The Budget, 21 March 2012: Views from around the North East

The Budget for 2012 has been set; see the link below for George Osborne’s key points.

http://www.bbc.co.uk/news/uk-politics-17449501

Here, some North East business leaders give their thoughts post-budget, in relation to their industry. What did you think? How will the budget affect you? Share your thoughts by commenting below.


Sarat Pediredla is MD of mobile marketing agency hedgehog lab based in Newcastle upon Tyne.

“The Chancellor’s 2012 budget is a bit of a mixed bag for me. On a professional level, I think the budget is a letdown to many small and medium businesses in the digital sector that are in the growth phase. It’s great that Corporation tax is to be cut by 1%, which does provide a clear benefit but the budget does not go far enough to address rapidly growing businesses.

“One of the key pain points of businesses like ours is wage costs and job creation. I see nothing in this budget that helps with that. The simplified tax system is only applicable for what I would call “micro”-businesses with £77,000 or less turnover and this doesn’t really help businesses in our position.

“The budget also includes a tax relief for specific industries like games & animation. While I support this move completely, I would have liked to see this applied to the broader digital sector, especially with businesses under 100 employees.

“The only silver lining at this moment, if it works, is the renewed pressure on banks to lend more to small businesses which might go some way to cover the risk of growth but isn’t a genuine “benefit” in the line of tax cuts or grants.”

Karl Morton is sales manager for the North East region for homes developer Miller Homes.

“It was good to hear the chancellor reinforcing the Government’s commitment to supporting home buyers by underlining the importance of NewBuy and the reinvigorated Right to Buy schemes as tools for helping people purchase their first home or move up the property ladder.  However, we would have welcomed more assistance for first time buyers through further relief on Stamp Duty Land Tax for properties at the lower end of the market.

“The chancellor also touched on the importance of reforming the planning system as a stimulus for economic growth and job creation.  We believe this much needed overhaul of the system, through the introduction of the National Planning Policy Framework with a presumption in favour of sustainable development, is essential to stimulate the supply side and help house builders like ourselves bring forward new developments.

“It was great news to hear of further cash injection into the Get Britain Building fund and helps underpin the sentiment that new developments are key in helping to get the country back on its feet.

“It is my hope that the expected planning reforms will help builders to deliver such schemes promptly and that the Government continues to support those who are striving to move onto or upwards on the property ladder.”

Alastair Wilson is Tax Partner at Tait Walker Chartered Accountants based in Newcastle upon Tyne.

“The March 2012 budget doesn’t contain a great deal of new policy, but does continue the Coalition’s theme of encouraging entrepreneurial business.

“Viewing the Autumn Statement in November and the March 2012 Budget together, George Osborne has appeared to listen to many of the comments being made by business leaders across the UK and has sought to introduce changes which can help to stimulate the recovery.

“For entrepreneurial businesses there are welcome enhancements to the ability to raise funding via the Seed Enterprise Investment Scheme, and the National Loan Guarantee Scheme is a welcome boost to the capacity for SMEs to raise debt finance.   A pilot scheme for enterprise loans to young entrepreneurs is also a positive announcement.

“Enhancements to the Research and Development Tax Relief, the introduction of a Patent Box regime and most significantly the introduction of tax credits for games developers and animators should all help to stimulate our region’s economy.   It’s unfortunate that for some games development companies the new tax credit will have been introduced too late to keep them in the region, but it should encourage the large pools of skilled developers we still have in the region to set up and grow businesses with greater confidence.

“The creation of superfast broadband as a platform in Newcastle should also help to ensure that infrastructure does not stifle the creative industries in the North East.  The confirmation of enhanced capital allowances available in the new Enterprise Zones in our region should help to encourage inward investment focused on both the Offshore and Automotive sectors.

“Not all of the changes which the business community would wish for have come to fruition. The scheduled increases in the fuel duty escalator are going ahead as planned for most road users and users of company cars continue to find their costs increasing in the form of additional taxation. There has been no movement on easing the burden of business rates and there was little announced to encourage investment in existing infrastructure in the North East such as our air, road or rail links.

“However for the business community in the North East I would suggest that when contemplating the March 2012 budget, like the Autumn Statement, the glass should be half full not half empty.”

Q: Can reductions in both corporate tax and the 50 per cent income tax rate for high earners be justified in the current economic climate?

Alastair Wilson, tax partner at Tait Walker, discusses the future of corporate tax and the 50p tax rate.

Q: Can reductions in both corporate tax and the 50 per cent income tax rate for high earners be justified in the current economic climate?

It is likely that a reduction in the top rates of both income and corporate tax will be announced, albeit to take effect sometime in the future. The current betting suggests the 50 per cent rate will be reduced to 45 per cent and corporate tax reduced to 20 per cent.

The key issue George Osborne faces is that a tax on income which is deemed to be penal will encourage taxpayers to seek to avoid the tax (whether by fair means or foul) or to move to a lower tax country. When the 50 per cent tax rate was introduced, there was a flow of talent out of the UK to countries such as Switzerland and a widespread increase in the use of tax planning to avoid the highest taxes.

Corporate taxes are now seen by companies as a “cost” to be managed like any other. Moving a company’s country of residency for tax purposes is relatively straightforward and well proven and, in the modern global economy, a business can be run from anywhere in the world.

For example, corporate tax in the Republic of Ireland is 12.5 per cent and they have a willing workforce which is highly educated and English speaking. Their infrastructure is well developed and it is easy to get to the Republic of Ireland from all major economies. After the recent economic turmoil, property prices are likely to be very reasonable tool!

The UK has to be in a position to persuade large companies that the cost and disruption of moving their businesses to a lower tax jurisdiction is not worthwhile, so having a corporate tax rate which is not dissimilar to “competitors” such as the Republic of Ireland is a sensible measure.

What the Government is seeking to achieve is a balance, where the taxes are sufficiently high to fund the UK’s economic needs but sufficiently low to discourage entrepreneurs from seeking to avoid them. Globally, lower taxes have been repeatedly proven to actually increase the tax collected, because taxpayers are encouraged to invest (or simply spend) the wealth they create at home rather than seeking to horde it offshore.

Author: Alastair Wilson, Tax Partner

Part 2 – Present your case well

In the current marketplace it’s essential to present your case for funding effectively. With this in mind, most funders will expect you to provide the following:

  • Accounts – Your last set of statutory accounts alongside good quality and timely management accounts for the trading period since the last year end.
  • Business Plan – A narrative business plan which provides a summary of historic performance and your business case for raising funds.  This should include an analysis of your market alongside a candid assessment of the potential risks associated with the project and how they can be mitigated.
  • Financial forecasts –Detailed monthly trading forecasts for your business usually for a period of at least three years, including profit and loss accounts, balance sheets and cash flow statements.

It is important to remember that funders and investors are backing management as much as the business itself.  Good accounts, and well written business plan and forecasts, send a strong message that you understand your business and are in control.

In conclusion:

Raising finance can be a daunting prospect for business owners and managers in today’s climate, but our clients are often surprised by the number of potential funding sources that are available to them.

Before setting out to raise money, spend time researching your potential funding options and prepare the documentation funders will need to assess your application – this will help you to identify exactly how much funding you will need, which funders you should approach and will enhance the credibility of your application.

Finally, and perhaps most importantly, if you are unsure how to begin, or feel that you do not have the resource or expertise to undertake a fundraising round, don’t be afraid to ask for advice.

 

Author – Mike Russell, Corporate Finance Director

Part 1 – Funding growth in today’s tough economic climate

MHA’s recently published 2012 Manufacturing Survey shows an encouraging trend of confidence in the manufacturing sector which is particularly positive here in the North East.

This is great news, in theory. However, following difficult trading conditions in recent years, there will be few businesses with enough surplus cash resources to upgrade their equipment and provide the additional working capital needed to support any increases in sector demand.

Below you’ll find a summary of the external funding options available to businesses in the region.

Types of funding available:

  • Independent asset based lenders: Offer lending secured against the assets of your business, with a greater appetite for risk than banks but at a slightly higher cost.
  • Private equity: The most accessible private equity funds in the North East are probably the Finance for Business North East funds, which can provide unsecured loans and equity investments ranging from £1,000 up to £1.25m.
  • Whilst these funders demand a higher level of return than banks and can also require you to give up an equity stake in your company and a seat on the board, businesses often benefit from the expertise and experience these funders bring with them.

When you look at your fundraising requirements don’t forget to look internally – any personal funds you have, income from sale or refinancing of unencumbered assets, improving credit control, negotiating improved credit terms from suppliers or perhaps even an R&D tax relief claim are all ways of releasing funds into your business quickly and cheaply.

See part 2 on Monday where we will advise on steps that can be taken to maximise your chances of a successful funding application.

 

Author: Mike Russell, Corporate Finance Director

Investing in technology to survive the recession

As the credit crunch continues to unfold, many businesses retreat into ‘saving mode’, trying to reduce costs as much as possible. But many who have been through previous recessions will know that investing now in tools that can make substantial bottom line savings and make them more profitable, is sound business practice.

Rather than getting caught up in the doom and gloom it’s more proactive for businesses to see investment in the latest products as an opportunity rather than a cost, and allow the technology to be viewed as a tool to ensure your business remains healthy.

Sage is the market leader when it comes to creating business software solutions and one of the most vital systems we find to help improve business sustainability is an integrated accounts system. Having an online accounts system tailored to your business’ needs can help you to manage your staff, your customers and your finances more efficiently every day.

Having helped hundreds of businesses find the right solution for them I always make the following recommendations:

  • Look for a system that enables you to have easy access to the information you need, in the way you want, wherever you are, whenever you want with powerful reporting tools, full excel integration, drillable management reports and mobile applications.
  • A system with easy to use credit control processes enables you to maintain a positive line of credit with your suppliers, by effectively managing your payments. It also ensures that your customers pay you on time with comprehensive debt chasing features.
  • You should aim to streamline your processes and reduce duplication with order processing.
  • An integrated system will allow you to organise your information by using diary, communications and document management memo tabs.

Investing in a simple technical solution can assist in streamlining your business and ultimately help you survive a difficult financial period by offering business continuity in a secure and reliable system.

Author: Claire Richardson, Tait Walker (Sage Platinum Partner 2012)

 

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