Tax reforms need a rev up to put Britain's entrepreneurs in the fast lane
- 15 Mar 2018
Making sure Britain's SME community gets the right support to succeed has never been more essential than right now. Since 2000, the number of SMEs (Small and Medium Enterprises) in the UK has sky-rocketed from three million to five million. SMEs account for over half (60%) of all private sector employment in the UK. That's nearly 16 million workers producing a combined turnover of £1.8 trillion; which equates to nearly half (47%) of all private sector turnover. This makes them an increasingly vital economic growth engine.
The growth in self-employment is part of a long-term trend which looks set to continue. Research by Aldermore Bank, found that around 4.5 million Britons will consider starting their own business over the next two years. The growth in self-employment is being driven in part by new technology. This creates new routes to gainful employment including for freelancers, contractors and sole traders looking to create a "lifestyle" business, as well as a new generation of entrepreneurs looking to build a business with their own workforce. While more of us simply want to be our own boss, running a small business is not easy work.
Our research, conducted amongst SMEs, lists many daily pain points: 68 per cent experienced problems ranging from keeping on top of tax returns to finding clients and finding good quality recruits. So, are SMEs getting the support they need? Small business owners don't think so; 68 per cent said that the government should do more to promote entrepreneurship. So, what additional support do SME's require? Our research revealed two main concerns.
Firstly, access to business start-up capital remains a major worry. Among those 4.5 million would-be entrepreneurs, 51 per cent said access to capital was the major barrier they faced. While there is tax-relief targeted at the start-up community, Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCTs) don’t target gig economy workers and those looking to strike out on their own.
For the growing army of self-employed in the UK today, politicians should be minded to keep-it-simple. To this end, the Individual Savings Account (ISA) has provided tax-free simple savings to over 21.6 million Britons over the last 20 years. An Entrepreneur ISA could do likewise for Britain's would-be entrepreneurs, by helping them build up tax-free capital specifically for the purpose of starting a business.
Secondly, existing small businesses often struggle to build up a safety net, either to guard against unforeseen events or to help them grow their business. The lack of business resilience is a massive concern. Over half (54%) of Britain's SME business owners have taken time off work for unforeseen events, often though ill-health.
For SME owners, the risk of being off work with no earnings can cause significant issues. One-in-five British SMEs currently holds no savings. Among those who do, the amount held is typically no more than £1,000 - less than one month's earnings. Faced with this threat, the creation of a Small Business Savings Allowance could again help to provide an additional spur to help those business owners saving by allowing SMEs to keep the interest on their surplus cash free from tax.
With such a large part of the UK’s economy hitched to the fortunes of the SME community, the stakes are high. Whether it is the need to help tomorrow's entrepreneurs get started, or today's entrepreneurs get by, the Chancellor needs to give them the tools to prosper, or we will all pay a hefty price. Helping our entrepreneurs to grow should be a key part of Britain’s industrial strategy.
This guest blog was written by Ewan Edwards, Head of Savings at Aldermore.