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Why You Shouldnāt Start A Business In the UK
My mother, desperate as ever to discourage me from leaving the UK for reasons of her own, once said: Why not set up the business in the UK and export? I am awestruck at her niave ideas, even though she has not even worked since before I was born! Notwithstanding the fact that we left the EU (I voted to remain) and the sheer cost if importing and then re-exporting the required materials, and the fact that all the regulations and rules are better at penalising normal law abiding people than preventing fraudulant activities (the criminals find a way around them they always do(!), and the sheer amount of red tape involved in everything, and the brutal business rates in the UK which cause the failure of so many businesses in their first year, and of course the fact that I have personal reasons to leave the UK anyway, lets take a look at some basic facts about the UK environment.
In a previous article I mentioned that I have a choice. Should I be a 'mummies boy ' and follow the lead of previous generations, or should I actually be a man, and modernise and reform the
family?
I really don't want to come across as unnecessarily curmudgeonly, but the thought of gambling away tens of thousands of pounds of family money which previous generations of my family worked hard for for decades, by 'investing' in a low chance of success venture in a place with an overwhelming burden of bureaucracy and red tape along with brutal operational and living costs, strikes me as the biggest waste of family finances short of open gambling. I have told you below why I am not doing so. I don't need an 'expert' to analyse it. What the family needs is someone with backbone and leadership skills to take the lowest risk, lowest cost option. You do this in a location where costs are low, not in Brexit island when younger and more visionary, free thinking people are highly likely to emigrate in droves. What are the qualities needed? Well, having good team management and people skills, the right team and a 'can do' attitude, who is prepared to follow local experience of local people would be paramount. By 'the right team' I am implying a group of people who understand that there is no 'I' in T.E.A.M, and who have good ethics and, like me, are a firm believer in a fair days' work for a fair days' pay, are what I have in mind.
The UK is a centre of the international business world, but is the right place for me?!
Even after the fact that I am divorced, and suffering from all of the problems that go hend in hand with divorce, lets take a step back and look at the wider truth. High rents, brutal living costs, shocking commutes and strengthening alternative locations suggest you might want to think again about even living and working in the UK.
Thereās no denying that the UK is the UKās capital is a centre of international business: from early stage start-ups to multinationals, the Capital continues to lead the way when it comes to business. However, as much as we should be proud of what our Capital city has to offer, the limitations of the UK as a place to set up and run a new company are clear.
For many, the realities of the UK living make setting up a business, with all of its risks, seem completely unachievable. Soaring living costs, lack of affordable space and difficult-to-access support to launch a business all mean that many businesses are simply being squeezed out. Itās time for entrepreneurs to really think outside the box when it comes to choosing the right location of their business and explore more options available out there.
So where should they go?
Our focus on the UK can allow us to forget about all of the incredible opportunities available in other cities ā where we went to university, where we spent a weekend away or even on our own front door steps. The fact is there have never been so many opportunities for entrepreneurship around the world.
Seventy-four percent of the UK's digital firms are now based outside the UK and thereās an ever growing commitment from the governments and businesses themselves to support talent.
Itās time for British entrepreneurs to stop thinking that the UK should be the automatic choice when it comes to launching a business and start thinking about how other countries might offer exactly what theyāre looking for. Cambridge, where I lived for 12 years, is home to some of the UK's best technology companies, but now my circumstances have turned me into a truely international man. As I write this, I am in a hotel in Yancheng, Jiangsu province, China taking part in a cultural exchange, teaching at a Chinese university. Let me see where this insight has lead me.
Itās too expensive!
Affordable real estate is becoming more and more scarce in the UK, both in terms of housing and office space. In June this year, average monthly rental costs in the UK hit Ā£1,500 for the first time.
For smaller businesses, and of course startups with limited capital, access to space in central or well-connected areas is becoming a luxury they canāt afford. Not only does this make it harder for young businesses to succeed, itās a huge barrier for many people with the ambition to start a company.
The costs of living and working in the UK can simply outweigh the benefits...
Networking is not a the UK privilege:
Of course, the UK has great networking opportunities but if rental prices or travel costs have forced you to move outside the centres of business, in particular London, these opportunities can be harder to come by.
When it comes to starting up, often itās who you know, not just what you know, that counts and setting up a business in a business centre means like-minded people are much easier to find and to meet. This naturally encourages networking, collaboration and the sharing of ideas and experiences, potentially creating new business opportunities.
Itās also easier to meet representatives from those larger corporates who might need your company to support their research and development, Innovation Strategies or supply chains.
Itās hard to have a life!
Letās face it, as an entrepreneur it can be difficult to switch off from the demands of business wherever you are but maintaining a healthy work-life balance is so much harder when you spend half your day commuting! Transport, especially in rush hour, is not one of the UK's strengths. We have the most expensive railways in Europe, and the most expensive childcare in the world. That is a SERIOUS and IMPENETRATABLE barrier if you are intending to start a new family. As indeed, am I. Despite others saying I am brave to do so at my age. I have no intention whatsoever of being a lonely divorced man who will live in poverty and die alone. Period. Or for that matter, of raising a family in the UK's expensive, tiny, shoddy, uninsulated and often mouldy homes which nonetheless cost Ā£2000 per month.
Thereās talent everywhere
The availability of a skilled and talented workforce is not reserved to the UK. This is available worldwide, especially when it comes to the younger generations that are eager to follow an entrepreneurial pathway and develop their skills āon the jobā. Universities and indeed governments are working hard to retain and nurture local talent, providing a great resource pool from which to recruit new staff.
Even as a graduate, I do not restrict my field of vision to fellow graduates; we have seen many small benefits for businesses who have taken on an intern to do a specific pieces of research or marketing work that often it is difficult to find time for in the early stages.
And one last thingā¦
One last piece of advice - thereās no point in going to a new country you donāt like just to start a business.
Go because a) your friends are there; b) you went to University there; c) you already have networks there; d) you have researched their āofferā for small businesses and you like what you see; e)they have a great music scene; f) you love the culture of the country and its peopleā¦ You are the driving force behind your business and the happier and more settled you are, the greater the likelihood of success.
And indeed my own choice is one which few others might think of.
I have a new famiy soon to be under construction, I am in good standing in the community before I even touch down, complete with FAR lower living costs than the UK, or any established centre of business. And with technology, geographic bariers to networking can be overcome in 2024 after all.
Let us take an in-depth look at things. Let us focus on the hard facts. Let us read between the lines....
Despite the obvious appeal, companies entering the UK market can face complicated and disparate laws, tax brackets, other bits of red tape ā and the implications of Brexit.
The UK is one of the worldās leading business locations, based on the World Bank Doing Business 2020 report, where it ranked 8th for āease of doing businessā. It also ranks 53rd in TMF Groupās Global Business Complexity Index 2021 ā which covers 77 jurisdictions according to the complexity of their business environments ā an improvement from 44th in 2020.
Corporation tax is the joint lowest in the G20 at 19 per cent, which is further reduced by up to 100 per cent for work related to R&D, and tax on patents is just 10 per cent. From 1 April 2023, the main rate of corporation tax is set to rise to 25 per cent.
Despite the obvious appeal, companies can find complicated and disparate laws, tax brackets, and other bits of UK red tape rather challenging, particularly with the additional requirement of navigating the potential implications of Brexit.
"Red tape costing firms Ā£12bn a year"
Research by the Forum of Private Businesses reveals that businesses are wasting an average of 37 hours per month on red tape.
Complying with business regulations costs small companies Ā£12bn per year and 37 hours per month, according to data released by the Forum of Private Businesses (FPB).
The FPB is calling for a freeze in new business legislation to allow the government to re-assess the burden of red tape. The proposed moratorium would last until the General Election, which is expected to take place in May.
The FPB has also claimed that employment law is the costliest bureaucratic burden, costing small businesses Ā£2.4bn per year. The organisation estimated that Health and safety administration costs Ā£2.1bn and tax Ā£1.8bn per year.
Employment law is the costliest bureaucratic burden, costing small businesses Ā£2.4bn per year.
"The Government must ensure that regulations are proportionate to their aim. We want departments to get to grips with all the various aspects of the regulatory burden on businesses and a Comprehensive Regulatory Review would provide just that sort of understanding," said Matt Goodman of the FPB.
The FPB's survey also identified a significant level of disenchantment with the current regulatory framework. Just 5% of respondents believe it is beneficial to their business and only 9% said that the current framework is fair, robust and proportionate.
FPB member Jeanie Cartmell, a partner with furniture and fixtures retailer Solihull Supplies said she had been forced to take on an extra employee to help her deal with the burden of legislation.
"It's really difficult to get through everything - it's just very time consuming with all the paperwork. It's so complicated and there's a lot of time spent as a small business just complying to survive," said Mrs Cartmell.
Here are ten key challenges you are likely to face when entering the UK market.
1. Brexit
The UK left the European Union (EU) on 31 January 2020, with a transition period that ran through to 31 December 2020. The rules governing the new relationship between the UK and the EU took effect on 1 January 2021.
The true impact of Brexit on doing business is yet to be fully assessed. This is mostly because the Covid pandemic has made it somewhat challenging to ascertain exactly how Brexit has changed doing business in the UK. Limited trade, additional customs checks and deepening labour shortages are among the issues that have started to emerge since the UKās departure from the bloc.
As the UK moves forward, as much as it is possible with the Covid pandemic still very much masking Brexitās threats and opportunities, a lot will depend on changes to rules and regulations we are about to see emerging from the UK Parliament and how these shape the future of the UK economy.
The UK now needs to find the right balance ā to update its legislation to make doing business in the UK attractive, but at the same time not to overstep the mark with its current biggest trading partner, the EU.
2. Starting a business
A company can be formed and incorporated in the UK within 48 hours, but it takes an average of 18 days to complete all of the administration, with the lionās share of that time spent dealing with Her Majesty's Revenue and Customs (HMRC) and registering for a withholding tax on incomes called PAYE (pay-as-you-earn).
Foreign businesses coming to the UK should be aware that the accounts of all UK companies are subject to public disclosure through the Registrar of Companies. Although there are few fees charged, the number of procedures can make the process quite laborious for businesses.
3. Resourcing
The UK has been known for its internationally mobile and highly skilled workforce, as well as the favourable supply of European retail and hospitality staff. Since the Brexit vote, however, there has been a marked reduction in Europeans applying to UK retail and hospitality roles and there are limited answers to questions from the highly skilled workforce about their future rights now that the UK has left the EU.
With the exception of Irish nationals who have the right to live and work in the UK through a route outside their status as EU nationals, nationals of European Economic Area (EEA) countries will require a visa to live and work in the UK, now that Brexit has come to pass. Working with TMF Group to fulfil your support staffing needs can ease your entry into new markets.
4. Construction permits and registering property
Construction is relatively streamlined in the UK, taking under 100 days and requiring only nine procedures. Obtaining planning permission from the relevant authorities and getting water and sewerage connections takes the longest time and are the costliest elements. However, registering a property is the most arduous task of setting a business up in the country, according to figures from the World Bank 2020 report ā with a total of six procedures that take 22 days on average.
5. Getting electricity
UK Power Networks handles electricity connections and can take up to 50 days to complete proceedings for new premises. This involves submitting plans, obtaining inspections and waiting for the external connection works to be carried out. Choosing an electricity supplier with the best rates for your needs can also be difficult.
6. Getting credit
The UK ranks 37th in the World Bank Doing Business 2020 report for ease of getting credit. The robust financial sector and diversified nature of acquiring credit gives both start-ups and developed businesses good access to much needed funds. However, knowing which type of credit will suit which business is a daunting task that often requires assistance. (In my own case, however, I am left with a legacy of debt from my abusive former marriage which I will never pay back as long as I remaining the UK - and starting a new life, new family and new future seems the obvious way to go anyhow for this reason alone!).
7. Protecting investors
Solid treaties and a robust financial climate mean that investors are well protected in the UK, although it is always worthwhile taking out assurance and conducting thorough due diligence when expanding into the country.
8. Paying taxes
The tax system in the UK is notoriously tricky, largely because the countryās legal system has been developed in a piecemeal fashion. It takes around 110 hours per year to complete all necessary tax obligations, which can involve anything from corporate and labour charges to environmental and sales taxes. Having local tax support can be crucial to easing this burden.
9. Enforcing contracts and resolving insolvency
Enforcing contracts and resolving insolvency are both relatively seamless processes thanks to the developed nature of the UKās legal system. It takes on average around 440 days to enforce a contract and one year to resolve insolvency ā both less than the OECD average.
10. Cultural barriers
The British can come across as quite reserved and distant at first, and it can take some time to get down to the nitty-gritty elements of business proceedings. Time is an important factor, although reaching a decision can be slow and laborious, involving multiple parties and many layers of and bureaucracy.
Ideally, business introductions are initiated through a connected third party. In older companies, business may still centre on the āold boy networkā with schools, universities and family ties being important. Newer companies are more progressive.
The nightmare I will leave behind when I leave - although many await the publishing of my book!
David Norris, 6th December, 2023.
