Economics and Business in the UK. Problems and Possibilities

The UK is one of the world’s premier business hubs. According to a World Bank report, the UK is ranked 8th globally in terms of Ease of Doing Business.

As of March 2021, the total number of legally registered businesses in the UK was 4,716,126. Of those nearly 5 million, 4,408,528 were in England and Wales, 237,124 were in Scotland, and 70,474 were in Northern Ireland. From 2020 to 2021, the largest number of new companies—810,316—was registered in the nation’s history.

According to IBISWorld, these are the 5 most profitable industries in the UK in 2022:

1. Pension Funding. Total Profit for 2022: $24.1B
2. Total Profit for 2022: $17.4B
3. Legal Activities. Total Profit for 2022: $12.2B
4. Management Consultanting. Total Profit for 2022: $10.1B
5. Computer Consultanting. Total Profit for 2022: $9.4B

According to the same study, these are the 5 fastest growing industries in the UK in 2022:

1. 2022-2023 Revenue Growth: 861.7%
2. Scheduled Passenger Air Transportation. 2022-2023 Revenue Growth: 445.5%
3. Budget Airlines. 2022-2023 Revenue Growth: 204.8%
4. 2022-2023 Revenue Growth: 201.9%
5. Urban Passenger Rail Operations. 2022-2023 Revenue Growth: 201.2%

A representative of Payrow, a British fintech startup, spoke with us about a number of problems in the UK that can complicate things for business owners.

Negative factors affecting UK business development

1.    The Brexit effect

The main trading partner for the UK is the EU, but that relationship has been completely reconfigured in the aftermath of Brexit. Brexit has drastically altered the volume of imports and exports for UK companies. Due to the duties, taxes, and additional customs checks that have appeared as a result, the import of goods and capital has significantly decreased. Additionally, it has become much more difficult for British businesses to export their goods.

Another serious problem that has arisen due to the UK’s exit from the European Union is a shortage of labor. Brexit has made it much more difficult for migrants to stay in the country, complicating things for businessmen looking to find British employees to fill jobs.

2.    Legislation and taxes

Despite the obvious attractiveness of the UK market, British companies are faced with complex laws, labyrinthine tax frameworks, and time-consuming bureaucratic procedures.

When registering a business, it takes an average of 18 days to complete all the administrative procedures, with the lion’s share of this time spent communicating with HMRC and setting up a PAYE (pay-as-you-earn) income tax account.

Accounts for all UK companies are subject to public disclosure through the Companies Registry. While there is just a small fee involved, the number of procedures can make the process quite time-consuming, and thereby expensive, for a business.

Another tax factor set to complicate things is that on April 1, the main UK corporate tax rate is set to rise to 25%.

3.    Conservative banking system

UK banks have earned a reputation for having rigid requirements for clients looking to open start-up business accounts, particularly if a client happens to not be a UK resident.

Even though there is no explicit ban for banks on working with non-UK residents, retail bankers tend to refuse such clients in the preliminary stages of their applications. Even clients that do pass through the overly scrupulous due diligence procedures, will have to provide more information to the bank upon receipt of large cash infusions to their accounts.

These strict rules have been put in place by the authorities as a means of combatting financial fraud and money laundering. While their effectiveness as means of protection is debatable, they have unfortunately been quite effective at hindering the development of entrepreneurship in the country.

4.    Expensive accounting and legal services

Businesses in the UK spend considerably on accountants and lawyers. This begins on the first day a company is registered, or in many cases, even before registration. British registration and tax authorities carefully monitor whether businesses are able to deliver all the necessary financial documentation on time. Failure to meet deadlines will result in a fine. The size of the fine will depend on how late the company is: if you are a month late, you will have to pay £150; from 1-3 months late – £375; from 3-6 months – £750; more than 6 months – £1,500.

If the owners of the company refuse to pay the fine, they may face serving time in jail. A few years ago, this was not the case, but recently regulatory authorities in the country have been cracking down on financial violations and punishing those who commit them to the fullest extent of the law.

A UK Certified Public Accountant is a business representative that serves as an official contact with the IRS. Companies have to hire a certified accountant at the very beginning of operations, before any profits have been made, in order to comply with regulations.

Accounting fees can vary greatly depending on the size of the business, the scale of operations, and the services the business requires. An accountant doing basic accounting services typically works for £25-35 an hour. More specialized services such as tax planning and business planning advice can cost much more, in the region of £125-150 per hour.

Positive tendencies and possibilities

Despite Covid 19 and Brexit, the UK has demonstrated economic resilience and has remained attractive to foreign investment. Venture capital investment in the first half of 2021 was £11.8bn, according to KPMG, which is greater than the total for all of 2020.

The biggest recipients of foreign investment were fintech companies and healthcare enterprises. Steady influxes in venture capital have fueled an increase in the number of unicorn companies from 8 to 91 in the last 11 years.

An additional 132 companies are considered to have “the potential to achieve unicorn status”. Most of them are financial technology, medical technology, and enterprise software firms.

Factors favorably influencing business development in the UK:

Institutional support for fintech startups

The development of the fintech sector in the UK has been linked to an influx of foreign IT specialists. The UK government has made it easier for talented individuals to immigrate to the country, which has resulted in something of a boom in financial technology. As it stands, 1 in 4 startups in the UK has been founded by immigrants, and the demand for IT personnel is constantly growing.

Over the past year, the British government has managed to make a lot of amendments to immigration laws, in particular those related to obtaining business visas.

There are two types of new visas:

• The Startup Visa is issued to start-up entrepreneurs from countries outside the European Economic Area who are looking to start their first business in the UK.
• The Innovator Visa is designed for more experienced businessmen. The requirements for Innovators are the same as for Startup visa applicants, but their business idea also has to be approved by an authorized organization.

State benefits

The state has been working to establish the UK as a more tax-friendly country for entrepreneurs. In this regard, bonuses and tax benefits have been announced for a number of industries, including commercial real estate.

The government has also revealed plans to freeze excise taxes on car sales, in particular on trucks and heavy vehicles (HGV). There is also talk of expanding and improving some of the tax incentives for cultural endeavors, with tax exemptions for museum and gallery exhibitions, and tax incentives for theaters, orchestras, cinema houses, and high-quality TV channels having been proposed.

Development of online banking and payment service providers

The UK banking industry is undergoing a radical change driven by the new competition that has appeared in the form of fintech companies. The changes that are occurring are beneficial to entrepreneurship. Payment service providers (PSPs) and online banks largely solve the problems that arise when businesses interact with classic banks.

PSPs help entrepreneurs securely manage their finances while saving money. Integration of payment options such as e-wallets, mobile and online banking, and debit and credit cards with PSPs is usually free or with minimal fees. In addition to payment functions, PSPs and neobanks can provide businesses with an expanded package of services that can go a long way towards simplifying business processes.

For example, one UK PSP, Payrow, has carved out a clientele for itself by facilitating local and international payments without hidden fees for its clients and providing help to business owners looking to automate routine business processes. With a Payrow account, clients can issue and pay invoices, pay salaries, and keep track of expenses with just a few clicks.