Why the UK's small businesses need more support than ever before
6 min read
10 October 2015
As the party conference draws to a close, each of the three main political parties – and many of the smaller parties – have been talking about what they’d do for the country’s SMEs.
However, according to Jason Kitcat of Crunch Accounting, an online accounting service for freelancers, contractors and small businesses, fast-moving technology and new ways of working are unleashing huge changes in the world of work.
In fact, many senior decision-makers are yet to fully understand this, partly because they have little opportunity to see the changes for themselves.
“If you run a big public-sector organisation, you’re a senior politician or you run a big private company, you’re likely to spend your days with others like you, either working in your organisation or for your partners and clients,” said Kitcat, who is currently working to improve government recognition of the UK’s freelance, micro-business and contractor workforce.
“You may get glimpses of the new economy as you scan social media and as you pass people perched in a coffee shop, desperate for caffeine and WiFi.”
He describes the freedom to work for yourself, “as an earthquake thundering through our nation’s business statistics,” and points to an updated business statistics briefing published by the House of Commons Library that just after the last General Election.
“In it there are figures that set out how far our economy has changed. Yet many people don’t believe me when I tell them that of the 5.2m private businesses in the UK, just over five million are micro-businesses and SMEs of 0-9 employees, whilst only 7,000 are corporates employing 250 and more,” he detailed.
The other surprising fact is that SMEs and micro-businesses are the second largest employers, collectively employing 8.3m people, topped only by the 10.1m working for corporates.
“Because corporates are big they naturally have a gravity that draws media attention and policy focus towards them,” argues Kitcat. “Of course it’s absolutely right that tax evasion and byzantine offshore structures in the corporate sector are tackled, but that can’t be the only focus.”
Equally, he said, the excitement about what are called “unicorn” digital startups – those that attract valuations of $1 billion or more, has skewed quite a bit of thinking to “how do we get the next Google to be here”.
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There’s nothing wrong with considering such goals, according to Kitcat, but most businesses will never be “unicorns” and yet they’ll still be making a valuable contribution to society.
“I strongly believe policies and debate cannot be to the exclusion of the huge and growing, microbusiness sector which encompasses freelancers, contractors, entrepreneurs and small business owners,” he revealed.
“I know first-hand the freedom and exhilaration that comes from setting up and running your own small business. I’ve done it a few times myself, with and without business partners. I also know as someone who used to lead a city council, that decision-makers are only as good as the information they get.”
He works with 45,000 micro-businesses in Crunch’s network and is looking to explain to politicians why freelancers, contractors and small business need more consideration. He cites the Government’s proposed changes to the dividend taxes from April 2016, which will see an increase in the taxation rate on dividends for all tax bands.
“If corporation tax rates are to keep declining, in line with the Chancellor’s plans, then there is a logic and fairness to re-considering how dividends are taxed,” he says. “We understand that, but what isn’t fair is that a small business owner will pay 21 per cent more tax next financial year if they make £40,000 whereas those making £60,000 will only pay around one per cent next year. As dividends are the key way business owners are able to benefit from their firm’s success, the potential impact could be huge.”
According to Kitcat hitting the smaller businesses with lower earnings harder just doesn’t make sense since they’re more likely to be just starting out in business or lone traders, with few reserves set aside for such extra costs of an estimated £1,500 more tax.
“We’re arguing strongly for transitional arrangements to be added to the new dividend tax plans,” he explained. “Our proposals would protect those small businesses bringing in less than £50,000 for at least three years.
“Give them time to prepare and plan for the new tax rates, which were only announced this summer. It would also be a show of understanding from the government, which has spent too much time insinuating that most micro-businesses are just tax avoidance vehicles.”
There will be many small business people and freelancers around the country who hope that the government is listening.