The Secret Entrepreneur: Budget Schmudget!
Why the government needs to make sticking with a growth business more attractive – or watch more great companies fail to realise their potential!
As we’ve shared a number of entrepreneur’s reactions to the budget this week, it seemed only fair to hear the unrestricted opinion of our Secret Entrepreneur. It appears they’re less than impressed…
“It’s Budget time again. Whichever way you look, the media is filled with comments and analysis.
So I may as well add my thoughts to the pile. I’m looking at this purely as an entrepreneur, I’m not even going to get in to the wider issue of negligible infrastructure spending or 1p savings on beer (I look forward to paying £3.09 for a pint…)
To summarise my thoughts: “meh”.
Let’s be clear – nothing here is really going to change anything substantial for entrepreneurs. The much lauded £2,000 reduction on employers National Insurance doesn’t kick in for another 12 months, so it makes no real difference. It’s not exactly going to move the needle for anyone employing more than a couple of staff either. For micro businesses, it’ good news – but the real killer when taking on your first staff is the incredible burden of red tape, not just the cash.
Harmonising to a single rate of Corporation Tax is welcome, but it’s not a major change – it will make things a little cheaper for those caught in the gap, with profits between the small companies and standard rate, but I can’t see it encouraging a major change in behaviour.
The biggest problem I have with the current tax system is that it’s basically geared to encourage entrepreneurs to cash-out early. Too early if we want to build companies that compete on a global level.
Entrepreneurs’ Relief means that you can sell your business and pay 10% tax on up to £10m. Of course it’s a bit more complex than that, but that’s the headline.
By comparison, if you’ve been slaving away for years to build your business and you get to the point where you can comfortably pay yourself say £100,000 a year, you’ll pay around 49% tax if you go through payroll, as you’ll have employer’s NI on top of your personal tax. Go the dividend route and you’ll pay a little less, but it still makes cashing out look far more attractive. Trust me, I came close to going this route recently.
While ultimately Entrepreneurs’ Relief is a good thing, especially if it encourages more people to go into business, I think that really it gets the rewards backwards. Building sustainable businesses which are in it for the long term, give people stable jobs, and pay their share in corporation and employment taxes are what the country needs.
Encouraging entrepreneurs to get out in order to get the most value isn’t going to do this. Most acquisitions fail – Harvard Business Review reckons the failure rate is 70-90%. That’s a lot of value destruction.
I’m not offering a solution to this – I’m no politician, or economist for that matter – but I think an alternative incentive which rewards people for building sustainable businesses which generate continued employment and long term tax contributions is something that any government that really values business should consider. Money isn’t what motivates most entrepreneurs (including myself) but it certainly helps make things worthwhile.”
Read previous Secret Entrepreneur columns here on Startups.co.uk.