Paul Waite, Chief Executive of the Aspen Waite group comments on the current Government turmoil and the effect its having on Genuine SME’s.
In March 2020 the Coronavirus pandemic hit our shores. The government took an ultra-cautious approach and while certain sectors flourished, on the whole business took a battering. My own business Aspen Waite entered the pandemic off the back of sustained growth but successive lockdowns made networking virtually impossible, compounded by working at home practices.
Like many others we had to try and adapt and it was a very challenging period. Confidence is starting to return and we have learned and evolved. Marketing is a long term project anyway so we have effectively lost 2.5 years in our business developments. I vowed to keep all my people in a job so we did not use the furlough scheme. With hindsight this was foolish as we have got no credit for doing so and if we had relied on government support we would have failed.
The Boris Johnson government stood for nothing and believed in nothing. The focus was on preserving the Northern vote that allowed the landslide election victory to happen. A centrist government with a billionaire Chancellor who does a pretty good job of behaving like a champagne socialist.
We saw a significant reduction of Entrepreneurs Relief (see my previous article the Betrayal of Business) then a 1% hike in National Insurance and unbelievably a 6% rise in Corporation Tax to 25%. The latter is by far the single worst measure ever introduced by a Tory Chancellor. Confidence is low, businesses are struggling, a situation made even worse by high energy costs and all the government support has gone. We are told the current tax rise has to happen because it will raise £16 billion and we need to repair the country’s finances.
When the Truss administration came into power it delivered a series of tax cuts, tax postponements and sweeteners such as the energy price freeze. My initial reaction was that the mini budget was lacking in pragmatism but 10 out of 10 for intent. I actually declined to be interviewed to give my views on the budget because I thought to do so was a no win position. I did not give a seconds thought though to the Corporation Tax freeze coming under threat. The market and media hysteria that followed was unbelievable.
In my opinion this proves what I have known for a very long time, the term ‘Corporation Tax’ is misunderstood. There are circa 4.2 million limited companies in the UK and only just over 6000 public limited companies. The vast majority of companies are very small often micro businesses with one to three employees. For many years there were two rates of Corporation tax, one for companies with larger profits and those with smaller profits. In 2012 it was decided to align these rates and there were many good reasons for doing so.
Can one imagine the furore if paupers and millionaires paid the same rate of income tax? That is what happens with Corporation tax. Many companies work on very tight margins, typically a net profit return of 35% sales in the construction industry.
As a business owner I have invested £’s hundreds of thousands into capital projects and new business. I have also created many jobs and as an adviser undoubtedly saved many others. I am regarded as a serial entrepreneur and have just started another three new businesses. Just to run a business requires courage and to keep investing over the pandemic period as I did, even more so. I faced a lot of criticism from within.
Lower taxes enable more profit to be retained and available for investment. The best way to encourage growth and higher overall tax yields is to create an environment that encourages the entrepreneur to create new jobs, invest in new technology and ventures and so on.
The irony is that larger SME’s are better able to pay advisors to help them plan their tax liabilities. Businesses in certain sectors have a distinct advantage over others. Hauliers for instance are regularly renewing and replacing their fleet. I have a client that has made £3.5m net profit in its last financial year but a multimillion £ tax loss.
There are two reasons for this:
- substantial capital expenditure, nearly all of which has attracted the 130% Super Capital Allowance
- good sized R&D tax credit claim.
Many businesses though have no or little need to make capital expenditure. Nonetheless, capital expenditure planning remains a significant part of any tax exercise and I firmly believe that it is almost impossible for a dynamic company not to be carrying out at least some R&D.
All business owners need to be continually looking at what they are doing, evolving and adapting and looking to make efficiencies. I fear that a large number of businesses will be failing in the months to come. We are already seeing failures reach their highest level for 8 years.
There are a lot of good people out there, so do seek help, and it is essential businesses are advised. I would gladly give a bit of my time to anyone reading this who wants some help paul@aspen-waite.co.uk
The business community needs to stand together because the Government is too busy running for the hills and the banks have been closed for years. Remember, whenever you see a successful business someone once made a courageous decision.
Paul WWaite BSc Hons (Ecconomics) FCA FCCA
Chief Executive Aspen Waite
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