New research shows that it’s more expensive to run UK SMEs outside of London

Research from The Federation of Small Businesses (FSB) reveals that Government policy has made it more expensive for UK SMEs located outside London.

The policy changes recently implemented by the Government have put a relatively larger burden on small businesses in Northern Ireland, Scotland and Wales than on those in London. The legislative changes that have caused this include the cost of taxes and regulation.

UK SMEs dealing with increased costs in devolved regions

The cost of the changes in every devolved region has gone up, while it has actually decreased slightly in the capital. The average UK SME has an annual cost of £481,000. While this is the same cost as 2018, it has increased by 14.5% compared with the £61,000 it cost in 2011.

Small businesses in Scotland are paying 14.7% more, 14.9% more in Northern Ireland and 15.25% more in Wales, because of the measures. These changes are shown in the annual Impact of Government Policy Index, which also reveals that the rise in London was 13.7%.

The index is currently measuring the highest ever, due to the rising business rates announced in the Autumn 2018 budget. Other Government policy changes in areas including insurance and pensions means that they outweigh any benefit from a reduction in corporation tax.

UK SMEs in construction sector most vulnerable

According to the research experts at the Centre for Economics and Business Research (CEBR) who compile the index, the way the economy is made up in the devolved regions explains the rise in costs.

The data shows that construction is under the most pressure, as it is dealing with a 28% rise in costs due to the policy changes. Rising wages and labour taxes mean that it’s the hardest hit sector in devolved areas. The costs of manufacturing actually rose by a fifth in just two years.

It’s also likely that the increase in minimum wage from £7.83 to £8.21/hr, is affecting these regions and sectors. Most workers in the capital already earn more than the threshold due to London weighting on salaries, so this also impacts the distribution of costs.

Fewer businesses in devolved regions

Another factor that has contributed to the marked difference in business costs is the sheer number of businesses in London. Devolved regions of the UK are home to far fewer companies than the capital. Per 10,000 people, London has 1,563 businesses. In Scotland, the number of businesses per 10,000 people is 735, in Northern Ireland 897 and in Wales 774.

 

The index has been compiled by CEBR since 2011, to measure the impact of Government policy on the average VAT-registered SME.

 

James Turner, Managing Director of Turner Little Limited says: “It seems clear from this report that the Government must do much more to support UK SMEs throughout the whole country. At the moment, the weighting in favour of small businesses in London is marked. As the country heads towards Brexit, there needs to be much more guidance and reassurance from the Government for small businesses, and particularly those in regions outside the capital.

“Small businesses in the UK increasingly form the backbone of the economy and, as such, need more support. If the country is going to thrive after Brexit, then work needs to be put in to shore up SMEs in all regions of the country.”

 

About Turner Little
Founded in 1998 in Yorkshire, UK, Turner Little is a specialist UK and offshore company formation, banking and corporate services provider. Our services include company formation, UK and offshore banking, asset protection, credit correction, trademarking and trusts. Other services include Internet services, mail forwarding, wills and probate. Turner Little’s vision is to offer the best possible service, together with market leading products.

Late payments report shows clear problems for small businesses in the UK

New research by Bacs Payment Schemes, part of the UK’s retail payments authority, Pay.UK, shows that late payments are causing huge problems for small businesses in the UK. Businesses are now facing an outstanding bill of £6.7 billion, just in payments they’re owed. This is up from £2.6 billion in 2017.

Small businesses in the UK are suffering

The cost of recovering the money that is overdue is now (on average) £9,000 per business. As well as the costs involved in actually recovering the money, more than 33% of SMEs in the UK are waiting two months beyond agreed payment terms to recoup it. This is almost double the number of businesses who reported the same problem in 2017.

Data from the UK Small Business Commissioner, in conjunction with Lloyds Banking Group agrees. Their research finds that there are regional variations with late payments, with small businesses in the north east wait an average of 40 days to receive payment, three days more than the UK average.

What is the recommendation for payment terms for small businesses in the UK?

Two years ago, the office of the Small Business Commissioner was launched by the Government to monitor payment practices for small businesses. Paul Uppal currently holds the commissioner position and has issued a recommendation that large businesses pay small business suppliers in no more than 30 days.

Cashflow challenges faced by small businesses not only hamper their growth and that of the overall economy. The Commissioner says: “Our initial findings indicate that almost two-thirds of payments are likely to be owed to smaller firms at any time. This is money that could be used to grow smaller businesses and generate tangible economic activity. Instead, it is stuck in large firms’ business ledgers doing nothing.”

Information on payment terms to small business suppliers has been collected by the commissioner for two years. The challenge for the Government now is to utilise the information in such a way that helps small businesses make useful decisions about which large firms they should do business with.

Regional variations across the UK – and the impact

The data also shows that 65% of large businesses in the UK pay smaller suppliers in an average of more than 30 days. 20% wait more than 50 days before paying small businesses they work with.

Small businesses in the Humber and Yorkshire areas are worst off, as they are forced to wait an average of 43 days for their bills to be settled. The second worst payment time can be seen in the East Midlands and Northern Ireland, where businesses are forced to wait an average of 41 days. London businesses are the best off, with businesses reporting payments at 34 days.

To deal with the increasing problem caused by late payment, Mr Uppal is recommending that a ‘traffic light’ system is introduced in order to clearly show which businesses are later payers. He says: “A traffic light system would be a simple and effective way of demonstrating which larger firms have structured their supply chain in such a way that it is more than an exchange of goods or services but also resembles part of their financing model.”

Lloyds Bank Commercial Banking’s representative, Ed Thurman, adds: “We have discovered wide variations in payments depending on where businesses are located. Two weeks can be critical in the financial well-being of a smaller business. Businesses could consider utilising invoice financing products to mitigate these challenges.”

James Turner, Managing Director of Turner Little Limited says: “The effect of late payments on small businesses can be devastating. It not only slows down the growth of their business, but also impacts on the daily lives and potential mental health of those dealing with the delays.

“More than 25% of SME owners who are facing late payments are forced to withhold payment to their own suppliers. Similarly, 28% report cutting their own income to keep the cashflow going for their business. With a 6% increase in the number of small businesses in the UK experiencing the problems of late payments, there is clearly a lot of work to be done. It’s important that business owners plan ahead as much as possible to mitigate the challenges posed by late payers.”

About Turner Little
Founded in 1998 in Yorkshire, UK, Turner Little is a specialist UK and offshore company formation, banking and corporate services provider. Our services include company formation, UK and offshore banking, asset protection, credit correction/repair, trademarking and trusts. Other services include Internet services, mail forwarding, wills and probate. Turner Little’s vision is to offer the best possible service, together with market leading products.