MAH, Chartered Accountants

Author: Mohammed Haque

  • Tech startup outsourcing

    Tech startup outsourcing for operations/admin

    Tech startups will invariably have some processes which are not fully automated and require human input at some stage or another. This is where the operations/admin team comes in, especially for pre Series A startups where staff are multifunctional and systems are not yet fully developed. A few examples may include:

    • completing orders
    • dealing with suppliers and supply chain management
    • onboarding, customer support and resolving issues
    • analysing data and looking for ways to improving efficiency
    • streamlining processes
    • fire fighting and fixing a million and one problems affecting the business

    The key to operations is that they keep the business going whilst also helping it to grow and get better at delivering their products and services.

    The benefits of moving fast

    The best lean startups move very fast to beat rivals to corner new markets ripe for disruption.

    As soon as they have an MVP platform or app they’ll launch.

    But they’re not always fully ready, there’s always a toss up between developing further and adding new features and the delays that this causes.

    So what many tech startups have done is to use manual input from human staff as a stopgap solution to perform operations whilst their developers work on algorithms and automating processes.

    For example, a well known receipt scanning app used to say “processing” for many hours until an invoice was analysed and coded for accounting purposes. Did their servers really need 5 hours to analyse a simple pdf? No, what they were doing was to use human staff in the background.

    They did eventually develop an automated system to do the analysis much quicker. But by launching early they were able to gain traction and test the market. Once they were ready to launch properly they already had a loyal customer base and were able to grow bigger with a marketing push and lower prices due to lower costs.

    If they’d waited until their automated process was fully ready they would have missed the boat and a rival would have led the market.

    But as a tech startup outsourcing operations they were able to become market leaders.

    Lean startups and outsourcing

    Tech startups can minimise cash burn and maximise staff effectiveness by hiring a high calibre operations manager or COO inhouse to focus on strategy and heading up operations and then outsource to us.

    If manual processes can be somewhat standardised or turned into a process, ie “if X happens, do Y” then much of the work can then be outsourced to an operations team.

    Hiring staff in the UK will cost at least £20,000-£30,000 annually per staff member and they’ll also require time off for holidays and sickness.

    Outsourcing can slash the cost to something like £9,000 and startups could hire a whole team of 3 for the price of 1 inhouse staff. This also means they don’t have to worry about holidays or sickness.

    How can we help?

    We are already doing this for several tech and fintech startups using our high calibre team in Bangladesh and have a waiting list of staff who want to join us because they’ve heard about how great our office is.

    We can take over any manual, back office or operations processes and help you to launch quicker, save money and focus on growing the business.

    Click here for more details about how our tech startup outsourcing works.

     

  • 2018 Autumn Budget Update

    As usual there are many changes to the 2018 Autumn Budget, however they’re not all relevant to our clients. So here we have set out the important changes that may affect our clients. The 2 main issues are IR35 changes for contractors and limits on R&D cash refunds. We’ve also added a reminder about the changes in property taxes and an update for MTD for VAT registered clients.

    1) Income tax / dividends: good news from company owners
    The personal allowance threshold has increased to £12,500 per year and the higher rate tax will start at £50,000.

    This means that more dividends can be taken out at the lower rate of 7.5%. We’ll soon advise on the monthly amount of salary and dividends that can be taken without paying the higher rate from April 2019 onwards.

    2) R&D: bad news for cash refunds
    Currently many of our clients are claiming R&D tax credits to reduce their corporation tax bill if they are profit making, or to receive a cash refund if they are loss making.

    Many do not have any staff or have very low payroll costs as the majority of development is outsourced or directors are not drawing salaries.

    However, under the new rules that may come into play from 1 April 2020, companies will only be able to receive a cash refund of upto 3 times the total PAYE/NIC bill for that year.

    So for example, a client who has outsourced 100% of its R&D will not receive any cash refund at all.

    Although the rule change has not yet been confirmed as HMRC will consult on this change, many of our clients are claiming cash refunds every year and so forecasts/cash burn and run rate calculations will need to consider that R&D refunds may be restricted in future.

    Clients who use R&D tax credits to reduce their tax bill and don’t normally receive cash refunds will not be affected.

    3) IR35: bad news for contractors
    Private sector engagers (agency or “hiring” company) will now have to be responsible from April 2020 for deciding if contractors are within IR35 or not.

    Currently, the contractor can setup a limited company and when they start a contract they can decide themselves if they’re inside or outside IR35. They then invoice the engager their daily rate under both circumstances, but if they’re inside IR35 the contractor’s limited company has to pay NIC and PAYE.

    The agency/employer isn’t affected either way. (our clients are all outside IR35 and so currently avoid NIC/PAYE)

    But under the new rules, engagers will have to decide if the contractor is inside or outside IR35. If they’re inside IR35 because they’re basically like a shadow employee, then the agency/employer will have to pay them via payroll and deduct PAYE/NIC. The contractor can only be paid via an invoice if they’re outside of IR35.

    What we saw last year with public sector engagers such as the NHS, is that they generally deemed most contractors to be inside IR35 and so paid them via PAYE.

    Its not clear at this time what medium and large private companies such as banks and IT companies will do, buts its possible that our contractor clients may end up being paid via PAYE. In this case, it may not be worth continuing to use their limited company other than for investment purposes or to withdraw profits.

    Small engagers will be exempt, but the majority of our contractor clients seem to work for medium and large engagers.

    4) Other changes
    Training costs may no longer be tax deductible – but we’d need to look into the circumstances, please check with us if the tax deduction is a factor in deciding to undertake training.

    Employment allowance: the £3k NIC allowance will no longer be available to employers with an employers NIC bill greater than £100,000 per year. This won’t affect most clients, but there a few with large wage bills. We/you’ll need to ensure that its not claimed from April 2020.

    Entrepreneurs’ Relief: the minimum term to hold qualifying business investments is increasing from 1 year to 2 years. Although practically speaking, most clients with a capital gain on selling their business will have held it for more than 2 years anyway, so this may not have much of an impact.

    Annual investment Allowances: increased to £1m temporarily. Some of our clients invest significant amounts in computer hardware or software which is capitalised as tangible fixed assets. Previously the tax deduction was limited to £200k.

    Digital services tax of 2% on revenues for online marketplaces > £25m per year: we’re mentioning this as we have a number of tech startups with online marketplaces but their revenues are currently below the limits. Maybe something to consider if future growth plans are met.

    5) MTD from 1 April 2019 for VAT registered businesses with > £85k turnover

    We have been a bit quiet on Making Tax Digital as the Government kept delaying the start date and its only recently been confirmed that it will kick in from 1 April 2019 (although it could possibly be delayed again as this is straight after Brexit).

    The first phase of MTD will only be compulsory for VAT registered businesses with > £85k annual taxable turnover.
    Records will need to be kept digitally and submitted to HMRC in a different way than before.

    Xero will be MTD compliant but for clients who currently use spreadsheets, we are currently trialling different solutions to find the easiest/cheapest way to deal with MTD.

    In the past we haven’t charged extra for dealing with new laws/regs eg flat rate VAT changes or auto enrolment pensions, but MTD is likely to increase our time spent working on jobs and there will be a cost for this.

    Once we’ve estimated the extra time that we’ll need to spend on Xero and non-Xero clients we’ll inform you of the extra costs that we’d need to charge if you’d like us to deal with MTD. As usual, we’ll try to keep these fees as low as possible and for some clients we may not need to charge extra if it doesn’t take us long to deal with.

    6) Property tax restrictions for mortgage interest
    As discussed previously, mortgage interest will only be tax deductible at 20%. There were no changes mentioned in this 2018 Autumn Budget, but we’d like to remind our clients about the reductions in tax relief as 2017-18 was the first tax year that the restrictions started and its being gradually implemented by 2020 at which time there will be no 40% relief available.

  • Case studies with remote workers

    LeanStaff can save you £10-20k per employee by using the power of the internet to work remotely.

     

  • Confirmation Statement

    How to complete the Confirmation Statement

    The Confirmation Statement is required to be filed at Companies House at least annually, normally on the anniversary of incorporation.

    However, we often have to bring it forward or file an extra one if there is investment or changes to shareholder/director details and this is required to be updated at Companies House by investors or a bank etc.

    It costs £13 to file online (or £4o via the more complex paper route) and is generally straightforward to prepare.

    Online

    Login using your webfiling account. Next enter the company’s registration number and also the company’s authentication code. If this is not available, it can be requested at this stage online and Companies House will post it within a few days to the registered office address.

    General details

    The directors’ and company’s details need to be checked and updated if necessary, typically these may be any changes to registered, home or correspondence addresses.

    Shares

    If SH01s and SH02s have been filed online, then the share capital is generally upto date, but the share capital should be doublechecked against expectations, in case any SH01s or SH02s have not yet been filed.

    SIC code

    If it is the first Confirmation Statement to be prepared then an industry code has to be selected. The easiest way is to use a code of another client, however there is a full list at https://www.gov.uk/government/publications/standard-industrial-classification-of-economic-activities-sic

    although not all the codes may be available at Companies House.

    Persons with Significant Control (PSCs)

    A PSC is an individual or a company who can influence the company directly or indirectly.

    If completing this for the first time, ensure that you doublecheck the personal/company details of the PSC

    Many of our small clients only have 1 or 2 shareholders and typical details are shown below:

    1) If there is only 1 shareholder, they will have:

    • > 75% control and voting rights
    • the right to appoint or remove a majority of board members

    2) If there are 2 shareholders with 50:50 control:

    • >25% but below <50% control and voting rights

    Other boxes don’t usually need to be ticked for most small companies.

    Paper return

    The paper return is more complicated and time consuming and should be avoided wherever possible and is normally only required when the client doesn’t have their authentication code.

    You should ensure that all director/shareholder/company details are doublechecked to source documentation to avoid errors.

    Part 1: The statement is only 2 pages: make sure you check the company name and number and confirmation date to Companies House

    Part 2: There are many continuation pages and so the pdf is very long, but we only need to prepare the following sections:

    A1: find the SIC code (see above)

    B1: most companies only have 1 class of ordinary shares, but some may have more. In this case check to the Register of Members or share cap table. Ensure that the correct number of shares is used, and aggregate nominal value = number of shares x nominal value per share. Ensure that the total is completed for each currency table used and that a grand total is put at the bottom of the page. The amount unpaid is usually £0

    B2: the prescribed particulars can be found in the incorporation documents or in previous SH01 forms or share issue documentation

    C1: usually “No”

    D1: Enter the shareholders details and ensure this agrees to the Register of Members or Share Cap Table.

    F1-F4: Enter the PSC details (see above) or use the next part for company details.

    Don’t need all the continuation pages.

     

    Need help?

    Please do contact us if you need any help to file the Confirmation Statement

  • Public sector contractors

    Public sector

    This post only applies to off payroll “contractors” (including locums or consultants etc) who are working in the public sector, such as for the NHS, a government agency, university or local authority and use a limited company to raise invoices.

    Contractors working in the private sector will not currently be affected by these rules, although there could potentially be a risk of similar legislation in the future for the private sector.

    Old IR35 rules

    The old IR35 rules are explained in detail here, but basically if a contractor can demonstrate that they are not a “shadow employee” because they have rights of control over how/when they work, rights of substitution and no mutual obligations then they can raise an invoice via a limited company and avoid payroll taxes.

    Under the old rules it was up to the contractor to decide if they were inside or outside of IR35, and so they could use their judgement or obtain professional advice about this. If HMRC disagreed with the contractor and believed that they were inside IR35, then the liability for unpaid salary taxes was on the contractor.

    New IR35 rules from 6 April 2017

    If the new rules are found to apply, then contractors will have to pay employment taxes similar to those paid via payroll/PAYE, even if they are using a limited company.

    Under the new rules, it is up to the public sector body to decide if the contractor is inside or outside of IR35.

    If the public sector body is later found to have made an incorrect decision then they will be held liable for the unpaid salary tax/NIC. Therefore, it will be less risky for public bodies to apply a blanket rule of paying all contractors as employees and deducting tax/NIC, rather than verifying whether each and every single contractor is outside IR35 and paying the full invoice amount.

    Our understanding is that the NHS and locum agencies will be generally by paying all doctors and nurses via PAYE under the new rules. IT and other consultants may also be caught by the NHS or other public bodies.

    Impact of new IR35 rules for public sector contractors

    The fee payer (eg NHS or agency) will calculate income tax and employee NIC and deduct these from the fee payable to the contractor. The contractor’s limited company will get a tax deduction for the income tax and NIC, but will then have to pay a further 20% corporation tax on the profit.

    However, if all the public sector net income is withdrawn as salaries then there will not be any profit left and this is exempt from income tax/NIC as it has already been deducted at source.

    The 5% allowance normally available to contractors inside IR35 is also removed for public sector contracts.

    Overall, we CANNOT see any significant benefits from using a limited company if a contractor will be caught by the new rules. The normal tax planning using dividends or multiple shareholders will be affected by the extra corporation tax that is payable on top of income tax/NIC unless all net income is withdrawn as salaries.

    In this case, the contractor would be better off being employed directly via the agency/NHS without the limited company. The limited company can also be closed down.

  • New VAT flat rate scheme limited costs

    Old flat rate scheme

    Prior to 1 April 2017 the old flat rate scheme was very popular with many of our clients as they could earn an extra income under the scheme. Although they were not able to reclaim input VAT on expenses, they didn’t have to pass on the full 20% VAT charged to customers. Depending on their business category/sector they would pay a flat rate VAT less than 20% and so they could keep the difference.

    New flat rate scheme for limited costs: 16.5%

    The old scheme was originally designed to make things easier/quicker for small businesses to comply with quarterly VAT returns as it didn’t require businesses to record all their costs/expenses each quarter.

    But in the Autumn Statement on 23 November 2016 the Government declared that businesses with limited costs were in effect “abusing” the flat rate scheme as their affairs were so simple they didn’t need it .

    From 1 April 2017 businesses with limited costs would need to apply a much higher flat rate of 16.5%.

    What are limited cost businesses?

    A business will have “limited costs” if the gross amount it spends on relevant goods is either:

    • less than 2% of VAT flat rate turnover (ie gross UK sales)
    • more than 2% but less than £1,000 per year

    Relevant goods include: stationery/office supplies, gas/electricity, stock, cleaning products etc.

    They exclude services such as rent, accountancy fees, advertising, laptop/mobile and also electronic services such as software.

    What is the impact of the new scheme?

    If a business does not have limited costs or ….., then there is no impact and they can continue as normal.

    For businesses with limited costs, the new flat rate scheme is 16.5%.

    Example

    Net sales £100,000

    VAT charged to customers: £20,000

    Gross sales: £120,000

    Old flat rate scheme

    eg consultant/contractor with flat rate of 14.5%

    Flat rate payable is £120,000 x 14.5% = £17,400.

    Profit on flat rate scheme is £20,000 – £17,400 = £2,600

    So as long as input VAT on expenses is less than £2,600 then the flat rate earns an extra 2.6% for the business.

    New flat rate scheme

    eg any business meeting criteria of limited costs has a flat rate of 16.5%

    Flat rate payable is £120,000 x 16.5% = £19,800.

    Profit on flat rate scheme is £20,000 – £19,800 = £200

    So this is a loss of £2,400 compared to the old scheme.

    Normally most limited cost businesses will have more than £200 of input VAT, for example from accountancy fees, telephone bills, software/subscriptions etc. If so, then they should leave the flat rate scheme and claim input VAT under the normal scheme.

     

     VAT returns that straddle 1 April 2017

    VAT returns for QE April and May 2017 will straddle the start date. The return has to be split into 2 periods, before and after 1 April 2017. The first period will be treated as under the old rules and the second period under the new rules.

     

    Leaving the flat rate scheme

    For businesses with limited costs and turnover below £83,000 pa it may be worthwhile to deregister for VAT completely to avoid the additional admin.

    For businesses with turnover above £83,000, it may be best to leave the flat rate scheme. This can be done by writing to HMRC and requesting to leave. The normal leaving date will be the end of a VAT return period, but a leaving date of 1 April 2017 could also be requested.

    Please contact us if you need help with this.

  • MAH win British Muslim Award for services to accounting

    MAH win British Muslim Award for services to accounting

    Winner Logo - British Muslim Awards 2017

     

     

     

     

     

    MAH, Chartered Accountants are pleased to announce that they have won the prestigious British Muslim Award for services to accounting. The award was announced at a glamorous black tie ceremony held at the Athena in Leicester on 25 January 2017.

    Thousands of nominations were received from the public for The British Muslim Awards, which is testament to breadth of talent and success, making it apparent that British Muslims across the nation are waving the flag of success.

    BMA_award

     

     

     

     

     

    Mohammed Haque, director of MAH, Chartered Accountants had this to say about the award:

    “Alhamdolillah, I am delighted to be a winner at the British Muslim Awards. It was a great achievement and a reward for the high quality work that we’ve done such as hedge fund audits, working with AIM plcs and claiming £100,000s of complex tax breaks for research and development credits and SEIS/EIS investment. We’ve also helped foster startups in the muslim community by sponsoring events and have recently started working with a number of muslim charities.”

    The fifth annual awards recognised a wide range of achievements, covering various aspects of society, including business, charity, sport, arts and culture and much more.

    The evening was a celebration of success as well as reflecting upon the significant role of Britain’s Muslims in society.

    Irfan Younis event organisers of Oceanic Consulting said:  “We are humbled and honoured by the support from the public who have voted in their thousands, resulting in an impressive list of finalists. The awards aim to celebrate individuals and companies that contribute in making a better Great Britain.”

  • 6 ways to legally boost your balance sheet permanently

    We use our expertise to help clients maximise their assets where legally possible in accordance with UK GAAP or IFRS. This is especially useful for companies who need to meet gross asset or capital requirements such as FCA firms or raising bank loans or complying with bank or investor covenants. However, the methods below are not always possible and there will also be tax consequences.

    The methods below are of a permanent or long term nature and do not involve window dressing or other short term methods, so the accounts should still be true and fair and have a clean audit report if all the relevant criteria are met.

    1) Recognise intangible assets

    If your company has spent time or money developing intellectual property then the chances are that it can be capitalised on the balance sheet if certain criteria are met.

    For example, one of our clients spent £200k developing an online payments platform as well as other mobile apps. We reviewed the contracts and looked at how the systems worked and after discussions with management were able to confirm that an intangible asset had been created. One of the main factors in particular was that the platform was already generating significant revenue, however, even if a company is loss making or a startup it may still be able to capitalise intangibles depending on their profit forecasts.

    Staff time can also be capitalised. For example on an FCA client, we looked at how much time a director and his staff spent on building and developing  a complex quantitative model to monitor financial trading signals as opposed to maintaining it and fixing bugs. We were then able to advise on the percentage of staff costs that could potentially be capitalised.

    Intangible assets such as those above can also qualify for tax relief on amortisation.

    We also found that a mining client had spent significant amounts on legal fees and we were able to capitalise these as exploration and evaluation assets.

    2) Turn tax losses into a deferred tax asset

    If its probable that the company will generate sufficient profits in the future to utilise tax losses then the future tax benefit can be recognised as an asset.

    This one is often tricky to convince auditors (such as ourselves!) but at the end of the day, if cashflow forecasts are good enough to satisfy going concern, then they could potentially support a deferred tax asset especially if a company is beginning to turn a corner and is close to generating profits.

    3) Make sure all income has been accrued

    If you bill clients at the end of a job then you could potentially have work in progress at the end of the year which has a value. This will often have to be brought into your revenue stream anyway to ensure that income is recognised in the period in which it is generated.

    Some companies may have intercompany fees, licences or royalties charged to foreign subsidiaries or connected companies. For example, one of our clients has a UK system and we helped them to setup a licencing fee to a foreign company under an intercompany agreement. This will increase turnover and assets as long as the debt is recoverable. For a profit making group this won’t be a problem, however, if there is no chance that the subsidiary or connected company can pay the fees in future, then the debt will need to be written off or impaired.

    4) Convert debt to equity (or subordinate it)

    If directors have used their own funds to finance a company then this will be a liability on the balance sheet. One simple way to boost the balance sheet and to reduce creditors is by issuing shares to the director in exchange for writing off the debt. This would also avoid a tax bill which could occur if the debt was written off to the profit and loss. If the shares are issued at market value then this will also avoid income tax for the director.

    FCA firms can also subordinate the debt for at least 5 years to include it in their capital calculations and we can advise on how to do this using a subordinated loan agreement.

    One of our clients tried to do this using preference shares, however, care needs to be taken because if they are redeemable preference shares then the debt component still needs to be presented as a liability on the balance sheet.

    5) Revalue property

    If your company owns its own premises or has investment properties then these can usually be revalued upwards based on management’s estimates. A more formal independent valuation may also be required in certain circumstances.

    6) Issue shares!

    We left this one till last as it sounds a bit obvious but many of our clients have raised funding from investors, for example £100k-£200k from angel/seed investors, £0.5m from VCs and £m’s from AIM. If you’re unsure of the process, we can help you to prepare a pitch deck and financial projectors and help you to approach potential investors.

     

    We can give you tailored advice to boost your balance sheet

    As you can see we use our specialist expertise in a joined up way to think about accounting and tax requirements. The above examples can sometimes get quite tricky so its definitely worthwhile seeking professional advice. You can contact us here for further information.

  • Brecession Watch #1

    Brecession Watch #1

    Could there be a recession?

    The Bank of England (“BoE”) has sought to calm financial markets and the UK economy by stating that there won’t be a financial crisis. They have also mentioned that UK banks are in much better health compared to the credit crisis of 2007-08 due to the new FCA/PRA regulations and increased capital and liquidity requirements. The BoE has also committed to providing £250bn liquidity (possibly supported by the ECB) to banks who require facilities to cope with foreign exchange liquidity, to continue providing credit (unlike in the credit crisis) and to supply other financial services to the real economy.

    In the worst case scenario a number of commentators are predicting that the volatility in markets could potentially last for years whilst new trade agreements are drawn up and that there could be a lasting recession.

    However, others consider Brexit to be a political event and the market volatility due to uncertainty rather than underlying economic reasons such as in the credit crisis of 2007-08.

    Foreign exchange rates

    GBP has depreciated significantly against foreign currencies. It was down by 8% against US$, which is double the loss of 4% during the ERM exit in 1992.

     

    It is not clear whether or not this is a temporary fall or the start of a permanent devaluation, but the fall could potentially have the following significant effects in the short term:

    • The cost of imports could increase due to the higher cost of goods and also energy prices if the reductions in the US$ price of oil are less than the GBP depreciation. This could then put pressure on inflation.
    • Although the UK’s exports would become cheaper and more competitive, the UK already has a significant current account deficit and this could worsen due to an unbalanced company relying on consumer spending, funded by debt. Many of the UK’s exports are also made up by services which may not necessarily benefit from a fall in GBP.

    Interest rates 

    Whilst many commentators suggested pre-Brexit that interest rates could rise, early indications are that the Bank of England will either hold interest rates at 0.5% or reduce them to 0.25% in an effort to stimulate the economy.

    Government bonds could potentially suffer from a cut in credit ratings in future, however yields have fallen due to increased demand.

    Investment

    Foreign investment in the UK could fall. We have already seen a fall in the UK stock market, and whilst the FTSE 100 has partially recovered, the FTSE 250 has fallen significantly. This could indicate a flight of capital from UK stock markets (as well as global stock markets). This would make it much more difficult for firms looking to raise equity.

    UK companies may also find it difficult to issue corporate bonds to borrow from foreign investors due to the economic uncertainty.

    Businesses are also likely to avoid making significant investment decisions until the situation clears.

    Consumption

    The increase in prices from a weaker GBP could reduce consumption. However, the psychology and sentiment of consumers may be the most important factor in avoiding recession. It is clear that Brexit is a completely different scenario to the credit crisis when there were bank runs and financial meltdown appeared to be imminent. However, if consumers are worried (rightly or wrongly) about job security or believe their mortgage interest payments could increase this will weaken private UK demand.

    Global economy

    Global stock markets have suffered with European indices falling more than in the UK and there could potentially be risks of global contagion. Although the UK’s GDP was only 4% of the world GDP and imports in 2015 the UK is a major global financial hub with the UK financial sector assets accounting for more than 8 times its GDP. This means that the rest of the EU is much more exposed to the UK due to financial and investment linkages.

    Conclusion: Brecession?

    The uncertainty could reduce consumption and investment. Although BoE could cut base rates and provide liquidity to banks this doesn’t necessarily mean that banks will lend to businesses and consumers, and could hold onto capital to boost their own balance sheets. This could result in falls in the growth rate, which was only 0.4% in Q1 2016 so a contraction in GDP could be possible.

    Although, it is too early to say with any uncertainty but businesses should definitely consider the possibility that the UK could be in a recession as a result of Brexit in the near future. Important business decisions may need to be delayed in the near future until there is further clarity for example, hiring staff, moving premises or committing to large R&D projects or capital expenditure.

     

    Unemployment?

    A number of UK employers have made statements that they could have to cut staff levels whilst others have stated that they won’t need to. Historically, however, a recession is normally followed by increases in unemployment. We could also be in the unusual situation of low/negative growth and inflation at the same time.

  • BREXIT: A GUIDE FOR SMALL BUSINESSES

    BREXIT: A GUIDE FOR SMALL BUSINESSES

    DOWNLOAD THE FULL BREXIT REPORT HERE

    Background

    As readers are no doubt aware the UK voted to leave the EU in June 2016. We were shocked that Brexit actually happened and were worried about the impact on our clients.

    The long lasting effects are unknown and much will depend on the negotiation of trade agreements with the EU. Some commentators have suggested that the UK could be in recession for many months whilst others have suggested that this will all blow over and the UK will rapidly recover.

    We have attempted to evaluate the worst case scenarios and impact on our small business clients.

    We all need to be aware of the potential threats to the UK economy and our clients/customers and take appropriate steps in order to survive and to thrive.

    Summary

    The Bank Of England is likely to cut interest rates and provide liquidity facilities to banks in order to prevent another credit crisis and to calm the markets. Financial markets could be due to political or financial/economic reasons and its too early to predict what could happen in the future.

    However, there is a potential risk of recession due to the fall in exchange rates, inflationary pressure and uncertainties affecting business and consumer confidence. Foreign investment may also fall.

    The full impact of Brexit is not yet known and one of the key factors will be the negotiations of a new trade agreement with the EU. If the Norway/Swiss models are followed and UK businesses can access the Single Market for imports/exports and financial passporting then the impact of Brexit may be limited.

    However, we have considered the worst case scenarios for our core sectors:

    Financial services: In the short term, FCA firms should re-check financial forecasts, risk assessments and capital adequacy requirements. In the medium/long term they will need to consider whether they will need to migrate to the EU or setup a subsidiary to ensure passporting.

    Tech startups: In the short term, cash burn and forecasts should be re-assessed as it could potentially become more difficult to raise finance if investors are nervous about the UK economy. In the long term, restrictions on movement of labour could reduce the talent pool and some of the infrastructure and benefits of operating in the UK.

    Fintech: Could suffer the same problems as tech startups but could also be affected by lack of passporting or reduced demand from the financial services sector if they are suffering from Brexit.

    Import / Export: Amazon sellers could suffer from double layers of taxation and tariffs if they’ll now have to export goods to both the UK and EU separately, depending on how trade agreements are negotiated. Foreign goods could also become more expensive to UK customers, reducing to demand.

    Contractors: Economic uncertainty could increase demand for temporary contracts if businesses are adverse to hiring new permanent staff. However, financial services could potentially suffer from job losses and temporary staff could also be affected. EU citizens need to check if they can stay in the UK and may be able to apply for permanent residence.

    AIM/ISDX plcs: Equity markets have suffered and existing plcs may find it difficult to raise new capital. If the credit crisis of 2007-08 can be used as a guide then it may be difficult for new firms to list or to reverse in the near future, as many deals collapsed after the credit crisis.

    DOWNLOAD THE FULL BREXIT REPORT HERE