The head of compliance at Tungsten Network explains why uncertainty is holding back many small firms hoping to accomplish more in the way of exporting – but it’s not as onerous as you may think.
Chancellor George Osborne has a target to hit – £1 trillion in exports by 2020.
Recent UKTI figures show exporting by UK businesses is decreasing, however. The latest stats to be released, for July 2015, show that British businesses’ overseas trade accounted for £24.8bn, a decrease of 2.2 per cent on the same month in 2014. The trend is undeniably downwards.
We believe that small firms in the UK represent a huge amount of untapped potential, in terms of increasing trade overseas. Believe it or not, other countries want what we have to offer – from copywriting to marshmallow making, cheese to machinery, the skills and products of British businesses are world leading.
What’s also important to recognise is that the domestic UK market is limited in size, while the rest of the world is obviously less so. The UK’s top trading partners in terms of exports are the USA, Germany, France, the Netherlands and China, representing huge buyer potential.
What holds back many smaller businesses, however, is uncertainty. From working with them we know it’s not just fear of the unknown, it’s fear of the hassle involved. Research by the British Chambers of Commerce cited compliance with local tax regulations one of the key challenges for businesses looking to export. Small (40 per cent) and micro businesses (26 per cent) were least likely to be already operating internationally, compared to 45 per cent of mid-sized businesses. The ambition is there for smaller sized companies to export, with the largest proportion considering themselves as “potential exporters” (21 per cent) but confidence is lacking.
Reassuringly, it’s not as onerous as some might think, especially as technology is evolving to connect the dots across borders.
One area where worry can be eliminated is in invoicing. Different countries have different invoicing laws, whether you have to invoice electronically or not. If you’re doing business in Mexico, as an example, the tax administration service there has mandated the use of electronic invoicing under heavy regulation. Things tend to work differently in the EU, where governments are generally less likely to get involved with invoicing processes, so we see different policies. However, change is afoot and some EU countries are beginning to follow suit as they cotton on to the tax collection benefits of e-invoicing. From January 2016, Hungary is one such country which will introduce new rules requiring businesses to report invoice data to them on a quarterly basis.
It’s worth noting however, that benefits to a government’s tax department don’t always mean benefits to a commercial business. Processes are often designed with the goal of collecting VAT without necessarily taking into account the needs of businesses to use Purchase Order numbers. Navigating this minefield can be tricky, but by using an e-invoicing platform it’s possible to input the data to an online form or submit the files in an integrated way. This can then be cross-checked against each country’s rules to ensure the payment gets through.
From a cash flow perspective, it’s also important to get it right. Imagine exporting your company’s marshmallows to a reseller in China, only for the payment to be delayed for another 30 days because of a small formatting error. If you’re relying on those funds for your next batch of ingredients or to pay your staff, this cash flow crunch could be critical to business.
There is clearly a lot to consider when making the step to expand abroad but to meet Osborne’s targets, and turn Britain into an exporting nation, it’s time for small businesses to explore the opportunities offered by trading overseas. Tungsten isn’t the only example of a business looking to help small business owners. There’s a lot of advice and support available to help small businesses start exporting. Go on, take the leap.
Lucy Ashdown is head of compliance at Tungsten Network.
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