Article written for Business Today magazine last year – Where is the UK Economy a year on?
With the Global Economy going from one catastrophe to another, it is not always straight forward knowing where or when to invest in your business, or where to locate in order to take advantage of tax incentives, cost-effective property and perhaps most importantly, a staffing pool sufficiently skilled for your business to survive and thrive.
Whilst much of Europe is in disarray, and the Eurozone generally speaking is on the edge of bankruptcy, there is one small island that still offers numerous reasons in which to locate your business: Great Britain.
The UK is the seventh largest economy in the world by GDP. It is also currently ranked seventh by the World Bank Ease of Doing Business Index, and in this respect is far ahead of many EU countries such as Germany and France, ranked nineteenth and twenty-ninth respectively, making getting things done far easier in the UK than in many competing economies.
Whilst the UK does rely heavily on exports to the Eurozone, it does however have an established home market for many products and services and was, and is, home to many of the great inventors and innovators of the modern world, many of the skills of which are still abundant in today’s workforce. London is the world financial district with many large multinational organisations headquartered there, but the benefits of being UK based go far wider than the capital.
Britain offers businesses wishing to relocate, and businesses wishing to expand, opportunities such as Enterprise Investment Schemes (EIS’s), Enterprise Zones and a relatively simple Corporation Tax structure which has recently been simplified by the coalition government, making inward investment very attractive and transparent for international companies.
Britain is gradually emerging from recession as the austerity measures and policies that have been brought in through necessity are beginning to work.
Whilst many EU Countries have had their credit ratings downgraded by the ratings agency, Standard and Poor’s, including France, Spain, Italy and of course Greece, the UK has maintained its AAA credit rating and is currently considered “stable” against many other countries “negative”.
This incredible feat has a huge impact on investors’ confidence and therefore inward investment as well as keeping interest rates low, enabling businesses to relocate, expand and borrow at attractive levels and invest in growing their businesses which is ultimately leading to slow, but sure economic growth here in the UK.
Since the coalition government came to office, over one million jobs have been created by the private sector, a fact commonly overlooked and not well publicised, but significant for businesses looking to invest outside of their home nation. Official figures released last week (15th October 2012) show unemployment has fallen again, down by 50,000 in the last quarter.
This major achievement has vastly improved the public purse with taxes raised and is relieving pressure on the much-strained benefits system, further aiding the UK emergence from the doldrums. The fact that the UK also has its own currency further detaches the nation from the woes of Europe and enhances our attractiveness as a nation in which to invest not just money, but time and other resources so significant to sustainable growth.
If you own an overseas business and are looking to relocate to the UK, consider one of the 24 Enterprise Zones which were announced in 2012 by the current government. These include Greater Birmingham and Solihull City Centre, London Royal Docks, Tees Valley and the Temple Quarter in Bristol amongst many other growing and vibrant areas which incentivise businesses seeking to produce goods, provide services and employ people within those areas. Often the benefits can be significant, with planning applications being looked at favourably for change of use of property, and proactive local councils co-operating with private enterprise to bring much needed revenue into a given district.
Whilst EZ’s have received mixed views and opinions in terms of net gain to an area or indeed the wider economy, generally speaking they offer incentives for businesses to relocate such as tax-breaks, lower business rates on commercial property (or sometimes even zero rating for a period of time). A great success story of an Enterprise Zone is London Docklands which thirty years ago became a designated zone and now is the financial centre of London as well as creating thousands of homes and leisure facilities and excellent transport links to the rest of London and beyond.
EIS’s are also worth a close look. In effect they are tax relief systems specifically designed to encourage investment in to SME’s meeting a certain criteria. They offer income tax and capital gains tax relief to investors in the form of a reduction of up to 30% of income tax for an investor with up to a 30% share in an EIS (no individual investor can hold more than a 30% stake in an EIS currently).
There is no capital gains tax payable when an investor sells his shares after three years provided all criteria within the EIS has been adhered to and in addition to this any loss can be set against an investors capital gains or other income during the year of disposal (usually the third year of the EIS when it either sells or closes). EIS’s are also exempt from inheritance tax providing the investor has held the shares within the EIS for two years or more.
When relocating, it is also worth considering how Corporation Tax might affect your business. The UK has quite a simple tax system compared with many other countries and recent changes to Corporation Tax rates is seeing a larger number of businesses wishing to relocate here. Current rates in the UK are 20% of annual profit under £300,000 and 24% of annual profit over £300,000 however this rate is decreasing to 23% in 2014 as a further incentive for business.
The United States has the highest overall Corporation Tax Rate in the World at 40% which is currently a big area of debate as the US battles with unemployment and economic issues of its own.
The last decade has seen some significant changes to Corporation Tax systems across the world, perhaps the biggest drop being Germany having gone from 52.3% in 1999, to 29.4% in 2011 and now standing at an average of 29.8%. The lowest rate in the EU is Bulgaria with 10% and by some margin Belgium is the highest at 34%, with France following close behind at 33%.
The UK is attractive not just because of clear and relatively low Corporation Tax levels, but also because VAT is lower than many other EU countries at 20%, Spain stands at an average of 21% and France at 23%, for example.
Perhaps the most significant factor in the UK’s appeal to international business is the recognition, generally speaking, by the current government that taxing businesses highly does not result in economic growth, in fact quite the opposite is the case as is being demonstrated in France since Francois Hollande became president and the resulting economic slowdown and issues that they are currently experiencing.
The UK is open for business and does recognise the need to incentivise entrepreneurs and businesspeople to take the risks necessary, by starting and expanding the businesses of today that will employ the future generations of tomorrow.
(This Article was written by Leon Fear and published in print and online in Business Today Magazine, October 2012).