David Prosser: The Chancellor has showered kindness on AIM companies, but this isn't the best way to help start-ups or boost job creation
Supporters of AIM are jubilant about its dramatic improvement in fortunes in recent months – and they hope last week's abolition of stamp duty on purchases of AIM-listed shares will be another shot in the arm for London's junior market. But does it really deserve such largesse? After all, this latest break follows the concession last year to allow investors to hold AIM shares in their tax-free Isas.
George Osborne's decision to scrap stamp duty on AIM transactions was based on his argument that "many medium-sized firms and start-ups use the [market] to raise funds to help them grow".
However, that's not entirely accurate. The market does host many medium-sized businesses but it isn't a realistic route to funding for a start-up. In fact, many of its constituents are what most people would consider large companies. Take the online retailer Asos, one of the stars of AIM in recent years. There's no denying its entrepreneurial spirit or its stellar performance –but does a company that is now worth more than £3.5bn really need to be able to offer investors a tax break?
Still, as the Chancellor also pointed out, the stamp duty concession lowers the cost of capital for AIM-listed businesses and therefore represents support for "jobs and growth across the UK".
Well, up to a point. The London Stock Exchange, AIM's parent company, reckons the abolition of the duty will enable businesses to create as many as 26,000 jobs. But a good number of those jobs will not be in this country. Analysis by the broker Allenby Capital reveals that 32 per cent of AIM-listed companies aren't incorporated in the UK and 46 per cent of them have their main operations overseas.
None of which is to say that getting rid of the duty is necessarily a mistake – just that the £170m the concession will cost each year might have been used more effectively by a Chancellor who wanted to encourage start-ups and boost job creation.
In any case, AIM was already doing very nicely. Last year's Isa boost has undoubtedly helped but so too has the UK's bounceback from recession; as the economy has improved, so too has the performance of the junior market's companies. The result has been a rise of more than 10 per cent in the FTSE AIM 100 index over the past year.
At Allenby, the view is that AIM is "going through a cleansing process where small companies are leaving the market and being replaced by larger companies of higher quality". This is not a theme that sits comfortably with the story that AIM needs preferential tax treatment in order to attract investors to risky start-ups.
It's a question of priorities. If stamp duty abolition really is such an effective driver of job creation, why not extend it to the main market? And if not, could that £170m be better spent exclusively in the UK on support for much smaller businesses, including start-up ventures? The answer is almost certainly yes.
Firms in the dark about their energy bills
Do small businesses have any idea how much they spend on energy bills? A new survey suggests the answer for most is no – despite the hugely significant increase in costs over the past five years.
The research, conducted by Westinghouse Solar, found that 73 per cent of senior executives at small and medium-sized enterprises, including many finance directors, did not know how much they had paid for electricity over the previous quarter. Around 60 per cent didn't know by how much their bills had increased over the past five years – and those who thought they did often underestimated the increase. One in three couldn't even name their supplier.
James Carpenter, director of Westinghouse, said the results didn't surprise him. "These are busy people," he explained. "While they should be more aware of the rising costs of energy, they have a business to run and will logically be more focused on developing their range of products and services, sales, marketing and distribution."
Nevertheless, while interest lies in making the case for solar energy – it claims the technology could save the average small business £7,000 a year – the research suggests that small firms will struggle to improve their margins unless they pay more attention to energy bills.
Micro firms get big break on their filing
More than 1.5m "micro" businesses stand to benefit from reforms to the accounting rules that will simplify the financial statements they are required to prepare. The Financial Reporting Council, the accounting and corporate governance authority, has unveiled a pared-down rule book for the smallest businesses that applies to all businesses filing accounts on or after 1 December last year.
The FRC defines micro businesses as those that satisfy two of three criteria: annual turnover of less than £632,000, a balance sheet worth no more than £316,000, and an average of no more than 10 employees over the course of the financial year.
The reforms are part of a wider overhaul of the UK's accounting regulation, which has aimed to reduce the burden of financial reporting for all smaller businesses with a new system known as FRSSE. FRC director Roger Marshall said: "Micro-entities that currently prepare their financial statements in accordance with the FRSSE will continue to be able to use the same standard whilst also benefiting from the government's simplification of the law."
Small business person of the week
Paul Lees; Founder of Powwownow
"We founded the business in 2004 – I had been a project manager at BT in the 1990s, where I'd used the company's internal conference-call system. That's where the idea for Powwownow came from – we wanted to offer conference calls at a fraction of the prices others were charging.
"The principle is that everyone on the conference pays part of the cost of that call. Our business model is then to take a small cut of the charge. It's tiny, but when you're doing 25m minutes of calls, it adds up.
"The business took a step up in 2008, when we became a telephone company, rather than using other people's lines.
"We started out with very targeted digital marketing, but we've also done campaigns in places such as London Underground, often relying on a bit of controversy or humour, which is unusual for a business-to-business venture like ours.
"It hasn't been easy, but our success is down to the team of four that got us started – we had a technical guy, a sales guy, an accounting guy and me herding them all. We were self-funded and for the first few years, we ploughed all the profit back into the business. This year, we're expecting turnover of £16m and a profit of £5m, so we've come a long way."
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