy. This was further backed up by this week’s unemployment statistics, which showed a drop in both employment and unemployment!
Notwithstanding the above, a recovery of some sort has clearly begun, although given the economic stimulus that has taken place it would be very worrying if it hadn’t. Sensible businesses of course will not be relying on a general improvement in the economy to move their business forward, and will already be out there creating a recovery of their own.
By and large he succeeded in his aim. He said that the recovery did start in the fourth quarter of 2009, but he felt that growth was likely to be sluggish, with the economy likely to take about 5 years to return to its 2008 peak. Growth had previously been driven by consumer and government spending, and a sustained recovery would depend on some rebalancing back to other areas of the economy, such as investment and export.
He said that the recent trade figures may have made disappointing reading, but export led growth requires global demand as well as currency depreciation, and with the pound unlikely to return to its more normal levels until some time in 2011, there was still time for this to have an effect.
He noted that the consumer was still in saving mode. Historically for every £100 earned, £4 was saved and this had currently risen to £7, a far cry from the days when the consumer was apparently spending £104 for every £100 earned! How this would change would depend on employment and interest rates, and he did not see the latter moving up again until well into 2011.
Sector winners were likely to be manufacturing and construction, although these will be coming off of a very low base, while sectors such as hotels and restaurants and health and education were likely to remain sluggish. Geographically London, the North West, East Midlands and East of England will be leading the way, while the South West, Wales, Northern Ireland and the North East will be lagging behind.
All in all a timely reminder of where we are at present, and the continuing uncertainties and risks that face the UK economy. This was further backed up by this week’s unemployment statistics, which showed a drop in both employment and unemployment!
Notwithstanding the above, a recovery of some sort has clearly begun, although given the economic stimulus that has taken place it would be very worrying if it hadn’t. Sensible businesses of course will not be relying on a general improvement in the economy to move their business forward, and will already be out there creating a recovery of their own.
Friday 12 March 2010
Fundraising made simple…..
Tinchy Stryder, who is apparently something big in the pop world these days and therefore a suitable role model, has been advising young people to invest and save wisely. I think this is a great initiative, and personally believe that lessons in business and finance should be compulsory in all schools from as early an age as possible (as apparently does Ed Balls). However, what particularly struck me when reading about this, is the fact that he partially financed his debut album by selling clothes.
In a world where everybody from pop stars to business people seem to be looking for somebody else to fund their dream, it is a timely reminder that the best way to generate cash to finance investment is to sell something at a profit and then make sure you collect the money that is due to you.
There are countless stories of entrepreneurs who have held down two or three jobs to raise the necessary funds to finance their dream and then have “bootstrapped” (i.e. used funds generated from their own business operations) their way to fame and fortune. The Beermat entrepreneur, Mike Southon, is a big fan of this approach, and it certainly saves the time and hassle of trying to find, and negotiate with, potential investors. Such an approach will require sound and disciplined financial management, but it does mean that you will have more control over your own destiny than if you allowed external involvement in your business.
I know this sounds glib, and yes of course some businesses do require significant development capital which can only be acquired through outside investors. However, I do think that some entrepreneurs spend too much time obsessing about how to raise money and lose sight of the fact that they ought to be thinking about how they should actually be making money.
Business is not meant to be easy, but it is simple, and perhaps business people of all ages could benefit from learning from Tinchy Stryder’s approach to financing their dreams.
In a world where everybody from pop stars to business people seem to be looking for somebody else to fund their dream, it is a timely reminder that the best way to generate cash to finance investment is to sell something at a profit and then make sure you collect the money that is due to you.
There are countless stories of entrepreneurs who have held down two or three jobs to raise the necessary funds to finance their dream and then have “bootstrapped” (i.e. used funds generated from their own business operations) their way to fame and fortune. The Beermat entrepreneur, Mike Southon, is a big fan of this approach, and it certainly saves the time and hassle of trying to find, and negotiate with, potential investors. Such an approach will require sound and disciplined financial management, but it does mean that you will have more control over your own destiny than if you allowed external involvement in your business.
I know this sounds glib, and yes of course some businesses do require significant development capital which can only be acquired through outside investors. However, I do think that some entrepreneurs spend too much time obsessing about how to raise money and lose sight of the fact that they ought to be thinking about how they should actually be making money.
Business is not meant to be easy, but it is simple, and perhaps business people of all ages could benefit from learning from Tinchy Stryder’s approach to financing their dreams.
Friday 5 March 2010
Taxing Times.....
Nobody likes paying tax. There it is. A bald statement. Oh people will tell opinion pollsters that they would happily pay more tax to improve services that they value, but in reality anybody fighting an election based on a message that more tax is a good thing is not likely to be holding the keys to No.10 Downing Street any time soon.
Yet like it or not, and regardless of who wins the next election, we are all likely to end up paying a lot more tax. National Insurance is due to go up in April 2011. It is highly likely that VAT will increase. There is also talk that Capital Gains Tax (CGT) will have to go up as well due to the disparity between the new higher rates of tax and the current 18% level of CGT. This will no doubt fall disproportionately on entrepreneurs, and provoke an outcry similar to that which followed the curtailment of the 10% taper relief for business assets a couple of years ago.
The Tax Advice industry is currently in overdrive finding ways of mitigating the impact on their clients of the new 50% rate which is being introduced from April 2010. And yet the retrospective nature of a recent court case relating to the reclassification of a long time “non dom” has caused many advisors to wonder whether even giving solid advice based on how tax law is currently being applied will be of any use if the Revenue decides that its own interpretation at the time was wrong and seeks to go back and correct matters.
It would appear that even with frighteningly detailed tax legislation in place, court cases will turn on specific facts, and the current HMRC view of those facts, and there is no guarantee that this view will be consistent.
HMRC are effectively operating as if there is a general anti avoidance provision in place, having cleverly blurred the boundaries between legitimate and legal tax avoidance and illegal tax evasion. Not only are they challenging the more imaginative schemes that have been specifically devised to avoid tax, but they are also looking to attack what was hitherto regarded as sensible tax planning.
Added to all this is the argument that the Directors’ Duties under the Companies Act 2006 require them to minimise their tax liabilities where possible which will make taxation issues even more of a burden for company directors and owners to deal with.
The UK already has a horrendously complex tax code with pitfalls galore even for those who do their very best to comply. Throw in the impact of uncertainty generated by HMRC’s attacks on tax avoidance, which could then potentially be applied retrospectively, and you are setting the scene for an era in which the tax lawyers are likely to be the main winners.
Taxing times indeed……
Yet like it or not, and regardless of who wins the next election, we are all likely to end up paying a lot more tax. National Insurance is due to go up in April 2011. It is highly likely that VAT will increase. There is also talk that Capital Gains Tax (CGT) will have to go up as well due to the disparity between the new higher rates of tax and the current 18% level of CGT. This will no doubt fall disproportionately on entrepreneurs, and provoke an outcry similar to that which followed the curtailment of the 10% taper relief for business assets a couple of years ago.
The Tax Advice industry is currently in overdrive finding ways of mitigating the impact on their clients of the new 50% rate which is being introduced from April 2010. And yet the retrospective nature of a recent court case relating to the reclassification of a long time “non dom” has caused many advisors to wonder whether even giving solid advice based on how tax law is currently being applied will be of any use if the Revenue decides that its own interpretation at the time was wrong and seeks to go back and correct matters.
It would appear that even with frighteningly detailed tax legislation in place, court cases will turn on specific facts, and the current HMRC view of those facts, and there is no guarantee that this view will be consistent.
HMRC are effectively operating as if there is a general anti avoidance provision in place, having cleverly blurred the boundaries between legitimate and legal tax avoidance and illegal tax evasion. Not only are they challenging the more imaginative schemes that have been specifically devised to avoid tax, but they are also looking to attack what was hitherto regarded as sensible tax planning.
Added to all this is the argument that the Directors’ Duties under the Companies Act 2006 require them to minimise their tax liabilities where possible which will make taxation issues even more of a burden for company directors and owners to deal with.
The UK already has a horrendously complex tax code with pitfalls galore even for those who do their very best to comply. Throw in the impact of uncertainty generated by HMRC’s attacks on tax avoidance, which could then potentially be applied retrospectively, and you are setting the scene for an era in which the tax lawyers are likely to be the main winners.
Taxing times indeed……
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