Luke Hamm, chief executive of innovation tax specialist GovGrant, has welcomed the government’s announcement that it is to introduce new laws to protect small businesses against unfair contracts that stop them raising money from unpaid invoices.
Currently, many small businesses are unable to access invoice finance from banks and other investors. Restrictive contract terms are used by larger businesses to stop their suppliers from assigning receivables (the right to receive the proceeds from an invoice), which is essential for invoice finance to operate.
Under the new proposed laws, any such contractual restrictions entered into after 31 December 2018, with certain exceptions, would have no effect and could be disregarded by small businesses and finance providers, which will help stop larger businesses from abusing their market position.
Luke Hamm said: “I’m delighted the government is proposing to introduce measures such as this to help the UK’s 5.7million small businesses thrive and prosper. We hear regularly from smaller suppliers who are tied into restrictive contracts with larger players, for example in the supermarket sector, and it is extremely difficult for them to negotiate changes in contractual terms.”
He added: “It is a cliché to say that small businesses are the backbone of our economy, but the numbers speak for themselves.“ He explained that there are 2.2million more SMEs in the UK now than in 2000, employing 16.1m people, more than 60% of all private sector employment. The combined annual turnover of SMEs was £1.9trn, over half of all private sector turnover in the UK.
Luke said the Chancellor had more opportunity to champion small business in the forthcoming Budget in November, and pointed to innovation and R&D (where GovGrant specialises) as a policy area which needs a boost.
We need to prioritise innovation and industrial strategy. As the announcement on invoice finance shows, the government’s industrial strategy has its heart in the right place, but it’s still unambitious, and needs more imagination and drive. Aiming for 2.4% of GDP invested in R&D by 2027 is mediocre; that’s where Germany is today.
We’d also like to see more help for the smallest companies where they are scaling up but opt not to draw market salaries, the scheme doesn’t allow for that: 20 people working very hard in SME opt for a 10K salary but they don’t get funding to acknowledge that.
Luke said the annual HMRC report on R&D tax credit statistics is due to be published shortly, which will provide an important snapshot for how widely the UK’s innovative companies are making use of the government’s tax credit system.