Uncertainty is a large problem for small businesses

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The UK ranks a lowly 25th in the world when it comes to the overall ease of dealing with regulation

Today’s economic and political environment creates a number of challenges for the UK’s 5.5m small businesses.

One of the most prominent is uncertainty, and the impact this has on the cost of doing business; it affects the ability of businesses to access finance, invest, export, and ultimately, grow.

Consequently, the provision of tailored guidance and business support plays a vital role in shaping the prospects of small and medium sized enterprises at an individual level, as well as the wider growth prospects of the UK economy as a whole.

Read more: The government is hiring the first ever small business commissioner

Professional accountants play an important role here.

Recent research from the International Federation of Accountants indicated that small and medium sized accountancy practices remain small businesses’ most trusted advisers.

Meanwhile the Federation of Small Business has found that half of small firms in the UK that have sought business support have approached their accountant.

As their professional body, ACCA’s members provide us with a birds-eye view of the key issues affecting the business performance of the UK’s small business community.

Some of these are more easily addressed than others, but all are crucial for the government to address in the coming years if this community is to strengthen, grow and prepare to weather the consequences of the UK’s departure from the European Union.

Late payments hit productivity

One of the biggest problems we hear about from small businesses is poor payment practice. About 30 per cent of payments in the UK are typically late – an astonishing figure for a developed economy in 2017. Of these, 61 per cent of late payments are from larger companies. In comparison, the levels of late payment experienced in comparative economies like Germany or Canada are far lower.

Delayed payment affects small businesses in a number of ways. Evidence clearly shows that it reduces business productivity, with firms that would otherwise be spending time growing and investing in their business instead chasing debts.

Small businesses need certainty in payment timing and practice – and it will take government attention to solve this problem.

Uncertainty around regulations and laws

It’s important to note that the UK is viewed as a good place to do business compared to other countries, ranked seventh in the world by the World Bank on its index.

However, according to the World Economic Forum, theUK also ranks a lowly 25th in the world when it comes to the overall ease of dealing with regulation.

Poor quality or excessive regulation is seen by small firms as reducing profitability, productivity, and innovation. It can also inhibit the enthusiasm of small firms to hire more staff and look to scale up.

Those areas of regulation which relate to the day-to-day running of one’s business are perceived as having the greatest impact by small firms.

In particular, workplace health and safety, employment law, data protection, and tax administration are ranked highly by small businesses as a burden.

Digitising tax should not create a bigger administrative burden

With uncertainty over our relationship with the EU likely to continue for some time, it is paramount that the government does everything it can to facilitate a stable business environment at home.

Initial proposals to implement HMRC’s Making Tax Digital programme have done anything but. The overarching objective of Making Tax Digital – to digitise and modernise our tax administration, and therefore make it easier for taxpayers to use – is to be welcomed.

However, as part of the initiative, it was originally intended that small businesses would routinely capture and report digital updates on a quarterly basis, or else face fines.

This approach is a distraction from day-to-day business, which is why ACCA and our members have welcomed the gentler-paced and more responsive and collaborative rollout announced by the government over the summer.

Small businesses are already rapidly embracing digital technology to manage their tax and finances. This should be encouraged, but imposing greater administrative costs and burdens on small business – at a time of considerable uncertainty over Brexit – is the wrong approach to take.

If implemented correctly, Making Tax Digital has the potential to considerably improve business efficiency and productivity.

The government should therefore create the right incentives to encourage businesses to come on board with paying their taxes digitally while addressing more fundamental issues at hand, such as clarifying how implementation will take place, providing support for those businesses facing hefty transitional costs, and offering more training schemes for small businesses looking to improve their digital skills.

Engaging with the Small Business commissioner

Encouragingly, the government is taking some steps to improve the business environment for the UK’s small firms. In particular, the planned launch of the Small Business Commissioner in October should help those small businesses looking to resolve disputes and complaints over payment matters.

Subject to the government effectively communicating this initiative to the wider SME community, as well as ensuring it has the appropriate resources to carry out its responsibilities, the commissioner should help to create a culture of improved business practices across the UK economy.

However, it is essential that the customer experience of engaging with the commissioner is made as straightforward as possible for small businesses. Smaller businesses are resource and time constrained, and any perception that the commissioner is seen as a complex or burdensome route towards dealing with payment issues will disincentivise small firms from engaging.

More broadly, while the appointment of the commissioner is welcome, it is no silver bullet for the myriad of aforementioned issues and barriers. When it comes to support, professional accountants know better than anyone that what small businesses value is simple and clear advice.

If these first few months prove successful, the government should consider whether the remit of the commissioner could be expanded in the future.

The development of a coherent approach to business support under a single institution could bring much needed benefits to small business and help stimulate wider productivity across the UK economy.

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