Ongoing macro-economic issues, such as a potential Grexit and a lack of confidence in the global economy, as well as national challenges, such as less friendly dividend tax rules introduced in George Osbornes Summer Budget, appear to have created uncertainty among British SMEs.
As a result of this, we’ve seen a drop in the Smith & Williamson Enterprise Index to 114.4, five points lower than its record high of 119.4 three months ago.
Changes to dividends, the introduction of the new National Living Wage and a less generous than expected annual investment allowance in George Osbornes first Conservative Budget were not well received by business owners.
While still remaining high, at 70 per cent, belief in the governments promise to support private enterprise dropped by 10 per cent as a growing number of SME owners felt they lacked support.
Other factors undermining business confidence include the prospect of a US and UK interest rate rise, a potential 2016 EU referendum and volatility in global stock markets, sparked by China amidst concerns around global growth.
These issues, which have been well aired in the press, are trickling down and undermining confidence amongst UK SMEs. The real question is whether business confidence will continue to decline as we approach the end of 2015.
Other trends picked up by the research include:
The rise and rise of crowdfunding
Over 90 per cent of participants felt that, should their businesses require investment, they would consider using crowdfunding as a means to secure it.
This demonstrates an incredible awareness of crowdfunding, a financing technique which barely existed five years ago. A recent government consultation surrounding the use of crowdfunded investments in ISAs highlights that this is being considered as an increasingly important way of raising funds.
Help to export
Eighty-seven per cent of SME owners thought the government should provide more support to help businesses export.
Many of our clients recommend the official government websites as they are said to be both highly regarded and trusted.
However, like many large websites that have existed for a while, the SME section of gov.uk has been said to have become difficult to navigate, untidy and complicated. Therefore, an overhaul and promotion of the information in a clear and centralised information portal would be beneficial.
Many are unaware that research and development (R&D) activity undertaken by UK SMEs to enable them to export would attract R&D tax credits. This can be helpful as part of a suite of financing options that will make it easier for businesses to trade internationally.
Not going green
Over half of our respondents did not believe that it was a priority for their business to become more energy efficient, with only 8 per cent strongly believing it was.
Just a day before the Enterprise Index closed, the governor of the Bank of England, Mark Carney, warned that climate change may already be too big to tackle with the current generation having “little incentive” to challenge climate change.
We have increasingly seen clients fail to claim the 100 per cent capital allowances available to them for certain energy efficient equipment. A loss-making company can surrender these allowances for a payable tax credit.
Larger companies often dont spot the value in claiming the full 100 per cent allowance compared with claiming the standard annual 18 per cent or 8 per cent writing down allowance.
A business seeking to claim the 100 per cent energy equipment capital allowance has to identify a specific model number on the product involved, but often these details are omitted from the invoices/data provided by the client/supplier. This makes it difficult to secure the enhanced capital allowances (ECA) at a later date (when the tax return is delivered) without specialist input.
HMRC recently launched a consultation to try and reform the business energy efficiency tax landscape. A key area to address is the price of going green; the initial unit cost of the base products remains very high. Many companies ignore the benefits, regardless of tax incentive, as it is so expensive.
Guy Rigby is head of entrepreneurial services at Smith & Williamson.
