Tax tips to help firms ride out downturn

Simple changes can save smaller firms money

Times are tough for Britain's small businesses. With the economy in recession, banks less willing to lend and customers less willing to spend, cashflows are in trouble at many firms - even among those whose businesses boomed prior to the downturn.
Close Brothers research reported by the Financial Times this month laid bare the extent of this financial struggle - with around one third of business owners indicating that they might even apply for an unsecured personal loan to keep things ticking over.
While this research highlights the severity of the financial squeeze currently faced by many firms, the good news is that taking such drastic measures is generally not necessary for savvy business owners.
After all, there are other, much more responsible, ways of improving the financial position of a small business. Indeed, making minor changes to tax and cashflow strategies will help any firm ride out the downturn - and maximise their earnings when the recovery eventually comes.

Tax help - claiming government rate relief

A major way in which Britain's businesses are missing out on state tax aid was highlighted by the Federation of Small Businesses (FSB), in a landmark report released earlier this month. The industry body showed that almost half (47 per cent) of village shops and pubs were not taking part in the Rural Rate Relief scheme conducted by local councils, which allows 50 per cent relief on business taxes. UK law also allows the authorities to wipe out 100 per cent of this tax to firms seen as being in particular need of help.
This widespread lack of knowledge was found to prevail even as the credit crunch takes its toll on villages up and down Britain. FSB estimates show that 300-500 rural shops are closing each year. Commenting on the current situation, Linda Walton, rural affairs and tourism chairman at the group, said that the Rural Rate Relief scheme was being "chronically underused".
It's not just rural businesses that are not claiming government help, with the FSB also pointing out earlier this year that around £400 million of the various kinds of business rate reliefs go unclaimed each year. Across England, small businesses are very likely to qualify for some form of small business rate relief if the so-called "rateable value" of their premises is worth less than £15,000. The limit also stands at £21,500 for London firms, due to the capital's higher property values.

Legal help - using your statutory right to interest

Looking elsewhere, business people also have the law on their side in certain cases when it comes to strengthening their balance sheets. For example, UK firms retain the legal right to claim interest on money owed by corporate clients if they are very late in paying for goods or services - therefore compensating the provider for money lost by not being paid on time.
This "statutory right to interest" currently allows for charges to customers of up to 8.5 per cent (base rate plus eight per cent), kicking in 30 days after the debtor is notified that they owe the money. Business owners are advised to always send out invoices mapping out their credit period as soon as possible, in order to cover themselves against these lost earnings.

Back to basics - boosting your cashflow

Outside of claiming state aid and legal rights, many small business owners are getting "back to basics" in the recession by maximising their cashflow. Common examples of achieving this result - and boosting profits or limiting losses as a consequence - include addressing more harshly the customers who are late in paying for goods and services.
This can be easily achieved not just through asserting statutory right to interest, but by getting in touch with a reputable debt recovery service, who then gets in contact with the customer and encourages them to pay up!
Renegotiating terms with creditors can also be very useful for a firm's financial position. If sales are slow and extra time to pay back a loan is needed, getting in touch with the lender and discussing changes to repayment structures can yield good results - especially if the firm has a history of always having paid on time before.
Many business people are also facing up to the need to cut costs in the recession. What's often overlooked is that this process can often prove relatively unproblematic, if all reductions are properly thought through. Resolving an obvious inefficiency, such as switching to a better-value business insurance product, is a prime example of pain-free cost-cutting.
It's also worth bearing in mind that potentially high-value kit, even including business vehicles, can be leased out - and often for good money.

Conclusion - So, what's the outlook?

The good news for small business owners is that the economic downturn seems to be bottoming out. Both high street sales figures and overall GDP output are still falling on latest results - but these declines are less severe than they were towards the beginning of 2009. Some analysts have even said that "green shoots" of recovery have been spotted for UK business.
Despite these positive forecasts, business group the Confederation of British Industry recently said that it remains cautious about when the recession will finally end. Analysis from the organisation expects "modest" growth to return by 2010 and no earlier.
In the meantime, small business owners might be best advised to make the best of what they have during the recession - firstly by claiming for all the tax breaks available to them and also by adopting simple techniques to boost their cashflow.