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FSB welcomes new OTS recommendations

The Federation of Small Businesses has come out swinging in support of new tax recommendations made by the Office of Tax Simplification.

Contractors, freelancers, accountancy experts, and pretty much anyone who runs their own business and has less than 10 employees do not have much in the way of nice things to say about the Government. This is due in no small part to how SMEs and sole traders are more or less put through the wringer – look at the new “supervision direction and control” SDC rules going into effect on 6 April if you want to kick over that particular beehive. However, sometimes the Government gets it right, or at least takes some steps in the right direction – and the FSB wants everyone to know that the OTS just took one of those baby steps.

Well, the FSB would have liked what it called a “broader approach” taken by the government entity, but the trade industry body isn’t discounting the fact that the OTS stepped up to the plate for small business owners. There’s simply a dire need to reduce administrative burden and simplify the tax system, FSB representatives said, and the organisation was mightily encouraged to see a recent OTS report recommend additional research into the development of a consolidated tax model for any company that employs 9 workers or less. Such a plan would allow turnover to be factored in as a basis for tax.

The OTS recommendations say that the current tax system, one that treats multinational mega-corporations the same as infinitely smaller companies, is simply “disproportionate.” The FSB is onboard, remarking that a more personalised and simplistic system needs to be implemented that focuses around each firm and each claim. Such an approach, which would be much more ‘tax-payer centric,’ would also be much more recognisant of how companies of different sizes can and cannot face compliance costs.

If the FSB was in charge, it would be implementing a single-payment solution for small firms that incorporated several separate taxes into one. This would potentially reduce tax complexity for small companies by a massive margin, the trade industry body said. With more people choosing self-employment – and with the taxation pitfalls that brings – these issues are growing increasingly important today, don’t you think?

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Online accountants could find more opportunities this year

Online accountants could find themselves in more demand following the news that the number of small businesses in the UK is increasing.

Creditsafe, the intelligence supplier, recently published data showing that the number of start-ups more than compensated for the increase in insolvencies last year.

The organisation’s figures show that 470,000 new businesses started up in 2011 and even after taking insolvencies into account, business numbers rose by 455,000. Creditsafe believes that if the trend continues this year, 2012 will be the year of the start-up.

Creditsafe’s business development director, David Knowles, pointed out that although 2011 was a difficult year, the Great British entrepreneurial spirit is alive and kicking. Despite a higher number of companies going insolvent, the number of new firms has increased steadily over the past two years and growth in the business population actually accelerated last year.

John Walker, the national chairman of the FSB is also confident that 2012 will be a good year for small businesses. The Queen’s Diamond Jubilee and the Olympic Games put the UK very much at the centre of the global stage this year and these events could provide golden opportunities for the small business community to expand.

He explained that a lot of small firms want to grow and innovate this year and the Olympics and the Jubilee will not only boost people’s spirits but also provide opportunities for expansion and diversification. In addition, exports reached record levels last year and small businesses may be able to develop further into vibrant Asian markets.

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HMRC to conduct strategic review of business record checks scheme

Accountants for contractors might be pleased to learn that HMRC is to review the way it conducts business records checks after MPs and small business groups criticised the initiative.

As part of the initiative, the Revenue will inspect the records of as many as 20,000 small businesses. Any that are found to be keeping inadequate records could be fined up to £3,000.

John Walker, the chairman of the FSB, has criticised the scheme saying that HMRC is still intending to proceed despite worsening economic prospects. He explained that he has expressed his concerns to HMRC on a number of occasions, but although the government says it wants to help small firms, the reality appears very different.

The scheme has also been criticised by Tory MP Priti Patel who said it was persecuting small businesses at a time when they are fighting for survival. She says HMRC is acting diabolically towards small firms when they blatantly let large organisations off paying millions of pounds.

Backbench Tory Anne-Marie Morris pointed out that HMRC used to take a sympathetic view of minor errors, but the ethos has now completely changed and businesses are treated the same regardless of size and resources.

A spokesman for the Revenue has now admitted that the project has caused a lot of concern within the tax profession and would have benefited from more detailed input from tax professionals. HMRC will now have a strategic review of the business records checks scheme, in consultation with representative and professional bodies, he added.

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EFG has £600 million to lend, so why isn’t it lending?

Syscap, the independent finance provider, has said that lending under the Enterprise Finance Guarantee scheme fell by 42% over a 12 month period.

In the year ending June 2011, only £433 million was lent under the EFG scheme, compared to £742 million in the year to June 2010. Between April and June this year, just £93.1 million was offered to SMEs and accountants for contractors under the scheme. In the comparable quarter of 2009, £254.9 million worth of loans were offered.

The government has allocated £600 million for additional lending in the year ending 31 March 2012 but if the current trend continues, it is unlikely to reach that target.

One problem appears to be that the EFG scheme does not fund SMEs through lease financing. Leasing is crucial to many small businesses as it allows them to maintain a healthy cash flow, spread the cost of assets and is tax deductible. However, the EFG does allow invoice financing, which is a form of asset finance.

Philip White, Syscap’s chief executive, said the EFG scheme urgently needs to increase lending if we are going to get the economy back on track and create jobs. But it looks highly unlikely that the scheme will lend all of the £600 million it has available if the first quarter lending figures are anything to go by.

Meanwhile, the FSB has welcomed the Independent Commission on Banking’s recommendations for the reform of the sector and is now calling on the government to implement the recommendations before the end of this Parliament.

The ICB has proposed that retail banking operations are ring fenced from the more risky investment banking activities. 89% of FSB members think that the UK banking system needs to be reformed. 52% believe it should happen immediately, whilst 45% say reform should take place by the end of this Parliament.

John Walker, the national chairman of the FSB, said the ICB’s recommendations could make the banking sector more secure but the government must resist the temptation to water them down.

© 2011 All rights reserved. Reproduction in whole or in part without permission is prohibited.

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Small businesses lose faith in the UK’s banks

Britain’s sole traders and contractor accountants have lost faith in the country’s banking system, according to the Forum of Private Business.

The FPB is now calling on the government to introduce new measures to restore smaller enterprises’ trust in banks.

The British Bankers’ Association recently published research showing that about 670,000 UK firms have needed funding in the past 12 months but did not submit an application for it. 18% of companies believe they will require finance within the next three months but say they will not be able to apply unless there is a significant improvement in the country’s economic conditions.

The FPB’s senior policy adviser, Alex Jackman, pointed out that the report showed that small businesses have a crisis of confidence when it comes to the banking system in the UK. As well as practical measures to restore confidence, innovative funders must also be allowed to compete in the current bank dominated finance market.

The Bank of England published its Trends in Lending report for May recently and it showed a record decline in the number of approved loans for smaller enterprises. It also stated that the average interest rate payable on small business loans is 4.66%. Two years ago, the rate was 4.29%.

John Walker, the national chairman of the FSB, said that entrepreneurs and limited company contractors should be able to take advantage of healthy competition from the UK’s banks. He pointed out that the 4.8 million small businesses in the UK are the ones that will create jobs and drive the economic recovery, and yet they are getting a worse deal than their larger counterparts.

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Banks must do more to help small businesses get finance

A new report claims that the UK’s financial sector is not doing enough to support SMEs and this is damaging the economy.

Will Hutton, The Work Foundation’s executive vice chair, has submitted the report to the Independent Banking Commission, and says that despite bank assets growing to four times GDP, lending to corporates represents only 5% of all lending.

The report goes on to say that the lack of support for SMEs has discouraged borrowers from applying for loans. This lack of investment reduces innovation levels, which in turn creates a cycle of less dynamism, less investment and less innovation.

The authors of the report want to see rigorous ring-fencing, or separation, of commercial and retail banking operations from investment banking, as well as additional capital being made available. By doing this, internal frameworks would be changed and the financial sector would find it more attractive to lend to smaller firms.

Furthermore, the banks must stop concentrating on balance sheets and start to look on small businesses as positive investments which will strengthen the economic recovery.

The FSB also agrees that lending to small businesses must improve. The banks say small businesses are not applying for credit and yet a recent survey from the FSB shows that around 960,000 of its members asked the banks for a loan in the past 12 months and a third were refused. 16% of those refused were not told why their application was turned down.

34% of those who applied needed the funding to cover cash-flow, but 21% wanted finance to buy new machinery and equipment and a further 17% wanted to expand their business.

John Walker, the FSB’s national chairman, pointed out that the OBR forecasts that business investment will help to drive the recovery but this cannot happen until banks work with companies to make sure they get much needed finance.

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Red tape is still stopping businesses grow

Small enterprises, including accountants for contractors, in the UK say that one of the most onerous and complex issues they face is still excessive red tape.

According to a recent survey by the FSB, 27% of UK businesses think increased regulation makes it hard to expand and 33% believe regulation provides the biggest obstacle to growth.

The coalition has placed a three year moratorium on new domestic regulations for micro businesses. But the FSB has expressed disappointment that some large regulations are not covered by this moratorium. Of particular concern are regulations which increase the administrative and organisational burdens on small firms, such as extending paternity rights and removing the default retirement age.

The Home Office recently invited businesses to tell the coalition what it should do to reduce bureaucracy and boost business growth. The Red Tape Challenge website has been set up to give everybody the opportunity to contribute their opinions and suggestions on the subject of bureaucracy.

One problem that we face in the UK is that even if we scrap certain domestic regulations; we can do nothing about the legislation drawn up in Brussels. So even though micro firms are exempt from our government’s regulations during the moratorium, they still have to comply with edicts drawn up in the EU. However, the government does admit that it may have enforced some EU regulations beyond the minimum legal requirement.

Reducing bureaucracy is going to be a long process. The Red Tape Challenge is open until April 2013 and will look at more than 21,000 active rules and regulations.

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Flexible working and parental leave reforms could harm SMEs

The UK government has pledged to reduce red tape and yet its latest proposals to change parental leave and flexible working will increase bureaucracy, according to the FSB.

The Federation of Small Businesses has expressed its concern that the coalition’s plans to introduce changes to parental leave and extend flexible working will damage small businesses.

Although the FSB has been calling for reform of the parental leave regulations, the government’s proposed solution of allowing parents to take chunks of leave, instead of one block, would make it far more complicated to administer.

The government has launched a consultation on the proposals and the FSB will be contributing by expressing the opinion of small businesses.

The FSB’s national chairman, John Walker, said that despite promising to ease the burden of red tape, the government plans to introduce additional complexity which will make things even more time confusing and complicated for small businesses.

It will be extremely onerous for small firms and limited company contractors to organise workloads and cover for an employee who decides to take parental leave in chunks rather than a continuous block of time. The majority of small businesses already allow flexible working and the FSB urges the government not to make it mandatory for employers to consider requests for flexible working after a 26 week qualifying period as it would pile yet more red tape on them.

David Cameron wants the private sector to drive the economic recovery but changes to these regulations could further deter small businesses from hiring more staff, Walker concluded.

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Accessing finance still difficult

The Forum of Private Business has claimed that small businesses in the UK are still having difficulties accessing finance. In fact, the situation has got so bad that it’s hard for them to reach a negotiating point with the major banks.

FPB spokesman, Phil McCabe, said there is a breakdown in communication in the way lenders judge risk. In the not too distant past, decision making would be done by the local bank manager. He would normally know business customers and therefore be in an ideal position to decide where a loan was a risk worth taking.

Now that decision making has been largely centralised, the banks are less likely to know about their small customers and the local business environment. The Forum would like to see improved local decision making powers and a better local presence, he went on to say.

However, small business owners also need to up their game and produce better, more comprehensive financial information if they want the banks to say yes, he concluded.

The problem is not just in England either. The FSB has pointed out that lending in Scotland is dominated by two large banks.

The East Scotland chairman of the FSB, Michael Dixon, said there had been a huge issue over small business finance in the last three years, due mainly to the domination of RBS and the Lloyds Banking Group.

At a recent hustings event, Dixon asked party leaders what measures they would take to help firms get the finance they require to help the economy grow.

Tavish Scott, the Scottish Lib Dem leader, said his party would ensure there was a business-led, regional development bank structure across the country and although it would still be commercial lending, it would make sure finance was available.

Alex Salmond, the SNP leader was quick to criticise this proposal saying you can’t solve the problem by setting up a new bank to replace the existing ones. The answer is to make sure the banking market is competitive.

The Scottish people are voting for a new parliament this Thursday and Alex Salmond’s SNP party is currently ahead in the polls. It will be interesting to see how he makes the market competitive if he gets re-elected and will the English government follow his lead?

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Business Finance Taskforce appeal system set to benefit SMEs

Small businesses and accountants for contractors denied funding from one of the big 5 banks now have the opportunity to get their application reviewed by another person within the bank under the new loan appeal system launched by the Business Finance Taskforce last week.

This individual will not have taken part in the initial decision making process. The big banks also need to provide unsuccessful applicants with information on alternative ways to obtain finance, or put them in contact with a business mentor.

Professor Russel Griggs has been appointed as the external independent reviewer and he will report each year on the effectiveness of the scheme.

The FPB believes this is a welcome move and if it is implemented correctly it will help restore a measure of trust in bank lending. However, the Forum stresses that business owners must take advantage of the appeals process if they think they have been treated unfairly. Even if they think they will still be refused, lodging an appeal will create accurate data on how effective the system actually is.

Phil Orford, the FPB chief executive, pointed out that the Better Business Finance campaign has ensured that the major banks now have to spell out the standards businesses can expect to receive, and SMEs can obtain online support and access to an appeals process if they feel lenders are not living up to the standards.

Brian Mairs from the British Bankers Association explained that any company turning over up to £25 million can use the appeals process if it feels it has received unfair treatment over a loan application. The appeal must be launched within 30 days. The BBA also pointed out that the initiative is not designed to increase the amount of money lent to small businesses, rather to ensure that lending decisions are correct.

The FSB has given a cautious welcome to the new system. Any measures that increase transparency and fairness have to be a good thing, a spokesman for the FSB commented. However, the Federation is disappointed that the system is not open to all businesses regardless of size or number of staff employed.

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Contractor accountants urged to enjoy life on May 12th

Accountants are being encouraged to take time out on May 12th to contemplate their work-life balance. The Chartered Accountants Benevolent Association is calling on all companies to promote this project to improve employees work – home life balance.

Kath Haines, the chief executive of CABA, said the Association wants accountants to move away from their desk for a period on May 12th and do something they enjoy doing. She went on to say that she would like to see all accountancy practices, regardless of size, and also those contractor accountants working in business, to take part in the initiative and spend some quality time with their colleagues, family and friends.

It’s not only accountants who are feeling the strain. Experts warn that stress at work is going to soar as survivors of redundancy programmes come to terms with unmanageable workloads and survivor guilt.

EmployEase, a firm of employment law consultants, said that a third of its individual clients are absent from work with stress related conditions. It warns employers to take action to avoid stress or run the risk of facing a tribunal for discrimination, personal injury or unfair dismissal.

The FSB and Mind have teamed up to produce a guide for small businesses to help them make non bureaucratic, cost effective changes that will have a positive impact on the wellbeing of their employees.

Amongst the recommendations in the document are the implementation of flexible working and the promotion of a supportive working environment.

Sophie Corlett, the director of external relations at Mind, pointed out that several small firms already provide employees with flexible working opportunities and quality working relationships. However, businesses must also acknowledge mental health issues and create a culture whereby staff can raise their concerns and employers will help them stay mentally healthy.

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Are more public sector contracts on the cards for contractor accountants’ clients?

UK contractors will be pleased to learn that the government has committed to overhauling the process by which SMEs compete for public sector contracts.

This will be achieved by cutting bureaucracy and becoming more open and transparent in its dealings.

The national chairman of the FSB, John Walker, says this is a victory for small businesses in the UK. The FSB has been campaigning for SMEs to have the same opportunities to public sector contracts as large organisations do. The new measures to get rid of red tape and open up transparent communications channels, which were outlined on Monday, are most welcome, he said.

There also needs to be a genuine change in culture within government procurement when it comes to dealing with SMEs, Walker added.

According to the Federation’s statistics, 70% of smaller businesses rarely bid for public sector contracts because of lack of awareness.

The situation is so bad that the UK ranks 24th out of 27 member EU states as far as access to public procurement markets goes. Only 24% of public sector contracts are awarded to small businesses in the UK, compared to 44% in France.

The REC has also been campaigning for a change in procurement practices for several years. Kevin Green, the chief executive of the REC, said that at last we are seeing action instead of mere words. The REC wants to see a competitive, dynamic market where recruiters can compete based on their capabilities and competences. He added that the REC will monitor the implementation of the new measures and will continue its constructive work with the Cabinet Office and OGC.

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VAT increase will be detrimental to the wealth of SMEs

VAT rose to 20% on Tuesday and over 70% of small firms think this will impact negatively on their business.

The FSB conducted a survey of its members and 71% of the 1,600 respondents said the increase will not be beneficial to their business. 52% said they would have to increase prices, 45% expect turnover to decrease and 36% believe the rise will result in a loss of customers.

George Osborne says the increase is here to stay but the FSB is urging him to return VAT to 17.5% once the fiscal deficit has been reduced significantly.

SMEs will be hardest hit by the VAT increase as they are unable to absorb it in the way larger organisations can. The majority of small businesses will have to pass on the full rise to their customers, reduce their level of stocks or look to implement alternate cost saving measures.

The Federation has also called on the coalition to raise the threshold at which firms start to pay VAT to £90,000 from the current £70,000 rate. It says this move would help SMEs and could generate up to 35,000 additional jobs.

The chancellor has defended the rise, saying it shows the government is determined to tackle the budget deficit and this should lead to increased employment. Ed Milliband, on the other hand, believes the increase will cost 250,000 jobs.

Meanwhile, Jason Collins, a partner at law firm McGrigors, has warned that carousel fraud may make a comeback due to the VAT increase.

Carousel fraud occurs when a business purchases VAT-free products from one country, sells them on in a different country and then vanishes before settling the VAT liability. This type of fraud had died down in the UK but Collins warns that the increase could see VAT fraud doubling to £4bn this year.

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Should contractor accountants suggest that struggling clients look overseas?

SMEs could find that trading overseas is the best way to survive the economic downturn, according to Mark Prisk, the enterprise minister.

In order to create a truly global business, firms who already trade abroad should offer help and advice to limited company contractors looking to do similarly. International advisers on trade should then work together and ministers should engage with their counterparts abroad to build economic relationships.

The Nat West / RBS banking group says that the UK could see a boom in exports but that will only happen if businesses get the requisite help. 69% of firms believe the time is right to increase their overseas trading but they cannot get the help they need to do so. Two-thirds of companies want to see more help from the banks and 58% say they would have more confidence to export if they received advice from overseas trade experts.

Nat West / RBS is now offering free training courses to advise firms on the best way to manage risk when venturing into overseas trading markets.

A separate survey from telecoms company O2 found that 40% of companies plan to trade overseas next year and over a third of them say overseas economies are becoming more welcoming towards small businesses. Out of the top 10 export markets of choice, six are outside Europe, with the most popular being the U.S.

Another problem facing small businesses is the excessive bureaucracy that comes with exporting goods and services. According to a recent report from the FSB, 25% of UK businesses already export but nearly a third of them say that excessive red tape is stifling their efforts, whilst 48% say they find fluctuations in currency to be a major obstacle.

The chairman of the FSB, Mike Cherry, said that the manufacturing and defence sectors offer big export opportunities for small businesses but in order to be successful they need to know how to access available support. The Federation has called on the government to be more pro-active when it comes to promoting assistance and also to launch a campaign that highlights the advantages of the Services Directive.

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