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SMEs are saving the economy, and the government is finally acknowledging it

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With SMEs making up 99% of all businesses in the UK, it’s pretty fair to say that they are crucial to the health and wellbeing of our economy.

The majority of these businesses are established by enterprising individuals. These are people who are motivated to provide for their families, or who simply have a driving ambition to be in business.

Either way, what these entrepreneurs contribute to the economy is exceedingly important, and should, whenever possible, be celebrated. There are plenty of rewards that come from being a successful entrepreneur, some of which are financial, but there are many others too.

Taking a product or service from it’s inception to making it a market-disruptor, creating employment or even making an impact in a sector or community – all bring great satisfaction to a business owner. 

A think tank disagrees

Feelings of intense motivation and ambition are sentiments that can only come from being an entrepreneur, which makes me think that the proposals I read last week from the Resolution Foundation think tank were put together by people who’ve never been near a real business, let alone had the inspiration to actually start their own commercial enterprise.

According to these guys, the government should scrap the Entrepreneurs’ Relief and divert the reported £2.7bn cost of the tax relief to the NHS.

Whilst finding ways to boost the income of the NHS is always welcome, this misguided idea will do more damage than good. It will only serve to discourage people from setting up businesses in the UK and will therefore rob the country of an even greater contribution than a couple of billion pounds.

 Entrepreneurs’ Relief helps the economy and entrepreneurs

This form of relief encourages people to set up a business, because when they decide to sell it, they can pay Capital Gains Tax at a reduced rate of 10%.

Business owners who ultimately benefit from Entrepreneurs’ Relief are the ones that have contributed far more to the economy and the Treasury’s tax revenues throughout the lifetime of their companies.

Their contribution to the public purse includes everything from business rates, VAT and corporation tax, through to employment tax and also the personal tax of the people the business employs.

An emerging show of support

A further incentive was introduced in the Chancellor’s Spring Statement earlier this year when he issued a consultation document containing proposals to encourage entrepreneurs to remain involved in their businesses after receiving external investment.

Currently, those involved in the start of new ventures could find themselves swept aside by others because founders would see their share interest diluted as a result of fundraising to build the business further. This means that they would not benefit from the relief. However, from April next year, entrepreneurs will be able to bank their relief before their shares are diluted below the 5% threshold.

This is a positive development for business owners as it will help support further growth in these enterprises. Entrepreneurs continuing to make a significant contribution to companies will also benefit from the boost that comes from new investment.

This move from the government sends the message that the entrepreneurs behind the 5.7m SMEs in the UK, who employ more than 26m people are a very large and vital cog in the UK’s economic engine.

It’s a shame the think tank pen pushers don’t agree. Perhaps they should spend some time in the real world – I’m sure their opinions would be changed very quickly!

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