As December comes to a close, Ian Ross, Location Director at Vantis in Epsom, takes a moment to review some of the key business highs and lows of 2009.
Bank Lending
The UK banks accepted more than £200 billion in UK taxpayer assistance during the last few months of the economic crisis, but businesses are still finding it difficult to raise bank finance. A profitable IT company having its credit facility cut from £1 million to £0.5 million - on more expensive terms - is just one of the many examples that Vantis has come across.
The Enterprise Finance Guarantee Scheme (EFGS) was set up by the government to help tackle this. In return for a fee, a government guarantee secures bank loans for businesses, with a sound borrowing proposal but a lack of adequate security. Although there are limits on the size of company eligible, for those that qualify, the scheme secures 75% of the loan, up to a maximum of £1m.
After initial concerns, the scheme has been quite effective in encouraging banks to lend to businesses with annual revenue of up to £25 million. However, many lenders still seek personal guarantees from business owners, which limits the impact of the scheme. The Chancellor recently made his support for the scheme clear, by extending it so that small firms will be able to access another £500 million of credit in 2010.
Corporate Finance Activity
2009 has been a very difficult year for those involved in corporate finance. Business valuations, usually based on multiples of earnings and profit, are low and this has led to poor transaction levels.
This can represent an opportunity for potential acquirers, but until the expectation gap between sellers and buyers narrows, the number of transactions completed will remain low. However, in the last few months there have been some positive economic indicators, and confidence is beginning to return to the market. Recovery in activity will probably be led by the strong, well managed and cash-rich businesses.
The lack of bank finance has also increased the focus on public equity markets as a substitute, and several Initial Public Offerings are expected in early 2010.
Tax increases and some advice
The HM Revenue & Customs (HMRC) Business Payment Support Service, which has helped businesses by offering more time to pay their outstanding taxes, has proven both valuable and popular – and will continue through 2010. Business owners that anticipate having a short term cashflow problem in the current year should mention so, when contacting HMRC. Their helpline is 0845 302 1435.
This year also saw the announcement of the new top rate of 50% income tax, for those earning more than £150,000 a year, which comes into effect from April 2010. This, along with increases to National Insurance Contributions for everybody, will mean additional tax costs for individuals and businesses.
However, action can be taken by both individuals and businesses, including:
- Maximise the income to be taxed in this financial year at 40%, rather than in the next tax year at 50%
- Structure investments to realise gains – taxed at 18% – rather than generate income
- Split income sources between husband and wife or civil partners to reduce the overall tax rate
- Consider making loans instead of remuneration for business owner-managers to increase tax efficiencies.
Chris Maddock, Head of Private Client Tax at Vantis, said: “The good news is that there is still time to review your financial affairs and to consider whether there’s anything you can do to mitigate the effect of these tax increases. People should act now so they don’t miss the opportunities before the end of the tax year.”