Does the Government understand UK SMEs’ problems?

cash flow hmrc sme smes Apr 25, 2019

A recent fiery opinion piece in the London Evening Standard by Rohan Silva accused the Government of failing to help and therefore destroying UK SMEs.

While most of his ire was directed at the Chancellor, Philip Hammond, due to the 2017 increase in business rates, Silva also alleges: “Poorly implemented plans to make tax digital are costing companies thousands of pounds to become compliant. Big increases in the amount firms have to pay towards pension contributions are making it more expensive to employ people.”

According to the Federation of Small Business (FSB), the business rate increase means the average small company in London now has to find £33,000 a year simply to cover its rates bill. That’s on top of paying rent, NI contributions, corporation tax and running costs. Significant increases in the minimum wage haven’t helped many SMEs either although unlike the other burdens it has benefited employees.

It has become increasingly and depressingly clear that there is a lack of subtlety and nuance in many Government policies that affect UK SMEs.

What are the UK SMEs’ other main problems?

SMEs are said to be “the backbone” of the UK economy but a big problem is that there is no “one size fits all” solution to the pressures they face.

The start-up SME is very different from the established small business, a retail SME with a physical premises is very different from an online retailer yet there is very little recognition of this.

A newly-published British Chambers of Commerce (BCC) survey of 1,000 firms, many of them SMEs, found that almost 60% believe the tax regime is unfair on businesses like their own. The poll saw 67% of respondents say the taxman does not apply rules fairly across all sizes of business.

It quotes Suren Thiru, head of economics at the BCC, who argues that HMRC (HM Revenue and Customs) sees “smaller businesses as low hanging fruit and as a consequence they feel under the constant threat of being called out for getting things wrong in a tax system that has grown ever more complex.”

According to R3, the trade body of the insolvency profession, the Chancellor’s recent proposal to make HMRC a preferential creditor in insolvency is only likely to make the situation worse, by adding to the risk that banks and finance providers won’t lend without personal security and suppliers will be less willing to provide credit terms in the future.

Other issues raised by UK SMEs

One issue is that there is insufficient weight given to those businesses outside of London, with an uneven spread of investment that favours the capital.

Bibby Financial Services’ confidence tracker found that there was patchy awareness among SMEs about local initiatives with just 54% local firms aware of the Midlands Engine and 36% of Northern SMEs believing that there is too much focus on the Northern Powerhouse at the expense of other Northern cities.

Then there is the difficulty SMEs have in accessing and negotiating Public sector contracts, not to mention the hurdles and perceived lack of help they face when accessing export markets. A 2019 survey by techUK of 101 SMEs across the technology sector, found that just 15% of respondents think that the government has an adequate understanding of the role SMEs could play in public sector provision.

To end on a more positive note I should mention one initiative which is beginning to show some success in supporting SMEs and that is the Prompt Payment Code. This follows the recent change that now allows the Small Business Commissioner, Paul Uppal, to investigate cases and to name and shame those large business offenders who continue the practice of late payment.

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