The ‘2020 Vision – the Future of Business’ report focuses on the future of business over the next decade.

Among its key findings, it predicts a surge in the number of micro-businesses, often operating outside of traditional business hours and premises, as larger companies become unable to absorb the 5 million new workers expected by 2020.

It suggests large numbers of these ‘semi-detached’ firms – who group and share their expertise depending on their current need – will quickly overtake traditional businesses and will focus themselves around small and medium-sized enterprise ‘hubs’, rather than in major towns and cities.

In addition, the report highlights the emergence of a much greater dependency upon IT and mobile commerce by 2020, as access points and connection speeds increase exponentially and entrepreneurs seek to tap further the low overheads and barriers to entry afforded by a virtual business.

However, despite progress, the report warns that entrepreneurs of the next decade will still depend as much on business fundamentals, such as access to funding, as their present-day counterparts.

Edward Rimmer, UK chief executive of Bibby Financial Services, said: “If anything, the past few years have shown that UK businesses have the ability to adapt to face challenges head-on and evolve to respond to new opportunities. However, despite their adaptability, businesses can do little without access to the cash they need to grow and develop.

“The way companies need, use and access funding will certainly change in the coming years and it is important the finance industry evolves to meet these new demands head-on.”

Article contributed by BCR Factorscan

Main tax rates
Chancellor of the Exchequer George Osborne announced that the main CT rate will now fall from the current 28% rate to 26% in the fiscal year starting on 1st April this year. That will be followed by further 1% reductions in each of the next three years to 23% from April 2014.

As previously announced, however, UK fiscal depreciation rates for plant and machinery – i.e. capital allowances (CAs) – will be reduced. These take the form of annual writing down allowances (WDAs) on the reducing balance basis. The main CA rate will be reduced from the current 20% rate to 18% with effect from April 2012.

In itself, the UK’s relatively unattractive CA regime will tend to discourage fixed investment in plant, however it is financed. The advantages of tax-based leasing – i.e. conventional leasing arrangements where the lessor claims CAs – are affected by both the CA and the CT rates.

George Tonks

George Tonks, partner at Invigors consultancy, said: “Falling CT rates tend to be good for leasing in the short term, though less so in the longer term. While the tax rate is falling, lessors can benefit from CAs at a higher CT rate early in the lease period, while paying a lower rate towards the end of the lease period as the WDAs decline and the lease shows more taxable profit.

“In the long run, however, a lower CT rate will make tax a less important driver of asset finance products.”

In the UK, while the lessor is still entitled to CAs on most leases of up to seven years’ duration, and some longer ones with high residual values (RVs), there is also a category of ‘long funding leases’ (LFLs) where it is the lessee who claims CAs. “I am seeing a lot of interest in LFL deals among potential clients currently”, said Tonks.

The Chancellor announced a forthcoming review of the CT rate affecting profits earned in Northern Ireland, to see if further concessions were warranted to make it more competitive with the 12.5% CT rate in the Irish Republic.

Bank levy
To balance the effect of the CT rate reduction on banks, the Chancellor announced a further increase in the rate of the balance sheet levy on UK banks. The main rate of the levy, which essentially taxes the use of wholesale funding, will now rise to 0.078% from 2012, from  the 0.075% rate applying for most of this year.

The levy affects most providers or funders of UK asset finance. It is charged on the global balance sheets of those banks based in the UK, and the UK balance sheets of others. It therefore disadvantages those banks with multinational business who are based in the UK.

Enterprise zones
There are to be new local tax incentives, coming into force next year, for businesses in 21 designated enterprise zones (EZs) to be created in various urban locations in the UK with an identified need for such a stimulus.

EZs are essentially a revival of a scheme used in the 1980s, and phased out in the 1990s. In their original form they involved 100% Year 1 tax write-offs for the costs of industrial and commercial buildings (though not plant and machinery) located in the then designated areas. This created opportunities for tax-based property leasing.

In their new form there will be a variety of tax breaks, including some unaffected by asset finance arrangements. The details are not presently clear, and they may vary from one zone to another.

However, the Chancellor referred to a “ potential to use enhanced CAs in zones where there is a strong focus on manufacturing.” Whether this will eventually apply to industrial buildings and/or plant and machinery, and whether the incentives will be available to lessors otherwise entitled to claim CAs, is not yet clear.

Short life assets
The Chancellor announced an extension of a long standing rule where CA claimants (including eligible lessors) can gain some compensation for inadequate CA rates during their period of ownership of plant and machinery, when it is eventually disposed of.

Under this ’short life assets’ (SLA) scheme, businesses can conditionally opt to take specific plant items out of the general WDA pool, where WDA rates may lag behind the true depreciation cycle and thus defer some of the CAs until long after the useful life of the asset. Where this option is taken, WDA rates during the period of ownership are unaffected, but the business can then claim a “catch-up” balancing allowance on disposal. This ensures that 100% of the asset value is finally written off over the whole period of ownership.

At present, the SLA scheme is restricted to assets disposed of within four years of purchase. The option to de-pool any such assets must be exercised within two years from the end of the tax year when they are acquired. The scheme will now be extended to assets held for up to eight years.

Tonks commented: “This extension will be welcome. However, given uncertainties about RVs and possible lease extensions, it would have been better if the two-year election period had also been extended.”

Anti-avoidance moves
Among various anti-avoidance moves in the Budget announcements, there was yet another change in a frequently adjusted  set of special tax rules affecting the sale of companies in the business of plant and machinery leasing.

These rules were first introduced in 2005, to counteract arrangements to defer tax by selling lessor companies to parent companies in a tax loss position, at the point when a lease which may start in tax loss due to front loaded WDAs (see above) moves into tax profit. They work by imposing an additional tax charge on the selling company at the time of the sale, with a balancing allowance to the acquiring company (which of course could not benefit from such an allowance if in tax loss).

Draft legislation, to be enacted in the coming Finance Bill but to take immediate effect from Budget day, will make two sets of changes to these rules. One set of changes will tighten the definition of plant and machinery assets subject to the legislation, and the the rules for the valuation of  relevant company’s interests in leased plant.

Another change is the immediate end of an arrangement to opt out of these general tax rules for sales of leasing companies, and instead accept a ring fencing arrangement to ensure that tax is paid on the deferred profits over the remaining life of the leases. That option was only introduced in 2009, in response to unusual patterns losses caused by the financial crisis.

It appears that both changes were made to deal with apparent abuses identified by HM Revenue & Customs (HMRC) under the rules as they stood.

Another move, against a leasing technique described by a Treasury Minister as “aggressive tax avoidance”, could not wait for Budget day. It was announced by HMRC earlier this month, again with immediate effect.

This one does not appear to involve commercial leasing arrangements, but artificial sale and leaseback transactions by plant and machinery users who can claim CAs as LFL lessees under the return lease.

This apparent abuse involved the equipment user claiming two separate tax allowances on the same payment to the lessor. Tonks explained: “There seem to have been two arrangements involved, but both centred on RV guarantees by the lessee. In accordance with accounting standards, together with Section 70E of the Capital Allowances Act (CAA) 2001, that guarantee forms part of the minimum payments under the lease, so that under Section 70C CAA it forms part of the ‘amount of capital expenditure’ – i.e. the lessee gets tax relief on the guarantee amount through CAs starting from the inception of the lease.

“Under the respective alternatives, it seems that when the lessee actually pays an amount under the guarantee, that amount either counts as additional expenditure under Section 70D or reduces the disposal value under Section 70E. The new draft legislation seeks to prevent either of these consequences.”

The remedial legislation provides that where a payment under a guarantee is likely to generate tax relief through another channel, it will no longer be classified as capital expenditure of the lessee for CA purposes.

 The overall package
Some finance companies have welcomed the reduction in the CT rate, together with other Budget announcements affecting the UK business sector as a whole. These include an immediate cut in road fuel duty, and the promise of a less burdensome regulatory system for smaller businesses.

Edward Rimmer

Edward Rimmer, chief executive of the leasing and trade finance company Bibby Financial Services, said: “In broad terms the Budget has delivered for those beleaguered businesses which have struggled in recent years through the global downturn. It should go some way towards creating jobs and economic growth.”

Article contributed by Asset Finance International

“Its encouraging to see positive signs of possible economic recovery, with the latest ONS figures showing the unemployment rate has dropped to 7.8 per cent a decrease of 33,000 to 2.45m people.

“We know from reviewing the performance of a range of sectors in our latest Business Factors Index that small businesses in the UK have been hit hard by the recession, with one in four owners and managers reporting that they are struggling to survive – but these figures will give the economy a much-needed boost at a crucial point in the year.

“Looking ahead at a brighter future, it has never been more important that small businesses are well prepared to bring on new staff for an increase in business, and a rise in outgoing customer invoices. The issue of cash flow and survival are intrinsically linked and businesses will do well to invest now to ensure they have robust credit management systems in place.

“Alternative cash flow funding solutions, such as invoice finance, can plug the funding gap left by the banks by providing an immediate injection of cash into the business against the value of outstanding customer invoices and also ongoing funding as invoices are raised. This frees up vital cash flow to ensure companies have a healthy flow of funds and do not hit cash flow difficulties further down the line.”

Edward Rimmer, Chief Executive, Bibby Financial Services UK

Article submitted by Business Credit Management

The Business Factors Index has been compiled by leading independent invoice financier Bibby Financial Services and is unique within the alternative finance sector. Today sees the first in a series of quarterly reports which aim to reveal key findings about the UK economy and small businesses – on this occasion the data highlights that a ‘V’-shaped recovery is unlikely but trading conditions should ultimately improve over the coming year.

The Bibby Business Factors Index tracks small business turnover over the past two years and the trends derived from this data have been collated with the results of a series of interviews conducted with more than 300 business owners of a range of businesses across the UK. The study revealed:

• 44 per cent of business owners do not anticipate an imminent recovery
• One in 10 (11 per cent) feel that the worst of the recession is still to come
• One in five (19 per cent) do not expect trading conditions to improve for at least a year

More encouragingly, however:

• Half (52 per cent) expect trading conditions to remain the same in the short term
• One in ten expect the recovery may come by summer 2010

Findings from the index are supported the CBI’s latest economic forecast showing that, although the economy is expected to show signs of recovery in the second half of this year, with GDP expected to grow by 0.3% in Q3 and 0.4% in Q4, the pace of recovery will remain constrained by a lack of consumer spending and a decline in government expenditure.

Indeed, as the UK starts to move back into positive economic growth even the Bank of England’s own policymakers have warned against too much further quantitative easing, for fear of the balance tipping the other way, therefore, the picture is not yet a favourable one for Britain’s businesses.

Edward Rimmer, UK and Ireland chief executive at Bibby Financial Services commented: “As is highlighted in the Business Factors Index, October is always a busy month as businesses prepare for Christmas and, while the reminder of 2009 should see a broad uplift in trends as companies re-stock and find ways of capitalising on the downturn – such as taking on the supply chains of failed competitors – it’s unlikely the real problems will emerge until quarter one of 2010.  Once this is out of the way, however, sustainable economic growth is more than likely.”

The Bibby Business Factors Index also showed:

• Confidence in the financial markets peaked at the same time as the Bank of England base rate, in July 2007
• October remains the most active month of the year for invoice volumes
• The mood now remains as subdued  as it did six months ago, when the Royal Bank of Scotland announced losses of £24.1 billion
• However, with interest rates having fallen to record lows there has been a rise in confidence in market conditions over the past year as a whole
• To date, 2009 has demonstrated much reduced market activity with very little belief in perceived access to finance, however, a shift towards alternative finance providers is clear with Bibby’s own figures supporting this

The Index also looked at confidence across the UK’s different business sectors and showed:

• The construction sector has been one of the worst hit by the current recession
• The wholesale sector has been one of the top performers over the past two years but now appears more cautious than other industries
• Despite faring consistently throughout the recession, the mood now among SMEs in the transport and storage sector remains gloomy due to problems with legislation and increasing costs  
• Recovery of the business services sector is lagging behind other industries, indicating the delayed impact of the recession on budgets moving into the new financial year

Edward Rimmer concluded: “While the downturn is now well established, the Index highlights how its impact has been staggered, with some sectors only just hitting the bottom of the curve. Perhaps more revealing, however, is the array of attitudes in relation to a recovery. It is also interesting to consider each sector’s perceived access to finance – which has shifted considerably in favour of alternative providers in recent months. 

“To move forward, one thing remains clear; despite the unprecedented turmoil of the past twelve months, memories can be short in any industry and recent issues may soon be forgotten. So as a business and a responsible lender, Bibby Financial Services has a duty to pioneer and uphold the key learnings of the current recession to ensuring its many valuable insights are not lost better equipping owners and managers in the coming years.”

Edward Rimmer, UK and Ireland chief executive at Bibby Financial Services

Article image copyright: Flickr