The business plans of UK small and medium-sized companies will be significantly affected by the changes made to the capital gains tax (CGT) according to a survey by
GE Commercial Finance, which is the business to business financing arm of GE, the US technology giant, commissioned market research company the Survey Shop to interview 500 owner-managers of UK small and medium enterprises (SMEs).
They found that the introduction of an 18% flat CGT rate has resulted in 64% of respondents saying that future plans will change a lot, with an additional 23% saying the changes will have a limited impact on their plans for the future.
The report also found that 20% expected fundraising to be slightly more difficult over the course of this year, and 11% predicting it to become significantly more difficult.
Taking a broader view, the survey found that SMEs in the UK are bracing themselves for a tough year ahead as confidence is rocked by economic fears, high fuel prices and higher interest rates.
They found that growth forecasts for 2008 were lower than 2007 forecasts, and that the biggest constraining factors on business were the economy (61%), increased competition (43%), regulation (43%) and the high cost of fuel (24%).
This year almost one in five owners expected their sales figures to decline during the course of the year, or 18% of respondents. This time last year, that figure was 12%.
John Jenkins, CEO of GE Commercial Finance, said: “How things have changed since 2007 for the UK’s SMEs. We are now witnessing a higher degree of economic uncertainty and rapidly rising fuel costs which are resulting in firms to revise their own growth forecasts for the year.”
Confidence varies across the UK, with businesses in Wales, the North West and the Midlands much more pessimistic about growth prospects than their counterparts in Yorkshire and Humberside and Scotland, which are looking forward to a strong year.
Year on year firms in Yorkshire and Humberside experienced the biggest leap in sales confidence with the optimism net balance – is calculated by subtracting the percentage of firms that say that they expect to grow slower than their markets overall from those that expect to grow faster than their markets – in the region rising from +18 in 2007 to +30 in 2008.
The only other region to experience a rise in sales confidence was the East Midlands which went from –8 in 2007 to –2 in 2008. By way of contrast, firms in the West Midlands saw the biggest drop in confidence with the net balance falling from +27 in 2007 to –8 in 2008. The North East, North West and London also witnessed significant falls in sales growth confidence between 2007 and 2008.
Striking a more optimistic note, the impact of the credit crunch has yet to filter down to the SME level, with just one in ten saying that borrowing costs is a top constraint on their business. This may however be set to change with over a third of business expecting it to be more difficult to obtain funding during 2008.
“If conventional funding lines such as overdrafts and loans become more difficult to get or more expensive firms should explore whether they can leveraged their assets, such as their debtors, through factoring or invoice discounting as a means to increase their funding or reduce their overall borrowing costs,” said Jenkins.