UK Businesses get Tech to Survive

There are many predictions about what the average business of the future will look like and how it will function. From dramatic flexible and remote working policies to the number of entirely virtual organisations, the single undisputed fact is that being online will be the central element of business. So what about those businesses who still haven’t considered the internet a part of their plan?

Worldwide communication, ever faster download speeds, online storage and back-up, communities covering every possible area of interest, the internet clearly does and will play a major role in the way we all do business now. That is why the finding that over a third of UK small and medium enterprises (SMEs) don’t even have a website is such a surprise.

Lloyds Banking Group surveyed SMEs at the end of last year and found that 37 percent do not have a website, 30 percent are not developing their use of the internet in any way and 1 in 5 businesses (20 percent) are actually ‘deliberately disconnected’. In fact, only 28 percent of SMEs reported having a fully developed and functional website.

A positive offline presence is vital for almost all businesses with local marketing campaigns and word of mouth providing much growth and profit. However, another survey has now highlighted the reason why every business should have an online presence. In fact, results suggest that dedicating some time and energy to developing your business online could be the difference between business as usual and above average growth.

The findings of TalkTalk Business’s survey pin point the focus on an online presence as the difference between companies they called ‘Thrivers’ (who expect significant growth in the coming year) and ‘Strivers’ who only expect modest growth levels. They also found that almost 80 percent of British SMEs believe this technology plays an essential part in planning for growth, challenging competitors and reaching larger customer audiences. The crucial role of the internet in streamlining a business, making it more efficient and saving money was also recognised by the majority. These findings make the number of companies not taking advantage of the world wide web even more baffling.

Martha Lane Fox, Chair of Go On UK said “The internet contributes more to UK GDP than to that of any other G20 country. It is critical that our SMEs embrace the Internet, develop their online skills and general digital capability in order to ensure their future in a competitive market both here and abroad.”

However, what if a website doesn’t really suit a business’s needs? Or the online presence is rushed or ill-thought out? Wouldn’t this do more damage than good?

People4business’s advice is to consider your online presence just like you would any other form of advertisement. You wouldn’t just stick any old poster on a board for the sake of putting your name out there so don’t just stick any old website online. Make a plan that suits your business; there are as many options online as there are off it so make the most of them.

For example, if you are one of the 20 percent who are ‘deliberately disconnected’ because a website would serve no conceivable purpose for you then that’s fine. Consider instead ensuring your company is listed on all relevant online directories – something that can be done easily and cheaply (in some cases for free). That way if a potential customer types your name or service into a search engine your business will appear in the list.

Having an online presence doesn’t have to mean having a fully integrated website or social media community if that doesn’t suit your business model – it just means being as accessible as possible for prospective customers and, if the UK’s online spending figures are anything to go by, they are to be found online.

Although, as we’re on the subject, we do have a great selection of web experts for hire here if you find yourself in need of expert help!

Vince Cable’s Variety Show for Business

The Government has announced £300m of funding for businesses to pave the way for the long-awaited Business Bank. Will this be the start of greater stability for the UK’s businesses or will the real benefit of the Bank only be revealed in the long term?

The big high street banks’ recent claims of reduced loan demand from the UK’s businesses (particularly small and medium enterprises) clearly shows most businesses have given up on traditional bank loans to solve their problems. Now it seems they’re not alone as the Government is looking elsewhere for a funding solution. Perhaps after schemes such as Funding for Lending and Project Merlin showed such a lack of success the powers that be have given up on the penny-pinching giants and their latest plan, in the form of the Business Bank, is aimed squarely at the alternative options.

Business Secretary Vince Cable announced his intentions to create a state-backed business bank late last year but now it seems the bank won’t be ready to run until 2014. However, no doubt in response to impatient noises from the business community, Cable has welcomed applications for portions of £300m of the planned £1bn total starting now.

Cable said “Today’s £300 million boost shows we are serious about increasing competition and diversity in the business lending market. Establishing a lasting business bank institution is a long-term project, but getting this money reaching SMEs as soon as possible is the first step.”

This money won’t be available through the usual big UK banks however but will only be granted alongside an, at least equally matched, private sector investment. In this respect the Government is viewing the Business Bank as an extension of the Business Finance Partnership that provided £110m of funding to businesses in 2012. This means the money will be given to existing lenders rather than directly to the businesses that need funding so those impatient for vital funding will have to wait a little longer.

However, this delay in the supply chain may not be a disadvantage in the long run. For some time now concerns have been raised over UK businesses’ reliance on the big high street banks for funding when it would be far healthier to have a wider and more diverse platform of financial support available. This reliance has, of course, been created through a lack of alternatives but now that the traditional banks are not lending enough to businesses the disadvantage of such a narrow range of choices has hit home. For this reason the Business Bank will, hopefully, be serving a double purpose by supporting businesses and creating stronger alternatives to traditional bank loans.

Reports say the Bank will be taking applications for the £300m from a variety of existing lenders such as debt funds, asset backed lenders, peer-to-peer financiers, challenger banks and supply chain finance among others. (See People4business’s look at the alternative solutions)

Whether or not funding in partnership with the Business Bank will make existing lenders any less cautious with their loans remains to be seen, but, even if the Bank doesn’t create a more stable future for UK businesses at least it will have potentially created more options for future companies. It is expected the first will take place in Autumn this year so watch this space.

 

SME Funding – Challenging Banks or Business?

The UK’s big banks have long been accused of not lending enough to the UK’s small and medium enterprises (SMEs) but it seems now they might have an excuse. A new report has shown that, since the start of 2013, loan applications have dropped significantly. So what’s going on behind the statistics?

The banks have made similar claims before (see the Project Merlin fiasco) but this time they have back up. The Federation of Small Business’s “Voice of Small Business Index” shows there has indeed been a 3 percent drop in loan applications from SMEs compared to this time last year. However, the crucial question is what’s behind this drop in demand? One company has an answer – but the banks won’t like it.

The survey from Touch Financial found that, of the SMEs that applied for additional funding in the last six months, an astonishing 93 percent were turned down and left without vital funding. No wonder the banks are seeing a drop in demand when successful applications are this rare. The statistics unsurprisingly reveal that the vast majority of SME owners believe that UK banks do not support business.

There is also the argument that SMEs are finding alternative sources of financial support in the face of this lack of faith in the largest banks, but the Touch Financial survey also shone the spotlight on this option. The survey uncovered the fact that, of those SMEs refused loans, 31 percent were given no reason for the refusal and 80 percent of all SMEs making applications were given no information about alternative sources of funding available to them.

There has, of course, been a reported increase in schemes such as group funding and peer to peer lending but there is perhaps a more viable and lesser known option that seems to be on the rise – “challenger” banks.

New banks to the UK, such as Swedish-owned Handelsbanken, Aldermore and the two year old Metro Bank, are promising a much better experience for the approaching-cap-in-hand business owner. Now that they have hit the public eye (mainly thanks to the Bank of England’s Sir Mervyn King recommending them to disappointed business owners) their promises of better support are being tested.

The differences between the main UK banks and these challenger operations are according to the new banks themselves “continuity, personality and relationships”. The idea is that they rely on a dialogue based relationship system (aka face to face banking) and have almost independently running branches rather than centralised decision makers following a standard set of rules. The hope is that these differences will allow the new banks to offer faster, fairer loan decisions, financial advice and greater flexibility and consequently they will, hopefully, lend to more businesses.

At the moment these banks are too new to show whether their system is really working (there is a dispute over whether they will be any more risk-taking than established UK banks which is what many SMEs need) but evidence hints at a positive outlook so far. According to Handelsbanken they are rapidly having to expand to meet demand and are adding to their total of around 152 UK branches every eight working days. If nothing else, this must at least mean more businesses spread across the country will have access to their services.

However, with a recent survey by this organisation showing that the average cost of a start-up is £17,000 and costs are ever increasing, it is evident that any institution with the purpose of supporting business has its work cut out, especially in these financially lean and cautious times.

People4business will keep tabs on the progress of these challenger banks to make sure readers are up to date and, as of March, Chancellor George Osborne has promised he’s creating a schedule for his Business Bank plan so keep checking our news pages for the latest! If you have any first hand experience with the lending process at any of the new banks in town, or the main UK names, then we’d love to hear your story at press@people4.com.

Swings and Roundabouts for UK Investment

Investments in technological companies in 2012 reached over the £1 billion mark – the highest since 2001. Is this where the future of the UK economy lies?

The figures aren’t just indicating huge investments in this area but growth levels to match. The majority of the press attention has fallen recently on Old Street, Shoreditch – now affectionately (and optimistically?) dubbed silicon roundabout, or tech city and perhaps not without reason. The roundabout started with just 15 technology and digital companies which grew to 200 in just one year. Now the total is over 1,300 businesses operating in East London.

This isn’t a coincidence; after an initial £50 million investment from the government, many investment and business support schemes are now established in this area such as public co-working areas such as The Trampery and Google’s Campus, and funding schemes such as the Seed Enterprise Investment Scheme (which allows significant tax breaks for investors in UK businesses). There is also a notable effort to encourage overseas giant companies to create a base in the UK too, with the Tech City Investment Organisation set up in 2010 for the purpose, not to mention the up-coming affects of the dramatic cuts to corporation taxes announced in the Budget this year.

However, though this level of access to funding and the tight-knit Old Street community are undeniably beneficial to the businesses affected, there are concerns that the focus is not wide enough. By focusing on the publicity-friendly ‘silicon roundabout’ in Old Street are the government and investors missing other areas of high potential growth?

For example, just to prove tech city is not the only place in the UK bursting with investment-hungry technological and digital companies, Cambridge is home to companies such as ARM and products like Raspberry Pi . Many are concerned that, given the less domestically recognised names of the Cambridge companies this area is missing out on vital funding that could boost not only the companies themselves but the whole of the UK. Its relatively central position in the country and strong links to world-renowned Cambridge University provide the perfect foundation for business success, not only bringing the UK’s greatest up and coming tech talent into the area but extending its reach for talent world-wide. Could this be a sorely missed opportunity for investment for the sake of the publicity garnering London IT cluster?

The Science and Technology Committee have recently released a report on this subject voicing concerns that investors may be missing the bigger picture for UK businesses. The focus of their report is not specifically on investment outside of London, but the Chair of the Select Committee MP Andrew Miller highlighted the importance of areas like Cambridge:

“The UK’s university and science sector is a global success, but the challenge for Government is how that world class academic research can be translated into commercial activity.”

The report also suggested investors and the Government should focus on providing support to these companies beyond the first few years in order to allow them to grow beyond that first, small existence.

Are you involved in a UK technology company? Do you think enough is being done, in the right places, to support businesses like you? Let us know at press@people4.com.

Budget 2013 – How to Win Friends and Employ People?

Against the backdrop of Moody’s downgrade of the UK’s AAA status and the fresh revelation that unemployment rose to 2.5 million at the end of 2012, the Chancellor had a politician-in-a-weak-economy’s chance of making anyone happy in his Budget speech on the 20^th but, against all the odds, did he manage it?

So the day of the speech didn’t start too well; the papers were full of tales of unemployment, George Osborne became Twitter-famous as the #downgradedchancellor, and everyone knew he’d have to start by cutting his growth estimates dramatically but, judging by the 1p reduction in beer duty, Mr Osborne was clearly out to make some friends. As expected, it was all still about austerity measures and there were still the usual empty-sounding promises – the ‘Business Bank’ for example, was talked of again with no firm details (it strikes People4business that if the Chancellor spent less money setting up brand new publicity-friendly funding schemes he might have more to put into the ones that already exist).

However, there were some genuinely positive announcements for UK businesses, particularly Small and Medium Enterprises. On top of scrapping planned rises in fuel duty, which is a relief for many businesses as well as motorists in general, there were two significant business-friendly announcements.

The first is a reduction in the headline corporation tax rate to bring it down to one single tax rate for every business – regardless of size. Reduced in instalments, the plan is to have all businesses paying a flat corporation tax rate of 20 percent by 2015 – a move of which the UK hasn’t seen the like since 1973 – and will, the Chancellor explained, give the UK “the lowest business tax of any major economy”. Hopefully, this will bring money into the country not only by making it easier for large UK-based companies to grow but by also tempting other organisations to set up shop on our shores.

The second business-related announcement was the introduction of the Employer Allowance, a national insurance contributions (NIC) holiday that is available to 450,000 UK companies. Set at a limit of £2,000 the exemption will mean a company can employ one person at an annual salary of £22,000 or four employees at adult national minimum wage without paying their NIC. John Walker, National Chairman of the Federation of Small Businesses explained:

“This will help businesses that are wary of the cost of employment to take on staff and help those that currently employ free up funds to expand their business…the FSB asked for a budget for small businesses and this is what has been delivered. This Budget opens the door for small firms to grow and create jobs. The Chancellor has pulled out all the stops with a wide-ranging package of measures to support small firms.”

George Osborne voiced his hope that the allowance would also help the self-employed “for the person who’s set up their own business, and is thinking about taking on their first employee – a huge barrier will be removed”. This reflects another important feature of the 2013 Budget as the speech signalled the Government considering the fate of the UK’s record number of freelancers more seriously than before.

The potential for growth in this group is clearly a Budgetary focus as, although no changes were announced to the thorny issue of IR35, Osborne announced several points that would affect freelancers this year for the better. Promises have been made to consult over how to make the tax process simpler for freelancers (in the merger of NICs and PAYE Income Tax, and simplifying taxation on partnerships) and details of the introduction of the cash basis accounting system were confirmed (see more on this). The increase in the Personal Allowance to £10,000 was brought forward by a year, hopefully reducing taxes for freelancers a little. Disincorporation relief was also introduced, meaning that, as of April this year, Limited Company owners can move to self-employment without suffering tax disadvantage.

Admittedly none of these changes are exactly ground-breaking and some won’t even be effectual until much further in the future but at least the self-employed can take comfort in the fact that the Government is aware of their struggles and willing to at least consult on their solutions.

OK so maybe the Chancellor isn’t quite at the top of all our Christmas card lists yet but, considering we are battling with high unemployment, deficit, borrowing and lower growth than expected, it was a relatively positive Budget! What do you think? Let us know at press@people4.com.

Time is Running Out for HMRC’s Real Time Preparation

As of April the 6^th 2013 the HMRC will require employers to switch to their Real Time Information (RTI) reporting system for PAYE. However, just one month from the launch date and 81 percent of companies admit to knowing either nothing or very little of the change despite it affecting all employers. So, what is RTI and how could it affect you?

The basic idea is that every time an employer pays an employee they report it to HMRC in real time rather than waiting until the end of the year. The advantage of the system is that, if properly followed, HMRC will have accurate information of every employee and employer in the UK and, consequently, the number of forms for employers to submit in general will be significantly reduced as P35s and P14s will no longer be necessary.

The new system will, fortunately, mean no change to PAYE itself, merely an alteration to the way it is reported. However, the change is mandatory for every employer and requires advance preparation.

HMRC’s new requirements will be that on or before the day an employer pays employees they must submit all the details to HMRC – every time they pay an employee. Necessary details will include the personal information for every employee, the amount each one received and the deductions made (such as Income Tax and National Insurance Contributions).

These reports mean that, from April, employers will have to ensure their payroll software is ready for RTI reports and may need to register for PAYE online if planning to submit RTI reports themselves. Employers may also need to seek out the relevant employee details in advance too, to ensure they are prepared for the first pay day report at the end of April.

However, though such preparation will be in order, and HMRC insist their campaign for business awareness of the changes is going well, a survey from Crunch accountants has found that just 19 percent of employers know anything about the change. A whopping 46 percent said they know absolutely nothing about RTI and 35 percent admit to only having a vague awareness of the change. Crunch’s Steve Crouch said,

“There’s still time to get organised, but small businesses should start planning now. Small and medium-sized businesses need to be fully RTI compliant by April 2013, so talk to your payroll provider if you’re unsure or if they haven’t yet informed you about changes.”

He particularly warned Limited Company freelancers who look after their own books and outsource some duties to others to make themselves aware of the change and prepare in time.

To make preparation easier, the team at People4business have compiled the best sources of information on RTI and how to prepare for it for you. The HMRC website naturally has the definitive guide on the subject and even provides a business checklist for before and after the event. Alternatively, there will be a week-long interactive question and answer session as of Monday the 11^th of March which can be accessed by following @HMRCgovuk on Twitter and using the hashtag #RTIqa to ask questions.

Cash Basis: Tax Nightmare or Freelancer’s Dream?

Whether you spend the year preparing payments or remain in denial until the night before, the chances are that paying your tax each year takes its toll on your bank account – not to mention the stress of finding, filling in and sending off the right information in time. But what if someone could offer you an easier way?

A recent YouGov poll found 21 percent of micro-business owners were made anxious each year by the tax process and 5 percent even admitted to being terrified. The good news is that just over a third of micro-business owners said they felt confident going through the process but even so, the majority of respondents also explained they end up paying more than just their tax when accountancy and advice fees are added.

So, when the Chancellor announced in his 2012 budget that the Office of Tax Simplification (OTS) would be working on a new, simpler system for Britain’s ‘one man bands’ to submit their tax, surely it was nothing but a good thing?

The OTS went into a series of very democratic negotiations with lawyers and businesses and came up with: the Cash Basis System.

This new tax system essentially means no more full GAAP accounts with lengthy calculations for the smallest UK businesses as the business would be taxed purely on a cash basis. This would eliminate the need for stock records and understanding capital allowances and, consequently, hopefully help businesses save money on fewer accountancy fees.

The aim is to make life simpler and cheaper for all of the UK’s smallest businesses so Cash Basis will be available to businesses with a turnover up to £70,000. Estimates suggest that, in total, this could benefit around three million businesses in the UK.

However, recently the tone towards this news has changed, ever since everyone’s favourite government department (HM Revenue and Customs – in case you weren’t sure) got their hands on the OTS’s plans and created all sorts of limitations. For example, simplified mileage rates would be mandatory and these are calculated only for cars or motorcycles (not vans), the majority of interest on cash borrowing would not be allowed as an expense (although you can claim up to £500 of interest as an expense), and sideways relief for negative results would not be allowed at all.

These editions have angered many including original exponents of the tax system, the Association of Taxation Technicians (ATT). Yvette Nunn, ATT President, said that since HMRC’s changes “these proposals seem to be the worst of both worlds”. She explained that they now propose “a degree of complexity (to prevent tax leakage) that will be daunting to the really small business, and restrictions (in the interest of simplicity) that will make the system unattractive to the next level of business.”

Nunn even went on to say that she was struggling to believe that any “reasonably competent” accountant would ever recommend the Cash Basis system if it might result in the denial of loss relief for their client.

This ties in with the sentiment the Chartered Institute of Taxation:
“We suggest a rethink to prevent the new regime being seen as anti-business. We note that HMRC have already indicated a willingness to consult further and hope the government will challenge HMRC to grasp this opportunity to make life truly simpler for smaller businesses and make real and significant changes to the proposals. Missing this opportunity for genuine simplification would be a real loss for the UK’s small businesses.”

The expected costs and savings of the Cash Basis system are expected to be detailed in this year’s Budget speech and the system itself is expected to be available from April. People4business is keen to hear your opinion; will you be one of the Cash Basis pioneers or are you much happier carrying on as you were? Email us at press@people4.com.