Government doesn’t understand us, say SMEs as Budget looms

In a survey of small business owners* by cloud accounting software provider Clear Books ahead of this week’s Budget, a high 82% do not believe that the government understands the challenges and opportunities their businesses are facing.

Clear Books CEO Phil Sayers, who heads up the small British business, comments: “In many ways perception is everything and whether the government does understand the challenges and opportunities facing small business owners or not, there appears to be a disconnect between the legislature and the small business community.”

Commenting on the research, former business secretary and Liberal Democrats leader, Sir Vince Cable said: “Despite many schemes over the years it is clear that government still finds it difficult to understand the barriers facing small business.  When in government I launched the Start Up Loan Scheme and the Accelerator mentoring scheme (since scrapped). But I recognise that the culture of government is quite different from and often unhelpful to SMEs.”

Also commenting on the study, shadow small business minister, Bill Esterson suggested that there were reports of government plans to lower the threshold for VAT registration. “They are introducing the time consuming quarterly filing of tax returns, they previously suggested increasing National Insurance for people who are self-employed and they have presided over a collapse in lending to smaller businesses. All of these measures make it harder to start or grow a business.

“Smaller firms are responsible for 15 million jobs and 60% of all jobs in the private sector, helping smaller businesses to start and grow is an essential part of a proper strategy for the success of our economies, communities and prosperity.”

In an additional online focus group, when asked by Clear Books what the Government could do to persuade them otherwise, participants offered a range of opinions.

Liz, who owns a micro-bakery business, said that to encourage more people to set up businesses “funding, mentoring, on-going business support and simplifying the tax system needs to be a priority”; Murad, a property developer from London, suggested the government needs to make the transition from being an employee to a business owner “less bureaucratic and provide easier access to funding for exceptional university graduates who do not want to start work with a firm”. Paul, a legal services business owner, urged the Government to stop increasing tax for dividends saying that “if you take risks you should get rewards”.

Mark, a small business owner from Essex, urged the Chancellor to “acknowledge and develop a strategy for support for micro businesses by removing them from the ridiculously broad descriptor as part of the SME sector. If you turn over £15k per annum, you have different methods, issues and resources than one with a £249 million turnover,” he said

“I think the government does understand to an extent or at least tries to, but it forgets those first steps that businesses need to become small businesses in the first place,” explained Kelly, who owns a marketing business. “I am a micro-business trying to become a small business without relying on getting loans and funding. I became an employer this year and the increase in costs has far outweighed my expectations. I’ve felt pressured to increase my revenue just to cover these costs.”

Margaret, who runs an agricultural business in the North East, suggested removing the pension onus from small business owners.

“We have already gone through enrolment and the time it took to work out what had to be done and then implement it was ludicrous. Government should be doing this so small business owners can run their businesses.”

When it came to the Budget itself, increasing tax incentives would be the initiative that Chancellor Philip Hammond could introduce that would have the biggest positive impact on small businesses. The small business owners who participated also cited a reduction in corporation tax, a reduction or freeze in business rate rises, improved access to business funding and a simplification of the tax system.

One sole trader, Andrew, who owns a recording studio in the North West, argued for VAT relief for businesses below the threshold saying that it currently stops him from investing “because I can’t really charge my customers VAT but I need to buy equipment”, whilst Janet, the owner of a book-keeping business in the South East, wanted money owed to be refunded more quickly than is presently the case.

When asked what Budget announcement would have the most negative impact, the business owners were more evenly split between an increase in the overall tax burden, an increase in the rate of VAT, further increases in National Insurance contributions for sole traders and small business owners, and a further reduction in the tax free allowance for small business owners. One participant argued for an increase in the VAT threshold whilst the owner of an IT microbusiness in London suggested that reduced corporation tax should be allowed if the business could demonstrate that the saving was being re-invested in the business.

“What is apparent from the input of the small business owners that we spoke to is a restlessness among this important element of the British economy,” explains Phil Sayers, CEO, Clear Books. “There is an anxiety about the apparent disparity between the taxation demands made on small businesses compared with larger businesses; a desire for greater simplicity in what is being asked of them and perhaps greater incentives to recognise the position of small businesses as drivers of innovation, job creation and the engine room of the economy.”

When asked who they would turn to for help and advice about running their business, more than half of participants cited a small business organisation or network, nearly a third mentioned their accountant whilst just over one in ten said they seek guidance from family or friends.