PRIME business club

If you have a low income it is possible you have lost out by the abolition of the 10p starter rate of income tax. So the current row about recent changes may affect you. But how?

According to the respected and non-partisan think tank the Institute for Fiscal Studies (IFS)

The impact of Mr Brown’s income tax changes on an individual taxpayer goes as follows: last year people under 65 paid no income tax on the first £5,225 they earned, 10% on the next £2,230, and 22% on the next £32,370; this year they will pay nothing on the first £5,435 and 20% on the next £36,000.

Taken in isolation, this means that people on incomes between £5,435 and £19,355 this year would be worse off, because they lose more from the abolition of the starting rate than they gain from the cut in the basic rate. The loss is greatest at £232 a year for someone earning £7,755.

Most people on incomes between £19,355 and around £40,000 would gain noticeably from the reform, with the biggest gain of £337 a year at £36,140.

However, that is not the end of the matter. Gordan Brown simultaneously made changes to tax allowances, Child Tax Credit and Working Tax Credit that go a long way to compensate people on lower incomes who have lost out - or they would if people claim everything they are entitled to.

So taking the whole budget package into account, and assuming everyone goes through the rigmarole and claims means-tested tax credits, how does the picture change?

The IFS again:

Roughly one family in five loses; two in five gain and the rest are unaffected.

Most of the losers are of two sorts. First, childless single people who do not qualify for the working tax credit because they [...] work less than 30 hours a week, or earn too much.

Second, childless couples who lose twice from the income tax changes, but gain at most once from the working tax credit because it is a family payment rather than an individual one.

Another vocal category of loser is early retirees, who do not receive tax credits, but who are too young to benefit from the increase in the tax allowance for those aged 65 and over.

The IFS goes on to make various recommendations about how the policy can be changed at this late hour. Some concessions are likely with local elections coming up and a revolt of Labour MPs in the offing. But the moment it is too early to say exactly what the final outcome will be.

One fact though is clear. The way the tax system is changing it is becoming increasingly important for people in work to claim things like Working Tax Credit and Child Tax Credit. Far from being welfare benefits separate to the tax system, the government is increasingly making them part of normal taxation. If you don’t claim you are in effect paying tax at the wrong rate, and losing money.

LATEST from BBC on 10p tax rate row

Full IFS article on abolition of the 10p starting rate

PRIME guide to how to claim Working Tax Credit

Neat tax calculator to check roughly what you pay

Computer giant Dell has introduced its Small Business Excellence Award to the UK, in conjunction with the Daily Express and British Chambers of Commerce.

The awards are aimed at companies employing less than 100 people that can show they have used technology to deliver “superior customer value and experience” and improved customer relationships.

Prizes include £15,000 in Dell products and services for the top UK winner, and nine other UK Finalists will get a Dell laptop and membership of their local Chamber of Commerce.

Closing date for entries is 31 May 2008. You can apply online on the Dell site. There is more background about the contest at the British Chambers of Commerce web site.

These awards have been running for five years in the US. This is their first year in the UK. The top UK winner will also get a crack at the global £25,000 prize.

Barclays is now accepting entries to its fourth annual Trading Places business awards.
You can enter if you have been trading for between three months and three years, live in the UK and have an annual turnover of under £1 million. The closing date is the 30th of May 2008

This award differs from most in that it’s about overcoming adversity. So if you have got your business going after a struggle it might be worth entering. Here are the stories of last year’s finalists.

The winner and runner up receive £10,000 and £5,000 respectively from Barclays Bank, and a selection of Microsoft business software. For more information about entering ring the awards office on 0800 085 3203 or visit www.barclays.co.uk/tradingplaces.

It’s now possible for anyone to freely access a huge resource library created for small businesses and startups by a consortium of UK universities. You can go straight to the search and browse page of the collection, called VentureNavigator, without having to register or login.

The content includes:

1. Accounting
2. Advisors
3. Angel Investors
4. Brand
5. Business Model
6. Business Plan
7. Communication
8. Compensation
9. Competition
10. Customers
11. Distribution
12. Entrepreneurship
13. Equity
14. Finance
15. Fundraising
16. Human Resources
17. Innovation
18. Intellectual Property
19. Leadership
20. Legal
21. Management
22. Marketing
23. Markets
24. Networking
25. Operations
26. Partnerships
27. Pricing
28. Production
29. Regulatory
30. Revenue
31. Risk
32. Sales
33. Strategy
34. Team
35. Valuations
36. Venture Capital

VentureNavigator is funded by the UK government and was developed by a consortium that includes the universities of Essex, Cambridge, Leeds, Liverpool, Glasgow, Warwick and the Open University. Library House, a research company founded by Doug Richard of Dragon’s Den fame is also involved.

As well as using the resources you can also sign up for free assessments and feedback - though you do have to register for these.

From October 2008, a new benefit called the Employment and Support Allowance (ESA) will start replacing Incapacity Benefit and Income Support for those unable to work due to a disability or long-term illness. The new system will apply to new claims from 27 October 2008. Those with existing claims accepted before that date will continue to be paid on the existing system for another two years.

At the moment you can apply for Incapacity Benefit or Income Support, or sometimes both under a confused system that will eventually be completely scrapped.

At the heart of the new system is a new medical test, the Work Capability Assessment, designed “to look at what people can do rather than what they cannot” according to the government press release.

ESA claimants will be split into two groups based on the results of the test: those judged able to take part in some form of work and those who can’t. The amount of money you receive and the sort of training, if any, offered depend on which group you fall into. Meanwhile Jobseekers Allowance will continue to be available for those without health problems who quailify.

These changes are all part of the 2007 Welfare Reform Act, which is only now becoming law as the relevant provisions are enacted. You can read the detailed regulations passed at the end of March here.

There is a good discussion on BBC Moneybox on how these might affect real claimants.

The new system has had little detailed coverage in the press, with most media outlets ignoring it or treating it as an opportunity to comment on benefit fraud. However, the whole welfare reform process has been dragging on for some time. Many of these changes were announced last year by then Work and Pensions secretary Peter Hain, prior to his resignation in a scandal over alleged failure to properly declare over £100,000 in political contributions.

Official DWP page

Get tough tests face the sick on benefit

Is Labour abolishing illness?

All the 150-or-so books from WeBooks.co.uk can be read for free online. The publisher makes its money if you buy a normal paper book or a printable PDF version should you tire of tabbing through page-by-page. But it is perfectly practical to read the whole book for free online, or at least dip into the relevant sections.

Here are some of the titles in the business list.

Book-keeping and Accounting for the Small Business
(Peter Taylor) A useful guide to managing accounts & choosing accounts software, as well as information on double entry bookkeeping, double entry accounts and small business tax.

How to Start Your Own Gardening Business
(Paul Power) All about starting a business in the gardening industry, including writing a gardening business plan, financing the business and managing the accounts.

Preparing a Winning Business Plan
(Matthew Record) A full guide to writing a business plan. It explains what a business plan is, why you need one and how it should relate to your business idea, objectives and projected growth.

Raising Finance for Your Business
(Mark Blayney) Covers funding a business, getting a business loan, as well as looking at the lending market and other sources of finance.

Raising Start-Up Finance
(Phil Stone) Covers different ways of building capital, sources of finance including business grants and business loans, as well as how to assess the true cost of borrowing money.

Setting Up a Complementary Health Practice
(Patricia Bishop) Setting up a health business, including information on working from home, the start-up costs involved, marketing your business and achieving a healthy work-life balance.

Setting Up and Running a Limited Company
(Robert Browning) How to start a limited company, from writing a business plan and choosing a company name to dealing with company accounts.

Start and Run Your Own Business
(Alan Le Marinel) Guidance on starting and running a business, tips on preparing and managing accounts, and ways on raising business finance.

Starting a Business in the Country
(Wendy Pascoe) An in-depth look at starting a rural business - including start-up costs, rural advertising, working from home, marketing and research.

Starting a Sandwich - Coffee Bar
(Stephen Miller) How to set up and run your own coffee and sandwich business, from planning and creating your own identity, to hiring staff, sourcing suppliers and the daily running of the shop.

Starting and Running a B and B
(Stewart Whyte, Nigel Jess) Covers starting and running a small bed and breakfast business, including conducting a feasibility study, writing a business plan and financing the business.

Starting and Running a Catering Business
(Carol Godsmark) This guide includes a wide range of information, from writing a business plan, marketing, promotion and retaining customers.

Starting Your Own Business
(Jim Green) From the initial start-up costs, writing a business plan and marketing your business, to the different types of businesses and how to go after government grants.

Starting Your Own Childminding Business
(Allison Lee) Detailed guide to starting a daycare business, including the regulations, start-ups costs and running the business.

The Kitchen Table Entrepreneur
(Paul Power) Covers the initial stages of starting a business, including conducting market research, writing a business plan and self-motivation.

Owners of small businesses selling all or part of their business will only pay capital gains tax at 10 per cent. Months of speculation about changes to Capital Gains Tax were finally clarified in the Chancellor’s 12th of March 2008 budget report.

The 10 per cent rate applies only to the first £1 million of assets sold during a person’s lifetime. This so-called “Entrepreneur’s Relief” is a response to criticism of the original proposals.

These would have treated people selling small businesses they had laboriously built up themselves in the same way as big private equity firms that just buy and sell assets - hitting both with the same high rate

Tax expert Penny Bates comments on the BBC site

More about tax and disposing of a business at the HMRC site

In other budget news, the Small Firms Loan Guarantee scheme will get extra funding to encourage the banks to lend small businesses they might otherwise consider too risky. And a new capital fund will be set up to encourage female entrepreneurs to grow their businesses.

Other measures are promised to make it easier for small firms to bid for public sector contracts.

Controversial new rules on Capital Gains Tax that will affect anyone planning to sell a small business have finally been clarified.  Tax will be levied on asset sales up a value of £1 million at the rate of 10 per cent, rather than the 18 per cent originally mooted. The higher rate will apply to sales above the £1 million mark.

The new regime comes into effect from the 6th of April this year.

What is Capital Gains Tax?

If you sell an asset for more than you paid for it, capital gains tax (CGT) may possibly apply. An asset is a resource such property, shares, a piece of equipment or your entire business. It is not the raw material or stock used in the normal day-to-day transactions of most businesses, which are not subject to this tax.

CGT is really aimed at gains made by investing, so if this is central to your business you will need to look into the subject thoroughly.

For most small businesses CGT is most likely to become an issue at the exit stage if you decide to sell your business as a going concern or close down and sell off (or give away) major assets.

The Chancellor’s original proposals made three months ago were highly controversial, and were greeted by frantic lobbying by business groups.

Among the various counter proposals were schemes to reduce the rate or exempt altogether those selling a business to retire.  But the government has decided against those, instead opting for a two-tier system where the lower rate is available to anyone selling assets up to the £1 million threshold.

Business owners will have a £1 million lifetime capital gains allowance that will be taxed at 10 per cent - this means you can claim relief for gains made on multiple occasions up to a cumulative total of £1 million.

The government may have decided against confining the lower rate only to those retiring because it wants to encourage people to sell or hand their businesses on to family members as going concerns. Having to wait until retirement to get the tax concession might have discouraged this.

Report in the Independent

The Chancellor’s statement to the House of Commons

Reaction from Federation of Small Businesses

Too many people have trained as Home Information Pack assessors. The BBC reports that newly-qualified assessors are finding there is not enough work to go round - and that the price per job is half what they expected.

David Thompson of the Institute of Domestic Energy Assessors says the amount of work available is negligible. “There are far too many people now qualified to become home inspectors and energy assessors”, he says.

However, things may pick up from the 14th of December, when smaller houses are added to the scheme.

Only half of Britain’s small firms have a web site, according to the Federation of Small Businesses (FSB). But ALL of the visitors to this site taking part in a recent PRIME mini poll either had a web site or planned one.

Does your business have a web site of its own?

• Yes 48% (22 votes)
• No - it doesn’t need one 0% (0 votes)
• Not yet but planning one 52% (24 votes)

Source: visitors to www.primebusinessclub.com

The two sets of figures may be compatible. Both polls show an approximately 50:50 split between web-site haves and have-nots. The different interpretations put on this may be like the proverbial half-empty or half-full glass.

Those commenting on the FSB poll have tended to take a half-empty view, decrying small firm’s lack of Internet ambition.

But since the PRIME poll also asked whether people were planning to set one up in the future, it is possible that the missing web sites may only be temporary - just something that people haven’t got round to yet.

Many of PRIME’s visitors have good reason to wait, as they haven’t yet set their businesses up either, or have only done so recently. So they may have other things to get sorted out first, before leaping into cyberspace.

If anything the mini-poll shows a vivid awareness among older entrepreneurs about how valuable a web site can be in business, with none of them saying it isn’t needed.

If you are planning to use the sale of your business to fund your retirement, there’s some good news on the way. Changes to capital gains tax expected to be announced by the Chancellor should see you retain all of the money you make up to an expected threshold of £100,000.

The details have not yet been fully worked out, but The Daily Telegraph is reporting that the decision has been made to make the change. Under the government’s previous plans the owners of small UK businesses wishing to retire were faced with stiff tax bills brought in recently to stop abuses by big private equity companies.

The relaxation in the rules - which may well only apply to business owners over the age of 50, follows a campaign against the unfair way capital gains tax would hitting ordinary small business owners with no connection to the private equity sector.

Details of the new scheme are still sketchy, but the Daily Telegraph is reporting that the first £100,000 made on a business sale are likely to be exempt, and thereafter the gain will be taxed at 18 per cent.

To prevent this concession being abused by big City firms, it is likely to be available only a one-off basis to individuals setting up a ‘retirement relief fund’ - details to be announced.

Background to the campaign

easyJet founder and serial entrepreneur Stelios Haji-Ioannou is entering the serviced office business with a chain of easyOffices targeted especially at start-ups. The first opens in London on the 14th of November 2007. Other offices are expected to follow swiftly in Edinburgh and Glasgow.

Like other easyGroup businesses Stelios has given his serviced offices a twist. The price you pay for a unit depends on how much demand there is when you book. So a unit that costs the minimum of £99 a week if you book well in advance will cost more if you leave it till there are few units left.

The London site, located in Kensington, has 35 units, which you can hire for a minimum of one week up to a maximum of three months. Booking is online at www.easyoffice.co.uk. At the moment there is a special offer of £10 if you book now for the first week.

According to Stelios, easyOffice is “designed with the true start-up entrepreneur in mind who knows it’s a smart business move not to waste money, especially at the start of a new venture”.

There are off course plenty of other serviced offices on the market, so it remains to be seen whether easyOffice will shake the sector up, either by reducing prices or introducing more flexible bookings.

But even if not, Stelios has a second string to his bow. In partnership with established brokerage firm Instant Offices you can search and book offices NOT owned by Stelios in around 4,000 locations in the UK and worldwide from the www.easyoffice.co.uk site.

Yell.com has published a very encouraging piece of research into businesses started by older people. The survey focuses on business owners over 50 who have set up in the last five years, who it calls “senior startups”.

Overall this is a strikingly contented group, with 44 per cent of respondents reporting that they are now happier than they’ve ever been. Around a third of all respondents (30 per cent) say that they love their work, and (61 per cent) say they regret not having set up on their own earlier.

More than half (53 per cent) say that the key piece of advice they would give to other over-50s would be to “go for it”.

Other findings include:

• The average turnover of the people polled was £67,500 per year, with most working alone from home
• Most have no thoughts of retirement and see their business as their pension plan – more than two thirds (71 per cent) want to run their business for as long as they are able
• Businesses within this group tend to be financed by savings – with only 13 per cent funded by bank loans

Only 16 per cent of those questioned had run their own business before, with 41 per cent having worked in a completely different field before setting up on their own. Almost one in five (19 per cent) of the female respondents were not working immediately before setting up their businesses.

More details of the research along with tips and case studies are on Yell’s the people behind the numbers web site.

Disclosure: PRIME has a connection with this study through Professor Mark Hart, who did the analysis and who is a member of PRIME’s board of trustees (the equivalent in a charity to a company’s board of directors).

Mark, who is Professor of Small Business Research at Kingston University as well as a PRIME trustee, comments “This research adds greatly to our knowledge of the over 50s’ contribution to enterprise in the UK. There is now clear evidence that the entrepreneurial activities of this diverse group are capable of providing sustainable incomes.”

The over 50s are little studied compared to younger entrepreneurs, but are known from other evidence to account for one in six of new businesses in the UK.

The Economist summarises the latest thinking on the subject by big companies, including some such as 3M, Nokia and Google that are undoubtedly very good at innovation.

Just about everybody seems to agree that it’s not the idea itself but the hard work that follows afterwards that matters. But some are thinking too about the filtering process - about how to pick the winners from a lot of competing business ideas.

“The more ideas a firm comes up with, the more important it is for bosses to decide early on which of them to kill off. This is to avoid heading down countless and costly dead ends.”

There’s hope too for new small firms in all this, as one of the mistakes big companies often make when innovating is in pandering to the exotic requests of their existing most profitable customers.

It may be “better to make things simpler and easier for the bottom and middle of the market, rather than add needless bells and whistles for the handful of top customers who can afford and demand them”.

If you haven’t got many customers yet you may paradoxically be in a very good position to understand what people really need. You have less to unlearn than your established rivals.

As Edwin Land, the inventor who founded Polaroid, said “people who seem to have had a new idea have often simply stopped having an old idea”.

About a quarter of the people who have contacted PRIME over the last two years kindly filled in a form giving some details about themselves. The responses have now been analysed and here’s what you told us.

The results were independently analysed for PRIME by Professor Mark Hart from Kingston University Business School.

The purpose of this kind of formal monitoring exercise is twofold. Firstly it re-assures our supporters that PRIME, a charity, is reaching the people it should be reaching. And secondly it enables us to spot gaps where we should be doing more.

Of course this isn’t the only way we get feedback. Indeed, you are very welcome to email us at any time or post comments in the forums.