A “Small Business” can be described as a privately-owned corporation, partnership, or sole proprietor with fewer employees and less annual revenue than a regular-sized corporation. Small and medium-sized enterprises (SME’s) contribute 47% of revenue to the U.K. economy.
The Federation of Small Businesses (FSB, a UK business organisation representing small and medium-sized businesses, recently spoke on new reporting requirements, commenting that it “is blue Monday for small business owners, and it comes at a time when confidence is already low…”
According to Forbes, UK’s SME’s have been squeezed as new costs and tax reporting requirements begin on April 1st.
The government implemented some beneficial changes such as reductions in business rates, worth about £500m ($650m). However, the benefits appear to be outweighed by other changes that require costs.
Examples of added costs are the new accounting rules introduced by Her Majesty’s Revenue and Customs (HMRC), under the “Make Tax Digital” (MTD) programme and auto-enrolment pension costs.
The FSB pointed out that over two million small businesses are going to suffer from HMRC’s MTD programme because the new software needed was set to cost small firms £564 ($733) each on average. The HMRC disputes that only 1.2 million businesses will be affected and they will pay less than FSB have suggested.
HMRC also claims that small businesses will enjoy wider benefits from the new accounting procedure through improved record keeping, better business management and a streamlined, digital experience. In addition, most SMEs will be able to claim their software costs against their tax liabilities. While wonderful, it does not ward off the impact of having to pay for the software immediately.
Another cost factor is the over one million smaller employers which must deal with a further increase in auto-enrolment pension contributions to 3%. Employers think that the government should freeze any further increases to the minimum auto-enrolment contribution rate for employers, while there is so much Brexit uncertainty. In 2018 there was a decline in the size of the small business sector for the first time since 2010, after the global financial crisis of 2007-2009.
For a small business, Cash is King. Without liquidity, they can go under very quickly. The Conservatives must show once again that they are still champions of free enterprise. After all, real and lasting wealth begins and ends with the smaller operator.