Do entrepreneurs pay their ‘fair share’ of tax?

Prelude Group examines the economic value of fast-growth businesses

Corporation tax is a big issue right now. In recent months we’ve seen big international brands such as Starbucks, Amazon and Google dragged before MPs to justify their offerings to HM Revenue and Customs. There were murmurs of public boycotts and fines, and campaigners kicked up a stink.

Now David Cameron has told World Economic Forum at Davos that we need to “wake up and smell the coffee” when it comes to tax avoidance, with Cameron calling for countries to work together to tackle it.

The debate has brought about fresh questions about the tax affairs of UK businesses. They are engines of economic growth on the one hand, but they need to contribute to HMRC if British infrastructure, economy and customers have contributed to their success.

Fair enough; but while questions hang over the role of multi-nationals, what is the position of small entrepreneurial businesses based here in the UK?

Britain’s entrepreneurs have been building successful businesses all over the country. These enterprises may not be comparable in turnover or job creation to global giants such as Google, Amazon and the rest but their contribution to jobs and tax-take is easy to overlook.

One voice in the crowd calling for a different view of Britain’s fast-growing SMEs is that of Prelude Group. It partnered with PwC to conduct a study into the economic value added by a segment of Britain’s ‘unsung heroes’.

It looked in-depth at the contributions made by seven entrepreneurial businesses which it felt best represented the valuable minority of medium-sized businesses growing at more than 20 per cent per annum.

The figures speak for themselves. The businesses featured in the report generated a total tax contribution of £104.2m over the past five years. Not only that, but the companies employ a total of 1,219 people and are growing year-on-year.

One of the seven examples given in the report is that of Alex Cheatle (pictured above), founder of Ten Group, a lifestyle management – or concierge – business which does everything for its members from booking theatre tickets to finding a local plumber.

“I sold everything I owned to start the business,” he says in the report. “I didn’t pay myself for the first 18 months and built up debts to pay other people’s wages. In fact, I went backwards quite savagely in the net worth stakes. I was basically surviving on bread and water.”

In fact, the report found that of the Gross Value Added by the companies over the past five years, an average of only 15% of that value went back to the owners.

Ten Group now turns over some £20m a year and employs 350 staff on an international level. Over the past five years, the report found that Ten Group contributed £16.7m in taxes. Prelude Group have worked out that this is the equivalent of employing 789 nurses.

“Entrepreneurs vary in their views on what government should do to amend tax legislation but one thing is clear: the founders of high growth businesses like those profiled in this report make a big overall contribution to UK plc,” said Duncan Cheatle, founder of Prelude Group.

“We should do all that we can to applaud and encourage them to keep doing what they, and so few others are able to do so well.”

To read the report, visit: http://www.preludegroup.co.uk/2012/11/19/the-unsung-heroes-of-business

 

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