Guest Post: UK startup rules aren't perfect, but we're getting there

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Alex van Someren is a “Dealmaker” with the Global Entrepreneur Programme at the department of UK Trade and Investment. A serial entrepreneur specialising in IT software and hardware product development businesses, he’s had two exits through IPOs and is now Entrepreneur in Residence at Judge Business School. Below, he answers our recent guest post which attacked the way UK business regulation authorities treat small but fast-moving startup businesses in the same way as regular, slow-moving ones.

Azeem Azhar’s article about UK small business bureaucracy doesn’t tally with my own experience running businesses in the UK. In fact, from what other entrepreneurs are telling me it’s a lot easier here than in most developed countries.

I wonder whether he’s tried starting a company anywhere else in the world? Just this past Monday I was listening to a guy complain to the Prime Minister at a conference that he’d been to the USA for three weeks and during that time he still hadn’t managed to get a trading subsidiary incorporated there. I’ve done it myself in an afternoon in England.

At this point I must declare an interest, because nowadays I work part-time for Her Majesty’s Government as a Dealmaker for the UKTI Global Entrepreneur Programme – supporting start-ups and helping to get more of them to relocate their headquarters to the UK. In my former life I was a serial entrepreneur: since age 19 I’ve grown four businesses in the UK, from being a self-employed Sole Trader, through two small VAT-registered Limited companies, to a full IPO of a London Stock Exchange-listed PLC. I like to think this makes me better informed, rather than just biased, and of course I’m writing in my own personal capacity here.

My view is that running a business is mainly about overcoming obstacles. Obviously, it would be nice if there were fewer obstacles. Most of the time, it’s true, we have better things to do like polish our products, locate more customers, negotiate with partners etc. But the reason there is government paperwork often has to do with enjoying special perks.

If you want limited liability, so you aren’t personally at risk for a business failure, then you have to file accounts and directorship forms at Companies House.

If you want to enjoy the autonomy and tax advantages of being able to recover VAT and offset expenses against profits, then you have to provide some supporting information every quarter, all of it online nowadays.

If you want to enjoy the really spectacular perks, like tax breaks for capital gains (e.g. the EIS scheme), or tax-free share options (e.g. the EMI scheme), then I think it’s pretty reasonable that you have to fill in a few fairly complex forms, and take the time to get them right, and file them.

By the way Azeem: they pay me my VAT by direct bank transfer, so you might want to spend a few more minutes on that HMRC website.

So, is everything perfect? Of course not – in particular, small business banking is in a total mess. It’s shockingly complicated to open a bank account here, and the bank’s cowardly culture means that Anti-Money Laundering regulations and the Data Protection Act are held up as excuses for all manner of obstruction and bureaucracy.

As for debt-based borrowing it’s laughably difficult right now, despite the Enterprise Finance Guarantee scheme (which is actually supposed to ensure that the Bank doesn’t even bear the risk if the loan goes bad). Azeem and I are in total agreement about this; even if he did misattribute the quote from Star Wars to Carrie Fisher (it was actually Harrison Ford).

So, can we remove more obstacles and make things even simpler for start-ups? Well, we’ve made a fair amount of progress with online filing of Tax and VAT returns. It’s true that the HMRC website user interface experience plumbs the depths of Government website design (which were already pretty deep), so there’s another thing Azeem and I agree about.

Now we’re starting to hear that politicians from both parties are getting the message about improving transparency of Government, from Gordon Brown adopting Sir Tim Berners-Lee’s open data proposals to David Cameron promising the TED conference that every Government contract over £25,000 would be up on a website for all to see, if he was elected. If this trend continues, we’re facing the real prospect of being able to interact with our bureaucratic machinery in real-time over RSS, XML and HTTP. That sounds pretty slick and Web 2.0 to me.

I spend some of my time working with entrepreneurs from overseas who are thinking about moving their companies to the UK. They don’t have a totally smooth ride: banks are useless in new and interesting ways; visas have been a problem for some; new procedures are a pain, and of course they feel like a distraction.

But business is all about overcoming obstacles, and the obstacles in the UK are generally a lot smaller than elsewhere. The people who are really going to succeed as entrepreneurs are the ones who understand this and just deal with it.

Then they can get back to running their businesses, and enjoying the proceeds.

  • stephen sumner

    I think there are 3 areas where there is a lot of bureaucracy still:- Employment law, TAX and Health and Safety. The latter becoming a real head-ache for many companies of all sizes.

  • Miro

    Agree on the fact that registering a new business is extremely simple in the UK. Even for startups like ours where foreigners are involved.

    I can second on the bank account opening problems – I mean UK has been the worst experience on anything banking-related so far. In my opinion, the FSA is responsible for the mess to a great extent with all the AML requirements, although the banks are certainly not innocent using that as an excuse for pretty much everything (have worked for one…)

  • Filemot

    Nice defence of the UK system!
    I suspect Azeem’s orignal post may just have disclosed that his team needs one of those boring but necessary starter/finisher types who keep on top of the detail

  • azeem

    Hey Alex

    Nice post. So I wrote a response but it ballooned legislative style to 1100 words. Rather than inflict it on the TC:UK commenting system I stuck it on my blog.


  • azeem.azhar » Blog Archive » Thoughts for Alex van Someren’s UKTI role

    […] Thanks for the response. Couple of points: On the Harrison Ford quote on my blog, where I originally posted this, I attributed to the quote to Harrison Ford. When @mikebutcher asked me to post this on TC:UK, I thought I’d better do some fact checking (happens occasionally) and the provenance of the quote ended up being in dispute, or maybe I thought a picture of Leia was more suited for TC:UK. […]

  • James

    The new online filing is pretty straightforward for VAT, Corp tax and Companies House. I did my annual return in a few minutes, filed 7 (oops) outstanding VAT returns in about 10 minutes. They even credit back VAT (direct to company account) due to me 4 days after I filed.

    Borrowing cash pretty difficult, I would not like to be trying to do that at the moment. But we have never borrowed any cash anyway.

    Corp tax wise pretty flexibile as well since we ahd to spend some of ours last year when ad comapny moved to difference payment terms with no notice. Spoke to Revenue and they agreed could pay our corp tax over a few months.

    In terms of banking had no problems. Nothing fancy but pay all our staff each month in UK, Germany, USA online in about 20 minutes each month – arrives same business day for about £17 a pop or zero if in UK. Just wish I could pay out of our dollar account online instead of having to move it to sterling and then pay to USA as the bank fleece you on the trasfer rates in and out difference. I worked out if I kept moving money back and forth between dollar and sterling account all month would have none left.

    I’d say in UK, beyond raising cash which I have no experience of, that it is pretty easy to do business for small and medium. I’d even say maybe the least of your worries when running a business.

  • JA

    Well said. I set up my own IT business after leaving university during the 90’s recession – found it a steep learning curve, much like learning to drive from a poor quality manual and using trial and error – go slow, be carful don’t crash and burn. Since that time I have set up a two more each from the gains from selling the previous. The last one was caught by this recession (crash but no burn) putting me back to where I was 15 years ago – but hey easy come easy go – miss the yacht though! I Should be setting up my fourth soon – analysing funding requirements, areas for projected growth, and evolutionary aspects (for potential profitability over the next 5 years) of various tech at the moment.

    What I do see though, and this is true of azeem and many other dissenters, is a poor understanding of business requirements – you cant just get in and drive. They have poorly structured business plans and little understanding of the realities of doing business. The main problem seems to be for those who have set up their businesses during the boom years with a boom mentality and boom business plan. Many just can’t cope with the problems brought about through a recession and need someone or something to blame – usually the government.

    I suspect that many more boom start businesses will fail over the next few years, and many of those surviving becoming the household names of the future.

  • azeem

    It’s a bit weird of your knowing my business plan and business model. Have you go into our dropbox?

    Or perhaps you didn’t read my several blog posts on opportunities in a recession and how to make the most of them.
    C’mon buddy, JA, now that’s bit hard to validate isn’t it?

  • Rory Bernard

    I have to say that the UK is easily one of the easiest places and friendliest places to setup a business I have worked in (France, US, India, SA). Very easy and cheap to incorporate, nice share schemes from government, etc etc. The banks are a royal pain in the arse though. 1 day to setup, 1 month+ to get a bank account. I think the government is on the right track and should be applauded for what they have done and encouraged to continue doing more.

  • Mark

    I am an angel with many years experience of starting and running businesses and now actively involved in number of startups in the UK mostly in the cleantech area. Though I agree that the actual processes of starting a business in the UK is relatively simple (company registration, tax, fund raising) the real problems are to do with the inaction of government and private business in the face of innovation.

    One of my companies can show a 50% energy saving in its particular area. We have tried and tried to get UK government support without any result at all. In the last 3 or 4 months we have tried in the US. There we have quickly found both state and federal support. We have a demonstration project underway and a large federal program under discussion.

    A very similar story can be told for another startup. The UK simply seems unable to recognise some of the riches on its doorstep. Its support programs are bureaucratic in the extreme and have often been co-opted by old established businesses that can afford to play the bureaucratic games that are required. Small UK businesses are better off looking to the USA for help.

  • Dom A

    Hi, this is a very interesting post for me as I have recently set up my own UK company specialising in business advice for micro and small online businesses.

    I found it relatively easy to set up a business bank account but I, and my family, have had a good relationship with my bank as a personal customer for many years. This naturally helps a great deal.

    In this age of no – or little – trust you have to convince bankers that you have a genuine and worthwhile business idea, supported by a well-planned business plan.

    It might take time and effort to put your business vision down on paper and have credible numbers to back it up, but believe me, it is well worth the effort in the long run.

  • Brendan

    My experience is with setting up businesses in the UK and in California, US. Indeed this process was a breeze in the UK and happened overnight. In the US, it took a significant amount of time, thought & meetings to even figure out what type of business we wanted as they don’t just have a one size fits all Ltd structure. You have S-Corps, C-corps, LLCs, LLPs and within that sometimes there are multiple ways to be taxed which you have to decide.

    We have just about managed to set up an S-Corp but the processes has taken around 3 months so far, as opposed to pretty much overnight in the UK. Also the whole state/federal split is an additional headache.

    So although this is just one aspect of running a business, I certainly have found the UK far superior to the US in this respect. But no doubt, there are HUGE advantages to running a business in California too.

    In terms of opening a bank account here I had a 6 month nightmare with Barclays. This year, however, I walked into an HSBC and within 2 hours had a sort-code and account number, with plastic & cheque book send days later.

    Just my two cents/pence…

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  • Ilan Ben Menachem

    I have to say that the UK is easily one of the easiest places and friendliest places to setup a business I have worked in (France, US, India, SA). Very easy and cheap to incorporate, nice share schemes from government, etc etc. The banks are a royal pain in the arse though. 1 day to setup, 1 month+ to get a bank account. I think the government is on the right track and should be applauded for what they have done and encouraged to continue doing more.

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