Small businesses: what you want the government to know

Before going to Downing Street this week to talk to the government about the experience of running a small business, I canvassed opinion from lots of small business owners around me. I asked friends, associates, clients, my LinkedIn and Twitter followers and my mailing list for their thoughts and suggestions.

I was deluged with thoughtful, frustrated, positive, and creative answers. Among them were some strong themes, and some great one-off ideas. So here’s a summary of the most interesting, the most heartfelt, and the loudest messages.

Childcare: why can’t we offset our biggest business expense?

What’s the biggest expense in starting a business for many entrepreneurs, and the one that can’t be offset against tax? Childcare: for many people the single biggest cost in running their business. What’s more, this was the single biggest issue that people raised, men and women, from freelances to well-established SME owners.

For almost every entrepreneur with a family, their business has to cover childcare from taxed income, creating even greater income hurdles for a young business. Even if a business can cope with that cost, it means less money to reinvest. One business owner who uses highly qualified freelance staff, many of them working mothers, reflects that it means that freelance salaries have to be higher, creating additional financial pressure. At the other end of the chain, the double or treble taxation of childcare means that childcare becomes a low-value, low-paid occupation; surely that’s going to have a knock-on effect for our long-term properity as a society.

At the moment there’s a glaring inequality in employees being entitled to childcare vouchers, but the self-employed not. That will be very partially corrected from 2015, but the consensus on changes and the restrictions around them is that it will make little difference to something that has a very direct impact on entrepreneurship among a large section of the population.

We don’t hate taxes, but we want clarity

HMRC didn’t come in for a particular bashing in terms of the amount of tax small businesses have to pay, but inequality, bureaucracy, rigidity and lack of support all created considerable ire. In particular, my respondents disliked:

  • an inflexibility and punitive attitude to small businesses mistakes or delays in payment, compared to the attitude to large corporations
  • tax evasion in general by large enterprises, and the perceived willingness of the government to give them special treatment.
  • the ability of HMRC to change the goalposts. One respondent tells me of a potentially fatal backdated tax bill, due to HMRC deciding that a scheme previously used was in fact not now accepted. Small businesses owners appear to be powerless, even when employing experts to manage their tax affairs, and risk losing everything, rather than simply damaging a share price.
  • the amount of paperwork required by HMRC, in time and volume. One business owner commented, ‘tell HMRC that fax machines are no longer a thing. There’s a new thing now called email. It’s quite good.’
  • The levelling of the tax rate between corporates and small businesses attracted particular ire. One entrepreneur wrote: ‘Economies of scale being what they are, it is harder for a small business to generate the same net margin as a large one in the small sector, so a differential tax rate levels the playing field a little; and second… we should want to help small firms to grow, as they tend to use more units of labour per unit of output, due to the economy of scale issue previously mentioned, and also due to the redistributive effect of putting money into the pockets of the shareholders of large, rather than small, firms.’

One business owner wanted to know why double filing to Companies House and HMRC is necessary, rather than joined up.

There was a plea for a dedicated support team for small businesses at HMRC, who understand our needs and are there to help to do what we need to simply and quickly.

Don’t discriminate against us

Covert discrimination against small business is a big topic. How can a small coffee shop or book retailer compete with a Starbucks or Amazon when they’re not going to be taxed in the same way? Employment schemes that aren’t suitable for small businesses have a similar impact. Procurement by the public sector is also a source of considerable frustration: if the government really believes in the value of small businesses, can’t they do more to support them by buying their services directly?

We want to recruit, but help us with the risks

Venturing into taking on staff is a very nervous time for a new business. The fear and reality of of red tape, legislation, complexity of insurance, NI, pensions and other liabilities clearly seem to be holding back growth among very small businesses, for whom an extra employee is already a big step.

The introduction of a cap for unfair dismissal claims, but the retention of unlimited discrimination payouts, has done little to steady the nerves of would-be employers considering whether to increase their workforce. One business owner raises the spectre of a counterproductive discrimination against protected groups at the point of recruitment, simply to reduce the possibility of vexatious litigation further down the line: undesirable for anyone, but potentially fatal for a small business.

Advice and help: we’d like more support

Several people bemoaned the loss of Business Link, and the lack of anything other than very general information available now. Not everyone agreed: some people felt that the standard of advice there had never been up to much, which suggests that variability was always a problem with the service. However, there was a common demand for easily available, reliable and personalised information.

Specific ideas: the things we’d like to see

Several people came up with specific suggestions of how the government could help in other areas.

Joining up the empty premises across the UK with small businesses, possibly in the form of hubs or incubators, perhaps with tax breaks, would solve two big issues of the new start-up: isolation and premises. That said, the relaxing of planning guidelines allowing business premises to be converted into residential building is threatening to drive small businesses out of city centres, including London.

Invest in technology‘, wrote one entrepreneur, ‘and education, in the widest sense – not exams, but teaching people to be resilient, to work around problems, to think laterally. Core skills in life will always beat academic trophies in the longer term. We need more people like this to employ, less people with first class honours in a sense of entitlement and needlecraft.’

One eloquent contributor wants to see a change in culture:

Bring back the ‘80s! Not the shoulder pads and puffball skirts (and that was just the guys!), but the visceral drive to turn the UK into a business-owning, share-owning, property-owning democracy… The distribution of income and wealth became a lot more uneven under the previous administration, and the best way to reverse it might be to turn some of the benefit-dependent and those on salaries so low that they need tax credits to survive into entrepreneurs. Where is the cultural shift encouraging them to do it, still less the practical assistance and financial support or incentives? Wider ownership of shares in public companies, combined with enhanced rights for small shareholders, would make a big difference in curbing excessive pay at the top of such firms, again reducing income disparity, as would greater incentives toward employee share ownership in firms of all kinds.’

Another business owner had a suggestion close to my Time Wizard heart: ‘Actively promote work/life balance through awards to companies who offer good balance and small business people who have succeeded in creating such a balance.’

What happens now?

In the end, our discussions at Downing Street covered a relatively small area. I was particularly disappointed that the childcare issue wasn’t able to be raised, given how many people it affects. However, the door is, apparently, open. Enterprise Nation members are likely to be invited again (join here to be among them next time), and at the moment, there seems to be a willingness to listen to the voices of small business.

So join the debate, and let’s keep fighting for the things that will help us to make our businesses better for everyone.

Many thanks to all those who contributed thoughts, ideas and reflections. I’m particularly grateful to Mark Bishop from Management Buyout Centre, Mark Evans of Perspective Publishing, Graham Allcott of ThinkProductive, Grace Marshall, David Wilson of Fleet Technology, Jonathan Brewer of Evident Legal, Jutta Moore, Scherrit Knoesen from The Bike Whisperer, Heather Townsend at Excedia, Aly Gillani of First Word Records, Gina Lee-Young of AMLY Consuting, Nick Hugh of NSH Arts and Bob Williamson of Click2Campus, for their in-depth and considered responses.


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