In the current economic climate, the future is uncertain for many small companies. I’d like to see much more stimulus given to SMEs in the Budget, principally by helping with VAT payments, lifting the tax burden, and giving us the new airport that we desperately need to remain a connected powerhouse.
Firstly, let's look at VAT. The January 2011 increase from 17.5% to 20% is crippling SMEs. While a larger firm over the VAT threshold of £70,000 turnover per annum can recover the extra costs by hiking prices or trimming the fat from elsewhere in the business, no such luck for smaller companies. They are going to be penalised because effectively they’re paying more for their goods.
This isn’t just my opinion. A study conducted a year ago by Aldemore bank found that small businesses are most concerned about inflation. They were worried that their suppliers would impose costs above inflation, and they would be unable to recoup these costs by increasing their own prices.
This is an unsustainable position. Surely SMEs should be treated in the same way as large businesses? We may not be headline material, but we are most definitely important to the economy. According to business insurance provider SimplyBusiness, SMEs make up 99.9% of the total number of businesses in the UK, they provide 59.1% of all private sector jobs and they generate 48.7% of total public sector turnover in the UK.
The UK needs us. So help us help you. As a fast-growing business, cashflow is absolutely vital to our being able to operate and, talking to my peers, I know I’m not alone. Allow us to defer the payment of VAT on imported products and redress the balance, as per the ‘Time to Pay’ scheme. Because right now, we’re stuck between a rock and a hard place.
Secondly, tax. It’s no secret that our largest companies are finding innovative ways around paying it. Most recently, Barclays has finally agreed to pay the not inconsiderable sum of half a billion pounds of tax that it had heretofore ‘avoided’.
Also, the Trade Union Congress published a report in 2011 suggesting that the largest 50 companies in the FTSE pay far less tax than the UK rate suggests they should. Indeed, their effective tax rate is falling steadily, even while the headline tax rate remains static.
Meanwhile, corporation tax for SMEs remains steady at 20%. We had a drop from 21% in 2010, and we may see a reduction in Main Rate Corporation Tax from 25% to 24% in 2013.
I say this is not enough. I'd like to see the tax system used to make the UK the entrepreneurial capital of the world. So forget 21% here or 24% there: reduce corporation tax for SMEs to 10%. This self-financing tax measure would aggressively stimulate growth, and make the UK an irresistible destination for the world's entrepreneurs.
Finally, airports. We are desperately in need of a new airport for London. The emerging markets in the BRIC countries need to fly directly to the UK, not through Paris and Frankfurt. A new airport would send out a global message that the UK is the business hub of the world.
This isn’t just a touchy-feely argument either. As a rapidly-growing business with a global supply chain, I’m made aware every day that we need to be better connected to the world outside our borders. Again, I’m not alone: the British Chamber of Commerce estimates that the time-related savings, including reduced waits for landing/take-off, would be between £300 million and £500 million a year, if Heathrow were expanded, or a new hub made available in London. This is a nice complement to the Barclays cash, bringing another cool billion into the coffers within two years.
VAT, tax, travel. That's what Osborne needs to tackle in this upcoming Budget. We need a budget that reduces burdens on SMEs and stimulates them to perform to the best of their ability. We are a nation of entrepreneurs, from Branson to Dyson, from Roddick to Sugar. It’s in our DNA. We need a Budget that lets us do what we do best.
Charlie Hunt is the founder and CEO of the Duvet and Pillow Warehouse