Our view on the UK economy

As Coronavirus quarantine in the UK continues, we outline what we think the mid-term impact will be, as well as the trading conditions after the restrictions have eased.

The biggest threat to global economic stability is what is happening in the US. Bank of America recently released their analysis giving a likely scenario of 10% GDP contraction over 3 quarters with 47 million unemployed workers. At present they do not have anything like the Coronavirus Job Retention Scheme. The UK Office for Budget responsibility predicted a 35% contraction and 2 million unemployed. Considering the US picture this is very good and by having an economy in comparatively better shape with a high percentage of companies surviving means that the UK has an opportunity to gain a little bit of market share at home and abroad. Whether you are competing with an American PR firm or an international competitor in the same foreign market, the government has set up these schemes to make sure you can take advantage of the downturn.

Some of you may have read economics at university but a very simple concept is that there is a perfect, inverse relationship between the unemployment rate and growth. As the economy grows, unemployment goes down, as the economy contracts, unemployment goes up. A 35% contraction is a much bigger drop proportionally than the rising unemployment rate. This means that the Government’s policy decision has been about making sure they keep as many people as possible in employment by keeping as many businesses afloat as possible.

For the UK government these are the numbers that count, because this means more businesses will have some cash (via grants) to take advantage of new opportunities and employees, furloughed or not, will still be able to go out in the summer and spend some money (albeit a bit less).

If you work in retail, take advantage when the lockdown is lifted. People will want to meet up for a coffee, food or a drink to socialise again. We all might have awful hair that needs a proper seeing to by a local hairdresser and some of us will want to hit the gym and maybe get our beach bods ready for what is left of the summer.

Assess your own market, your competitors and look at new markets if that is relevant and achievable.

Survival and getting on with things: stories from the Mushroom Community

Here’s how some of our clients have been approaching the lockdown…

Michael Harley: Redplug

UK’s leading Rockwool Approved Blown Insulation Installer

 

 

“In the current Covid 19 crisis we have tried to take a calm, practical approach. We have looked at guidance from the government information for the construction industry. As a small business we have adjusted our operation accordingly with the government advice to be able to keep our employees safe and keep the business running.

Our customers have been understanding throughout this and hopefully we can continue once the restrictions have been lifted.”

Business as usualish...

John Higginson: Higginson Strategy

Award-winning communications agency

“We are a purpose-led consultancy based in London and Manchester. We support a range of companies, charities and public bodies, helping them to explain their purpose, getting them media coverage and opinion pieces in national publications. We also have a podcast that looks beyond the headline called Behind the Story.

Prior to Covid-19 we had two offices so we were already good at working remotely. Once the virus hit we immediately started working from home – luckily we don’t make physical products so this was achievable with minimal disruption.

As a result, the operational challenge we have faced has been not so much on the technical side, but more on keeping people motivated whilst they’re apart. Like many we very quickly became video conferencing masters and have conducted much of our business through this medium.

The other key affect on business is the fear of a recession. Being a consultancy is it (fortunately) easier for people to put our contracts on hold than get rid of us completely. The fact that our clients have been able to furlough non-income-generating staff has also worked in our favour as in some cases it has freed cash for them to continue to engage us. As an outside agency we’re also very productive (we have to be to prove our value compared to in-house resources) which is a useful thing for our clients at the moment.

So after an initial drop-off in clients, we now appear to be winning business. Among those signing up have been a number who are wanting to support the NHS or government in some way, such as through the provision of ventilators or Personal Protective Equipment (PPE). Higginson Strategy has benefitted here due to our access to these channels and our specialism in communicating the right messages about people doing good. Providing they are presented authentically – and not just for commercial gain – these kinds of messages help the bottom line for our clients as people in general want to do business with organisations they believe are doing good.

Overall we have been fortunate that our business model has proven resilient to the pandemic so far and, while we are obviously looking forward to returning to normality along with everyone else, we are pleased to have maximised the opportunities identified along the way.”

Planning for the post lockdown haircutting spree

Ross Chaplain: Lykke and Hygge

Specialist Hair Professionals in Evesham

“Covid-19 was tough for us to begin with. With closing completely, we have had to be really careful to minimise our costs. Having recently taken on a new member of staff this was especially challenging, and, whist we were able to furlough most people, our new-starter was not eligible so we have had to find an alternative way of protecting what income we can for her by paying her a training wage.

We have since received a small business grant, which has eased our cashflow, and we’re waiting for the outcome of our CBILS (Coronavirus Business Interruption Loan Scheme) application which should help us through the next month or so.

When business gets going again we’re confident the demand will be there. We’re preparing to work differently, with PPE and potentially taking on some new assistants to help maintain distancing between each stylist team.

Our staff are really keen to get going again and we’ll be offering them extra working hours where needed to help meet the new demand. All are welcome down for their first post-lockdown haircut!”

R&D Tax Credit Specialists

Ed Surman, Director at Mushroom, interviewed Mike Newnham, Quantum R&D Tax Specialists, about Research and Development (R&D) Tax Claims, for Ed’s podcast, Business With The Fun Guys.  The podcast interview is available here to listen to, however we’ve taken the main points of Newnham’s teachings and illustrate them here:

The R&D Tax Credits Scheme is a simple process which rewards companies for being innovative.  It can be an incredible support to business due to the implications on corporation tax.

 

What Is An R&D Tax Claim?

An R&D tax claim is an amendment to the corporation tax return.  It tells the HMRC:

  • you’ve been doing Research and Development
  • what you’ve been doing
  • the costs incurred
  • that you’re entitled to money back under the scheme.

 

How Much Can I Claim?

The R&D Tax Claim looks to enhance your R&D costs by 130%, thereby reducing your profits and allowing you to pay less corporation tax.  For example, if you spent £100K on R&D, this would be enhanced by 130%, equating to a £230K total for R&D.

Note that you don’t have to make a profit in order to claim R&D Tax.  In this situation, you can surrender the claim at 14.5% and get this back.  For example, if your loss is £230K, you can claim this back at 14.5%, as cash to put back into the business.  There are no restrictions on how you can use this cash, and many businesses have used this money to hire new employees, initiate a R&D project, or to buy equipment.

There is also no limit regarding how much can be claimed which makes this scheme more accessible to small businesses who may wish to claim smaller amounts of £1K for example.  There used to be a £10K limit meaning that in order to claim, your costs needed to be £50K plus.

 

Am I Eligible?

Most businesses don’t realise they’re doing Research and Development.  However, the claims aren’t purely for technology companies, it can apply to any type of business.  In order to qualify, you need to be trying to make a technical advance in order to solve a problem, where there’s not an obvious or simple solution.  For example, you could be a cleaning company developing eco friendly cleaning materials or a new app.  Many businesses conduct R&D at some time in their business so it’s worth reviewing the R&D tax credit scheme.

 

How Do I Claim?

You firstly complete your Corporation Tax Form (CT600) then you file an amendment (tax claim).  Both can be done online.  The amendment needs to include two other reports: a financial report containing details of salaries, subcontractors, consumables/materials/prototypes/software and utility costs; and a technical report containing details of the project(s) undertaken, the difficulties you faced, and the process involved.

 

Note that you don’t have to succeed in solving the problem in order to claim.

 

If you would like to know more about the R&D Tax Credit Scheme, please read here https://www.gov.uk/guidance/corporation-tax-research-and-development-tax-relief-for-small-and-medium-sized-enterprises

 

If you’d like to talk to someone about a potential R&D Tax Claim, get in touch with Quantum Tax.  Their contact details are available on their website https://www.quantumtax.co.uk/

 

If you need help with your accounts, completing your corporation tax form or complying with other business obligations, get in touch with Mushroom https://www.mushroombiz.co.uk/

 

Jargon Buster

To simplify the technical terms used in the podcast, we’ve provided an explanation of each below:

  • CT600: form number of the corporation tax return
  • R&D claim: amendment to CT600 (corporation tax return)
  • Tax credit: deduction on tax liability
  • Technical advance: advance in science or technology that doesn’t already exist
  • Financial report: details all costs incurred in doing R&D
  • Technical report: details the technical advances, difficulties you’ve faced and how you’ve overcome them

How to spot the first signs of failure

Ed Surman, Director at Mushroom, interviewed Ron Mitchell of Business Rescue UK, for his podcast, Business With The Fun Guys.  The podcast interview is available here to listen to, however we’ve taken the main points of Mitchell’s teachings and outline them below:

 

Businesses In Trouble

Business owners or directors don’t aim to get into problems and this usually only happens once, therefore they have no experience.  Some will wait till the 11th hour before getting help.  The earlier you contact someone for advice and help, the better, however there is always opportunity for recovery and success, if you get the right support.

When your business is in trouble you might contact an insolvency practitioner, accountant, or you could contact Business Rescue.

 

Insolvency Practitioners

One of the options for a business in trouble is to contact an Insolvency Practitioner.  An Insolvency Practitioner will use either an IVA (Individual Voluntary Arrangement) or a CVA (Company Voluntary Arrangement) to help keep your business running.  This involves making an arrangement with your creditors to either pay all or some of the debt off over a period of time, usually five years. This may include selling off some properties, ending leases, etc.  One of the issues with a CVA is that it’s advertised, so becomes public knowledge.  Other businesses become wary and any existing credit accounts could soon be replaced with proformas.   But in certain circumstances, a CVA works well.  The client states how much will be paid on a monthly basis, based on a realistic income and expenditure analysis.

 

How Can Business Rescue Help?

Another option is to contact Business Rescue.  Business Rescue is a group of businessmen who’ve experienced running companies that have had difficulties.  When they are contacted by a client, they ideally like to carry out a ‘business medical’.  They look at all aspects of the business, find the root problems from a business point of view, review all the options available and recommend actions in the short term and long term, that are required in order to improve the direction of the company.  So for example, a lack of cashflow can be a problem but what has caused this?  The answer depends on the solution required in order to repair it.  Unlike some other organisations, Business Rescue aren’t restricted in terms of the products they can offer and work with various other service providers to help turn businesses around ie. Finance, legal, debt management, employing new management, etc.  But the client chooses and Business Rescue will work with them, building up a good relationship.

 

Business Rescue offer a similar product to the CVA (mentioned above) but Business Rescue negotiate with the creditors. The agreement doesn’t become public knowledge and the only parties aware of the arrangement are the creditors, the client and Business Rescue. They look to pay 100 percent of the debt off within the five years, but there’s no restriction, so can extend to six or seven years.  And the established supplier credit accounts are kept.

 

When Business Rescue are first approached for help, they generally have to take action quickly and buy some time.  They will call creditors telling them of their involvement, that they’re reviewing the situation and will contact them with a plan in a month.  During that month, they complete their ‘business medical’ as mentioned previously.  Business Rescue once received a phone call from someone who stated they had a winding up petition, due to be heard, the following day.  So they had to arrange a barrister to attend court the next day in order to at least get an adjournment while they completed their business medical.

 

Potential Problems

 There are many reasons why a business develops difficulties.  Internal and external change is always likely so needs to be monitored and planned for.  A few examples of potential problems are:

 

  • Major customer goes bust
  • Past loan has enormous interest rates
  • Product Life Cycle changed – now lack of demand
  • HMRC debts
  • Supplier relationship is weakening
  • Losing valuable staff
  • Cashflow problems

 

One of Business Rescue’s clients runs a commercial laundry.  He was subcontracting some of the work and doing hotel laundry for very major hotels.  Unfortunately the subcontractor had a fire and the majority of sheets and blankets were destroyed.  The subcontractor wasn’t insured, and had to replace £75,000 worth of linen for a hotel the next day.  The problem wasn’t the fire, but lack of insurance.  Often the essentiality of these products doesn’t become obvious until there’s a problem.

Another thing that seems obvious is having a business plan, even if it’s on one sheet of paper, with a plan of where the business is going.  Most businesses don’t, and they also don’t monitor what’s going on in their business.   They have no idea what their sales forecast is.  They might have a historic set of accounts but they don’t use them to regularly measure the key factors, graph them or look for trends, to help identify any early warning signs.

Some small traders have started business because they may be a technician, a plumber, bricklayer etc. and that’s what their skill is. The company’s got bigger, but they haven’t been taught management and business skills to cope with this.   Small companies tend to work hard and keep going until the problem becomes too big.  But any business owner needs to understand his business or understand what’s going on in his business and it’s amazing how many people don’t.

 

Business Rescue help businesses as much as they can and are aware of the difficulties involved, particularly for a small business owner or SME, where for example, the owner’s house might be in jeopardy, he is in fear of losing the business and may not yet have told his wife.  He’s putting his future in Business Rescue’s hands so there’s a big responsibility involved.  However having shown their clients direction, many retain their services as business mentors to help out in the future.

 

Is your business in difficulty?  If you would like to find out more about how Business Rescue could help, click here.

 

If you’d like some business support (so you are less likely to need to call Business Rescue) please contact Mushroom by clicking here.

Setting up shop in Europe?

Ed Surman, Director at Mushroom, interviewed Marcus Broix of Trade with Europe for his podcast, Business With The Fun Guys.  The podcast interview is available here to listen to, however we’ve taken the main points of Broix’s teachings and illustrate them here:

Trade with Europe ultimately helps companies trade in the EU.  They’ve been helping businesses for two decades but after Britain’s vote to leave EU, Broix realised many UK companies would need support and solutions to trading in the EU in the future and therefore changed their business model in 2017.

The general election on 12th December saw Conservatives win by a large majority.  Before this there was major uncertainty.  Conservatives offered to complete Brexit, Labour offer ed another referendum, Liberal Democrats offered to cancel Brexit altogether.  So with Conservatives in power and Boris Johnson as Prime Minister, what is likely to happen going forward?  Firstly, Broix says that nothing will change until end 2020 and that changes will happen from 2021.

 

The Deal

Boris Johnson’s deal includes 95% of Theresa May’s deal.  However the 5% change is crucial and is much closer to ‘no deal’ in terms of its effects for UK businesses.  May’s deal stated that the UK needed to stay in the EU Customs Union, Johnson’s deal doesn’t.  This means that if nothing happens by the end of 2020, on 1st January 2021, UK businesses will have to pay full tariffs, and for any exports they need a full customs declaration.  This also applies if a free trade agreement isn’t signed by end of 2020 which looks 99.9% unlikely to happen.  The trade agreement would agree how UK businesses will be able to trade with Europe and the rest of the world.  It affects other countries outside the EU because the EU has 8 free trade agreements with 80 countries which UK will not be part of anymore.

May’s deal included a mandatory need for a level playing field in that, there would be alignment between UK and EU regulations.  Johnson’s deal does not include this, which means social work, medical and agricultural regulations could differ.   Europe will not accept any deal that softens its standards which could make further progress regarding a trade deal by end 2020 difficult.  However, due to current discussions between Johnson and the US regarding salvaging the NHS, is Johnson moving away from the EU and looking for a no deal?

 

What Can UK Businesses Do?

With feelings of uncertainty and lack of control at the moment, what can UK businesses do?  Trade with Europe offers UK businesses the chance to ‘remain’ by establishing a business for them in Europe, similar to a Gmbh or BV company.  Broix suggests that the European business can operate with very little disruption to the UK business.  Trade with Europe helps by hosting the business in terms of administration, tax and operations.  They have an office building in Dusseldorf, which on a par with Munich and Hamburg, that offers virtual, serviced or real offices and meeting rooms.  Once a company statute at the Notaries office is signed and a bank account opened, the German business is up and running.  A network of associates including Chartered Accounts, lawyers etc. are also available to help with accountancy and tax, legal advice and business advice.  Depending on the business model, operators and service personnel to run the German business can also be found.  The Dusseldorf office was primarily set up to support UK businesses offering services however, production is also possible.  UK company Lush chose this option about 15 years ago, years before Britain’s decision to leave.

Trade with Europe have a fulfilment centre in Roermond, Netherlands which is ideal for distribution due to infrastructure and legislation benefits and operational costs.  There is no import tax, tax only applies when the goods are sold plus there are lower delivery and forwarding costs. A UK business can register their company in Roermond which includes all administration, taxation (a Chartered Accountant works in-house) and fulfilment.  If the UK business sells online, platforms are provided from which to sell, orders are taken, packed and distributed worldwide.  As Trade with Europe are a medium sized company, solutions can be tailored to suit individual requirements.  Packaging used is green, biodegradable and plastic is used only in terms of product safety.

 

Whether a UK business is exporting or not, the following is recommended:

  • Prepare your business to be more resilient for economic changes. Check all legal requirements, data protection, IP protection, GDPR and check all contracts with suppliers, to ensure you’re working from a good legal base.
  • Increase your capital base. Review your monthly outgoing costs e.g. rent and make savings where possible.
  • Review your business model and overhaul as necessary. Stop the less profitable/costly sectors that lack future potential and enhance your core business.
  • Grow your market by exporting – online if possible.
  • For those that are already exporting, build a bridge into Europe to access new markets or to stay competitive.

 

Trade with Europe helps you grow your business in a way that you wouldn’t be able to purely from the UK.

Whether you are already exporting or not, Trade with Europe could help.  To find out more, click here.

If you’d like some business support for your UK business, please contact Mushroom by clicking here.

 

 

Episode 7: First signs of failure with Ron Mitchell from Business Rescue UK transcript

Ed Surman: I’m here today with Ron Mitchell of Business Rescue UK. Ron is the director of this company and specializes in saving and turning around companies before liquidation and other nasty interactions with the crown. Ron has had years of director experience starting at Dunlop, the sports brand, before moving to one of the UK’s largest manufacturers and wholesalers Symphony Furniture Group. Before joining Business Rescue UK, Ron carried out the management buyout of a materials handling manufacturer and has been managing director of that company for 20 years. His work has taken him around the world from Malaysia to Indonesia and the United States. And I’ve known Ron for past two to three years on the London networking circuit and I would just say this that when we first decided to start a podcast I think you maybe been person number one, two or three that I thought of before bringing you on. I think you know, you go through your career, to use that term of the youth, you were a bit of a baller and I think you know we’ve got some really interesting discussion points to cover regarding stress on businesses. I think the best message you bring is that, when you think the end is nigh it could be a lot further away from that than you think and actually there’s a lot of opportunity for recovery and success there.

Ron Mitchel: If you think about it most business owners or directors generally speaking don’t aim to get into problems, they only get into problems once, so they have no experience. So when that hits, what do I do? Who do I turn to? And it depends on whose telephone they ring as to what might happen.

Ed Surman: Yeah. Just tell me a little bit about that journey from starting out at Dunlop to now.

Ron Mitchel: Well I suppose originally I didn’t actually start work till I was 27 because I stayed on and did a PHD but never intended to, and always wanted to go into business of some kind, but it was an opportunity I took and finished up having finished doing a PHD to going and making tennis rackets and cricket bats, with Dunlop sports division and dealing with the likes of Geoffrey Boycott and those sort of days. Saw things were going wrong with where I was at Slazengers and remember wondering why we were working all the hours that God sends when the warehouse was actually turning round saying we don’t want any more tennis rackets. So I saw the writing on the wall and decided to move on and joined the Symphony Furniture Group. And at that point in time they were expanding rapidly and the the M.D. who was an ex PA consultant was looking to do double the turnover every year. So when I joined it around two and a half million, second year five million, third year 10 million, 20 million was more of a problem. We went from one factory, two to four factories within that period of time. It was up in the north, things weren’t going as well as they should in the north. So we finished up moving south and joined a materials handling business and the owners were three brothers and they wanted to retire. Myself and the finance director did an MBO of the business, took it over and run it on for about another 20 years, adding bits and pieces onto it as it went. How we got into Business Rescue was that things got a bit tight with the materials handling company and needed to raise finance fairly shortly and in those days there wasn’t such things as Google or whatever. We spent time in the library got out the yellow pages and found this company called Business Rescue, rang the guy up and he was impressed, and at nine o’clock the following morning he was in my office saying what can I do for you?

Ed Surman: Where was this?

Ron Mitchel: It was in Braintree. So it was a fairly long trip for him, sorted the problem out, but became friends. And so when I came out of the materials handling side, he kept on ringing me up saying well you’re nearer to these people in London than I am, can you just go and pop in and see them. So eventually decided to join and then took it over. So for the last eight years myself and another director well another two directors have been running the company and built it up to what it is, started the franchising around the country and that’s where we came to, to where we are today.

Ed Surman: What a story. I hope if one day I could have the same story, I’d be very happy. So just let’s go over about Business Rescue UK. I mean we’ve gone over a little bit about how you got into the company. What does Business Rescue UK actually do? So obviously you help companies that are stressed, and normally when you read the news you will see Debenhams is going into administration, but then suddenly you see it reappearing and they’re still trading. So that’s obviously, for someone who reads the press, they see this horrible news that something’s going terribly wrong but actually behind the scenes lots of different things are happening. So do you want to describe that process and where you fit into that?
Ron Mitchel: I suppose Business Rescue, for one thing we’re a group of businessmen, so we’re not insolvency practitioners, we’re not accountants. So we tend to look at problems from a business point of view, and like myself we’ve been into running companies that have had difficulties. So you got firsthand experience and I like to think with my own company if I knew then what I know now things would have turned out differently. So, I think I’ve said before that people don’t intend to get in difficulty in business. Things can happen very quickly that cause a problem. And it’s because they’ve got no knowledge as to what to do. It’s a question of who do I go to, to give me some help. And if you go to the wrong people then that may not be help in order to get the business going it might be help in terms of liquidating the business, whatever it might be. What we do is look at the options. Yes it may well be that the best route is to actually liquidate, it may well be to partially liquidate and start something else again. Or as you say with the Debenhams with the CVA so at least they can carry on going. All of those are options but because we’re, I suppose, a business where you look at all the options, we’re not restricted in the sort of products that we can offer that company to turn it round.

Ed Surman: So you’ve touched on a range of schemes and methods of rescuing a business. We’ll go onto debt a bit later but let’s just talk about broadly, let’s go through a list of the kind of things that you can do.

Ron Mitchel: Initially we would ideally like to go into a business and carry out what we call a business medical, which is our trademarked thing. So if you’ve looked at the Price Waterhouse report on a company whatever, that’s the type of report that we do, obviously if it’s a small company it’s a very much smaller report. The difference with ours is that, at the end of it we would actually say the things that could be done in order to improve the direction. So in some respects we’re looking to say well where actually are you now, not where the director thinks he is, where you actually are now, where do you want to go to, and where can we draw the roadmap between there and now, the steps we have to go through. Everyone’s different. So once you’ve drilled down to find out what the problems are, you can start suggesting solutions. And if you go into a company traditionally will turn around and say I’ve got cash flow problems. Yeh but why. Because the cash flow problem is the result of something not the cause. And it could be a number of reasons and depending on what they are, depends on what product you can possibly put in, in order to repair it.

Ed Surman: Yes you might have like a debt problem right so you’ve got big outgoings on interests that you have to regularly commit to. You know in that situation, we’ll talk about that a little bit later we’ll look at some of the debt management side, but it could be something as simple as say you have a really key client that’s crap at paying you on time and that’s really sort of causing backlogs.

Ron Mitchel: There are a multitude of things that go wrong. Some of them are out of the ordinary where perhaps one of your big customers go bust and you’re left with a major debt that cash can’t stand. What do you do about that situation. It may well be you’ve in the past taken out a loan and found out the interest rates are enormous and you want to reschedule your lending or whatever it may be, or it may well be that your life cycle has changed so the product that you were producing yesterday isn’t the product that somebody wants tomorrow. A huge number of different things. And we can look at all of those and decide on what is the best way to move forward.

Ed Surman: And how often. So obviously we don’t want to talk about insolvency at all really today because it’s quite a technical thing.

Ron Mitchel: I think insolvency laws obviously we have to take into account. Because directors cannot carry on running a company if they’re against their official adjudicatories. So that’s one of the things we do say to them. This is all going to be done in a correct way.
Ed Surman: And so how many say, you know you have X number of clients a year, is it normally quite rare you get to a certain stage where you liquidate a company with your business?

Ron Mitchel: I wouldn’t say it’s common. I suppose 30 or 40 percent you finish up in some kind of insolvency process. It could be a CVA which is an easy process. You could be sort of burying part of the company and building up the other side of the company. So we shouldn’t be poo pooing the insolvency regulations.

Ed Surman: We were talking earlier before the interview about it how you were one of the first sort of companies that really looked at the problem differently right? So you say a company thinks they’ve gone to hit the buffers and oh my god we got to go and do something. And you actually you do something quite new very early on, that enables to troubleshoot and take a proper, like you saying, an executive view on the problem.

Ron Mitchel: Yeah. I mean I suppose we go back to the start of Business Rescue which was nearly 30 years ago. The guy who started it up in Preston he just used pure business acumen and he was an engineer background and whatever and went into companies to help. But then in the 80s when the government brought in the CVA’s and the IVA’s, it was the first time really they’d done anything other than liquidating companies to put in anything to support. And the fact that he was already in the business turnaround arena then he latched onto those very quickly. And made a lot of money doing it and that sort of led on to us doing a proper business medical which is a structured way of taking the company apart in terms of what the problems are and building up a lot of other people we work with to supply, whether that be finance or legal requirements or debt management or whatever it would be. We built up a number of service providers to help support businesses.

Ed Surman: Interesting. So let’s just go through some of these sudden insolvency regimes. So let’s go through a company voluntary arrangement and then go for a scheme arrangement because they sound very similar but obviously there could be some distinct differences.

Ron Mitchel: If you’re going to an insolvency practitioner or such a company then in terms of looking to keep a company going, the two tools, and IVA for an individual and the CVA for a company, so a company voluntary arrangement. The idea behind that is that you make an arrangement with your creditors to either pay all or some of the debt off over a period of time. And we’ve seen with Debenhams that may or may not include selling off some of the properties or getting out of the leases or whatever it may be. On a smaller scale generally speaking you’re talking about looking at the historical debt at a particular point in time, putting that to one side and agreeing with your creditors to pay either all of it or a percentage off, generally speaking over five years. In lots of cases that works very well, in some cases it doesn’t. Some don’t have a particularly good reputation of being successful. One of the issues with that is that it’s advertised so everybody knows that you’re into a CVA so where you might’ve had a credit account with a company before and you’re on reasonably good terms with them. The chances are that credit account is going to disappear and you’re now going to pay proforma. So your war chest of not having to pay the historical debt gets watered down because you’ve got to pay people upfront for that work. But it’s right to be used in certain circumstances, because you’re effectively saying on a monthly basis how much you’re going to pay into the CVA. So you’d need to do an income and expenditure of the business going forward and be sensible about it. And remember at the point in time that you’re doing the CVA the company is at its worst possible situation. Hopefully if the business is moving forward and they’ve got the right support etc it’s going to improve and be able to pay that back.

Ed Surman: What kind of impact would you say having a CVA have on a company. You decide to go through the CVA but you you want to get out the buffers but you’ve got an opportunity to really kick out of it. What kind of drags do the CVA have on opportunities to actually go from hitting the buffers to actually finding a new market or re-iterating a product?

Ron Mitchel: Well I’d say that the issue is the fact that it’s advertised. So anybody who checks your credit rating is going to see that you’re into a CVA and that’s quite a negative going forward and potentially is one of the reasons why we brought our own debt management company into play here. So we work in essence doing a similar thing to a CVA but it’s Business Rescue that’s actually doing the negotiating with the creditors. And from that point of view the only people who know are the creditors, the company and us. We’re looking to probably pay 100 percent of the debt off. We would work generally within the five years so sort of similar to CVA but there’s no restriction, we can go to six or seven years but yeh we’re looking to pay 100 percent off. But it does mean to say that those people who had a credit account, with who you’re up to date, you keep.
Ed Surman: Yeah, go back to say, manufacturing, you’ve got very very varied trade cycles. Yeah then actually that’s kind of invaluable, that could be critical stuff to you succeeding. I mean particularly in manufacturing it sometimes takes a while for your products particularly, you need to really get traction with, particularly people further up the supply chain and once it’s widely adopted you’re on a winner. But it’s so easy to have those problems early on.

Ron Mitchel: I found in manufacturing, and it didn’t matter which industry you’re in, a decision made to change the company’s direction used to take at least three months before anything would happen. So you’ve got that drag all the time and that’s something fairly straightforward, but some things could take months like new product launches or whatever would take so long.

Ed Surman: And then the Scheme of Arrangement. What’s the difference?

Ron Mitchel: This is basically the same thing. It’s still an arrangement to be made with the creditors.

Ed Surman: So this is what you do?

Ron Mitchel: Yeah. Well the CVA is a Scheme of Arrangement, a Debt Management plan is a Scheme of Arrangement.

Ed Surman: So it’s a category that covers the whole business, that’s fantastic. So just for our listeners to come back to, as we’ve covered some technical detail here, so I suggest that maybe if you are really interested in understanding this, go back to some Apple podcasts, you can sort of slow it down a little bit.
Ron Mitchel: If you went into a typical situation and there are some typical situations,a company’s got into distress, it wants some help. So you turn up and it may well be that you’ve got to take some actions fairly quickly. Generally speaking it’s buying some time. So talking to the creditors saying that we’re involved, looking into the situation, just back off for a month while we sort out and come back to you with what the plan is going to be. To give time to actually go through the company, find out what the difficulties are and look to see what the potential solutions would be either short term or long term. We do get the telephone calls when somebody says we have had a winding up petition. When is it going to be heard? Tomorrow in court. Well you have to move fairly quickly but yes we can get a barrister into court the next day in order to get at least an adjournment on that while we look at what’s going on. So typically it would be moving in fairly quickly getting hold of the situation talking to the creditors if that’s what needs to be done. While we then investigate better methods of going forward which might be a debt management scheme it might well be put some new finance in there. It might well be looking to employ new management if that’s been a difficulty. So many different difficulties, so many different possibilities.

Ed Surman: So for our listeners. As I say we’ve gone through some technical detail on the CVA’s. Let’s just go back and say to our listeners who may be thinking you know, we’ve got a bit of stress or I’ve got a friend who’s got another business and he’s in a bit of stress. Let’s help them identify the common causes of stress. We’ve gone through a few at the start but let’s just reel off a quick list. So I guess a big one is tax debts?

Ron Mitchel: HMRC debts yes is a fairly major one and obviously cash flow. I mean one of the obvious situations in terms of watching is your creditor payment days going out. Are you saving up through the month because you’re worried about being able to pay the wages at the end of the month? So you stop paying other trade creditors during the course because you’re saving up to meet the end of the month PAYE run. It may well be that your relationship with your suppliers is going sour. If this has been going on for some time the other sign is that your good people start leaving because employees are quite, like I was a Dunlop, they’re quite clever in terms of seeing what’s going on and they realize the fact that this company is in difficulty and they’ll vote with the feet. And if you start losing some of your good staff then you’ve got a problem.

Ed Surman: What’s the strangest cause or reason someone’s called you up for a need of rescuing?

Ron Mitchel: It’s a difficult one. Well the example I gave you was the one who rung up and said yes I’m actually going to the petition tomorrow.

Ed Surman: Yes. Really back against the wall there.
Ron Mitchel: That was certainly there, but there are a whole range of, but there is no specific situation. We don’t apportion blame. We are where we are. And yes there are times when you walk out of a business and think OK why did you do that.

Ed Surman: I’m thinking back to the interview I did with Simon and he was my colleague and he was saying yeah you know a company isn’t simple, there are so many facets to it, so actually sometimes it’s almost useless pinning it down to one thing. Because if you can find one thing as you’re saying earlier it’s likely to be an effect rather than a cause of the problems.

Ron Mitchel: I mean a client that I’m going to next week who actually is running a commercial laundry. He was subcontracting some of the work and they’re doing hotel laundry so sheets pillowcases and whatever for very major hotels and his subcontractor had a fire and destroys quite a lot of the sheets and blankets. The trouble was he wasn’t insured. So all of a sudden he found he’s got to replace £75,000 worth of linen or whatever for this hotel tomorrow.

Ed Surman: And the problem isn’t the fire it’s the fact that there was no insurance there, they didn’t think about their risk assessment. I mean everyone finds that kind of stuff boring bureaucracy. But actually it’s so so critical. People really really really under underestimate all that stuff.

Ron Mitchel: It catches you out an awful lot of things are things that the directors would not have thought would have happened. It was something obscure and you still need to sort it out. There are some common traits with businesses and I know we have this sort of boring situation where people say you ought to do a business plan. Well we’re not into the 25, 50 page business plan. But even on one sheet of paper, have you actually got a plan do you know where your business is going? And generally speaking most of the companies we get involved in, the answer to that one is no. And the other one is do they actually monitor what’s going on in their business? Yes we have a set of accounts. No the accounts is historic. So yeah you can see going backwards that business started going wrong a year ago. What I’m talking about is actually measuring the key factors in your business as you go along and graphing them or whatever and you can see trends and you can start seeing things are going wrong early. We go into companies and say well what’s your sales forecast? And they don’t know. How are you going to be in June? Well we should be okay. Yeah well £5000 for a small company one way or another is either okay or not okay. So just basic stuff in terms of measuring what is happening in your business, where is it going?

Saul Eber-Rose: Can I ask a quick question?

Ron Mitchel: Yeah.

Saul Eber-Rose: Does it ever … I’m Saul by the way.
Ed Surman: Here’s there to record and monitor recordings and he’s like I’ve got a question. (laughing)

Ron Mitchel: I’ve got a problem with my business (jokingly).

Saul Eber-Rose: Does it almost piss you off, the mistakes that people make in regards to running their business? Does it ever get on your nerves, how simple or common sense they could be to you?

Ron Mitchel: You do but yes is the truth is when you go down and find out that it was a simple mistake as such but you’ve got to accept the fact that people generally some small traders have started business because they may be a technician, they may be a plumber, bricklayer or whatever, but that’s what they’re good at, that’s what their skill is. And all of a sudden the company’s got bigger. They haven’t got any of the management skills, nobody’s taught them those bits and pieces. So what would appear obvious to you and I isn’t there. I mean we all do it to our own businesses. We’re very good at telling people how to run their businesses but don’t necessarily follow the same instructions ourselves which we slap our wrists for. But you should spend time every month which is the idea of a board meeting and actually looking at your business and say is it going where I wanted to go, or are there some problems. But small companies you tend to get your head down, your backside in the air, and work away and the rest of the problems go round and all of a sudden the problem gets too big. And something has to happen, something breaks at that point in time. You’ve got to nurture it but you’ve got to understand your business or understand what’s going on in your business and it’s amazing but people don’t. And that can be at all levels. You know you can have a, well, take the example of international sports division. You know I was working away I was the production manager and was told that we had to work overtime. We were producing some 18000 tennis rackets a week. And I had a problem over the warehouse which was a totally different factory run by different people, went over there and the warehouse manager turned around and said why the hell are you producing all these tennis rackets? You can see the place is full we just don’t need anymore. So I went back talked to the works director and said well why? Then he said well while we haven’t got instructions from the board to do it you carry on doing it. So I started looking for another job because it was very obvious what was going to happen. And sure enough the month after I left they started making people redundant, so this shows at any level people can get blinkered.

Ed Surman: So just to summarize. What I love to hear from you when I’m talking to you is that you’re probably one of the few people I’ve come across that really sees failure as an opportunity that you could almost get failure to the worst case scenario and before it really falls through the floor you can just get a couple of hands and say just stop it just before it does go off. You know you’re going to go wrong here. And actually I think more and more businesses around the UK need to sort of like look out for companies like yourselves. Obviously you because you’re here (laughs). But regardless, you know actually finding those kind of people like yourselves, getting help from people who have had experience in this. I mean you’re not you’re not preaching from a high altar.

Ron Mitchel: No I’m not. I’ve been there.

Ed Surman: You have been through the trenches. And I think that’s really quite special.

You know what they’re really saying is we need some help. We want to have some impartial advice to talk through what are our options and because we’ve been there before because we’re businessmen and we can use the insolvency law we can use various suppliers if you like that we can look at those options and talk through with the board or the individuals and say well those are your options available to you. What do you want to choose. And whichever they choose we’ll work with them and we build up quite a relationship with them because a lot of times if it’s a small business owner or an SME his house might be on the line he might be scared to lose his business may not have told his wife and he’s putting his future in your hands so it’s going to quite a responsibility in that respect but having shown them a direction with them, quite a lot of the clients keep us on afterwards as sort of business mentors and to help them out. Hopefully they stay on the right track. But on occasions where the money starts coming through and they start doing the same silly trick twice. Hopefully they don’t do that.

Ed Surman: I think we’re going to stop there. I think you know obviously, and it’s an easy thing to come to the conclusion here is call Business Rescue. But also, if you’re too busy. Obviously you guys were pioneers about 30 years ago when these CVA’s and things came in but actually you know they’re a lot out there so you make sure that you really, if you are a business owner and you’re listening, don’t, there’s a great photo on your website of that guy gets his head in the sand. Don’t stick your head in the sand. Get your head out of there. Look for help because the help is there and it doesn’t have to be an accountancy practice or an insolvency professional straightaway.
Ron Mitchel: Just a couple of things. A lot of small medium sized businesses believe their accountants are there to give them business support. And we’ve had on more than one occasion a businessman with a guy turned round to us and say you’ve taught us more about our accounts in 10 minutes than our accountant has in ten years. But the accountants not there necessarily to give business support. In fact lots of accountants, small accountants don’t have the qualifications to do it. So they’re there to produce a set of accounts.

Ed Surman: Let’s not poo poo them too much. They do that and they’re very good at it but you’re right. And I think that they’re thinking about traditional accounting firm is unless they’re advertising they do business advice that is genuinely good, you’re in a bit of a risk actually. There’s more to set of accounts than the FRS 102 standard where you have lines on a piece of paper that goes on Companies Houses.

Ron Mitchel: And if you’re a business owner and you’ve made enough money to pay your bills and whatever then you get a set of accounts at the end of the year sign here and you never look at it again. But there actually could be quite a lot of information in that set of accounts that will give you a clue that perhaps next year is not going to be quite as good as it was. And on top of that you’ve also got to be careful in terms of those words business rescue, because whereas we were the first, we were business rescue, insolvency practitioners were insolvency practitioners. Now nearly every company in that sort of industry is under business review, business rescue, or business turn round. Just be careful who you talk to because they may not actually be as interested in turning a business round as using a CVA or liquidating it.

Ed Surman: Just before this interview, I went back on your web site to do some more swatting up, and put it in the Google search engine and lo and behold the first thing came up was KPMG. You know Ron, it’s always a pleasure to speak to you. We normally do it over a beer. Saul, great intervention with the question there and maybe I think we should probably swap presenters now. Thanks very much.

Ron Mitchel: Pleasure.

Saul Eber-Rose: Thank you. Thank you.

Episode 8: Setting up shop in Europe with Marcus Broix from Trade with Europe Ltd transcript

MB = Marcus Broix

ES = Ed Surman

LD = Louis Duncan

 

MB: Making your business more resilient to economic changes so first step would be to check out all your legal requirements so you need to check IP protection, data protection so GDPR and all the contracts you have with suppliers, etc just to make sure that you’re working from a good legal base.

 

ES: This week I talk with Marcus Broix about setting up EU subsidiaries in operations post Brexit.  We talk about the general SME business news, things to look out for in 2020 and we’ll be providing updates from Mushroom and our team too.

 

ES: Marcus, welcome.  You’ve been living in the UK since 1980’s?

 

MB: Since 1980’s, on and off though.

 

ES: Pre cold war.  Pre Berlin wall I’m sorry (laughs).

 

MB: Pre first world war (laughs).  Yes before the war.  

 

ES: So technically you’re a vessie?

 

MB: Yes I’m a vessie.

 

ES:  One thing we haven’t established yet is Marcus, you’re also German.

 

MB: I am German.  I’m from Dusseldorf originally.  So I came to the UK first in mid 80’s and have been living here on and off throughout so I now live and work in the UK and run my own company, Trade With Europe.

 

ES: So Trade With Europe helps UK companies trade in the EU, which is obviously quite topical at the moment.

 

MB: And that’s basically the purpose of the whole company.  So in 2016 my wife and I sat there by the TV to see what the outcome of the Brexit boat was and we were quite surprised as I imagine a lot of people were.  And we thought well it is what it is now and then we thought, hold on, that means a lot of UK companies might want some services that allows them less frictionless trade in Europe in the future. And since we had a business in Dusseldorf for 20 years, typical SME with 20 people, we thought we know a lot, we have good contacts so we should be able to supply some services for them.  It took us about a year in order to formulate these services into solutions and make the relevant contracts with partners on the continent and we established the company in 2017.

 

ES: We’re doing this interview in November, and there’s a strategic reason for that.  We did elude to the Brexit vote.  Obviously this isn’t a podcast about Brexit but it is going to come up because it’s very relevant and there’s a very clear need for what you provide.  But we did also work on the anticipation that maybe the Withdrawal Agreement might’ve been signed because there was a new deal, it passed a 2nd reading in parliament so we thought we could talk about the future rather than the uncertainty.  So I guess you don’t have any view on what might happen?

 

MB: Obviously 12th December, we’ll know more.  One of three things can happen:  Either we have a hung parliament again, or Boris loses which would mean another referendum or we would evoke Article 50 straight away, or if Boris wins he said he’ll get his deal through on the 13th.  What I could do is talk about what the deal actually means but from experience I know that business people don’t know what it means and they don’t really know what May’s deal means.

 

ES: I think that’s really important.  The problem even with podcasting, is there’s so much stuff on Brexit at the moment and it’s very politically charged so would be good is to go through the details.  The May’s deal is kind of irrelevant but the Boris Johnson deal, is there any trapdoors or things we need to look at?  From what I understand there is more likely to be regulated divergence later down the line, so we should definitely go over that as a scenario.  So what things are coming out of the Boris Johnson deal do you think we should be aware of?

 

MB: So in general people say that Boris’ deal is 95% of May’s deal which is true however these 5% of changes are crucial.  It means that his deal is a lot closer to no deal in terms of effects for UK businesses.  Nothing will change until the end of 2020 because this is how long the transition period takes, and the changes will happen from 2021.  But then we have the difference, because with May’s deal the UK would’ve stayed in the customs union whereas in Johnson’s deal it doesn’t.  Which means for businesses, they have to pay tariffs straight away and they also have to do the full customs declaration, if nothing happens after 2020.  So if it’s Johnson’s deal by the end of 2020.  By 1.1.21. UK businesses have to pay full tariffs and for any exports they have to do the full customs declarations also.

 

ES: And that’s also in the case that a free trade agreement doesn’t get signed at the end of the 2020 transition period?  Which is highly unlikely.

 

MB: It is 99.9% unlikely.  It will not happen.  Article 50 has 5 paragraphs of which 2/3 are important and need negotiating. Three years down the line and they have just about been able to negotiate the articles.  And these free trade agreements usually take years and years to negotiate. So many people think, after three years we have a deal now, great and we’re out.  No, this is only the beginning. We now start to begin the actual trade agreement which is about how UK businesses are able to trade with Europe and the rest of the world.  There are 88 free trade agreements in place with roughly 80 countries that the EU has, but the UK will not have anymore.

 

LD:  This feature now seems very relevant since it looks like Brexit will go ahead doesn’t it Ed?

 

ES: I think it’s pretty much done and dusted so obviously the conservatives won the general election by quite a big majority so I think it’s pretty certain it’s going to happen.  Certainty is actually better than uncertainty I think most people will agree so it’ll be interesting to see how the profile of companies change as we move into the future with UK outside of the European Union.  That’s why we brought Marcus in before the election and we were worried whether it was going to work or not, but now it’s very timely and I think if you have a European market, a European presence this will give you a lot of information about the technicalities of setting up.  I used to work at a Swedish bank and Brexit and the uncertainty around it, made them do something similar the other way around.  They are a publicly traded Swedish company and they were operating in the UK as a branch with no limited UK entity and after the vote, within about a year, they set up the limited company that was the incorporate subsidiary of the Swedish company.  So it is forcing lots of pan-European businesses to have separate entities and jurisdictions.  Obviously there’s extra admin which we can help with, and we do work with a number of German and French companies in particular, and other European companies but mainly French and German, and we do help them set up an operation or entity in the UK.  If you’re just catching this podcast and you’re from a European country you should get in touch because we know things you need to do, for example, if you’re running a payroll in the UK and you just want to pay staff, or you want to have a full limited company we can give you all the guidance on what you need to do.  It’s very timely.

 

LD: Perfect.  So what are we going to talk about in the news then?

 

ES: Lots of interesting stuff.  There’s all sorts of big investments going on, particularly in manufacturing and construction but mainly Oxus Energy which is a battery manufacturer.  They’ve just built their new office factory in South Wales.  One of the big themes of the general election was regional inequality. So you can see the electoral profile change and actually if you look at what’s going on in the economy, there’s a lot of things going on outside London.  The unemployment figures came out yesterday, and it’s put unemployment at the lowest rate since 1975. Interestingly the paid geographical spread was 5 out of 9 of the regions where pay growth substantially faster than prices.  It’s a good time but I don’t think a recession is far away globally.  Whilst unemployment’s really low at the moment, I think we have to stay put and see and wait and see.  The other interesting bit with SME’s is that 30% of the population is employed by SME’s, it’s a bit chunk.  They are key but we need to make sure, including Mushroom as well, that companies are as resilient as possible.  You’ve got the Brexit uncertainty, probably at the top of the asset bubble by 2021-22 so keeping things lean and mean, and forward thinking is really important.  Marcus goes through some of the Brexit scenarios and some of the things you can do as a company to protect yourself from that but I think 2020 will be a pretty good year for the economy but I think that’s it’s one of those situations where you make sure the roof is fixed before the rain comes and save a good cash balance.  I know you don’t get much money off interest but at some point you’ll need that kind of cash to be resilient so that stuff is important.  I think Marcus mentions that too.  I know it sounds like a silly, simple thing to do but actually just getting some cash in the bank and holding on to it is pretty valuable at the moment.

 

LD:  It’s true.  OK with that being said let’s get on to the next half of the feature.

 

ES:  The other important thing to stress.  I’ve been to one of your talks, you did a talk at Cheltenham Chamber of Commerce, and I remember you saying, the solution you provide is something that can benefit you even if we remain in the European Union.  So let’s just talk about the solutions you provide that can, not necessarily, circumvent the friction necessarily, but if you’ve got a European business, having it as a European operation, a European company is actually something that is pretty sensible to do anyway.

 

MB: Yes.  Now it gets technically.  I’ll need to go a bit into detail in order for people to understand how it works.  So our idea of our solutions for UK businesses is that they can remain as a business.  How does that work?  Quite simply we can establish a business for UK businesses in Europe.

 

ES: So we’re talking like a Dutch BV company or a Gmbh which is a German limited company?

 

MB: Exactly. We can also host them.  They can run their European business with very little disruption to their UK business.

 

ES: And by hosting you mean having distribution channels if they have products?

 

MB: By hosting I mean first of all the administration and the tax side of it.  We can also do the operational side of it depending on what your business model is. We picked Dusseldorf primarily for people who want to sell services.  Dusseldorf is a great business hub, it’s on par with Munich and Hamburg.  What we have is an office building with real offices or serviced offices, virtual offices or meeting rooms etc so we would prepare everything for you to simply come over and sign the company statutes at Notaries office, open a bank account and then you’re German business is basically up and operative.  We also have a network of associates like chartered accountants, lawyers and so on who can do all your accountancy, your annual tax return and depending on what your business model is, we can find you the right operators, service personnel to run your service business in Dusseldorf. Another option is you can do production from Dusseldorf.  For instance, like UK high street brand Lush has done years ago they decided to go to Dusseldorf, before Brexit, around 15 years ago.  So what we offer is not only Brexit circumvention or trade barrier circumvention, it’s also services to grow your business in a way that you wouldn’t be able to, purely from the UK.

 

ES: You essentially have a comprehensive operation in the European Union, in continental Europe, and there are transportation benefits, for example being able to move goods around, I imagine a little bit cheaper if you’re doing the logistics directly in Europe.  For example, you have a fulfilment centre that you use in the Netherlands.  You just hop into the Netherlands from Germany, where’s the place called?

 

MB: It’s called Roermond, it’s a small town and it’s only 40 minutes from Dusseldorf, just behind the border.  It’s also a few miles to the Belgium border so it’s in between this narrow strip, this pan handle in the south of the Netherlands near Maastricht.  We picked the Netherlands for selling goods because it’s just ideal for goods distribution for Europe and throughout the world.

 

ES:  Rotterdam, trains, motorways?

 

MB: Exactly, so whether your stuff comes from China into Rotterdam or whether it comes from the continent, the whole infrastructure but also the legislation is geared up for it.  So the Dutch have a legislation that anyone can apply for, it’s called VAT Deferment so that means you do not pay any import tax, any VAT upon import of goods but only when you sell it, so you have a much better cash flow situation.  And also, if you would move your UK operation to the Netherlands, regardless of Brexit, it could save you a lot of your operational costs simply because of cheaper delivery and forwarding costs.  We have the option to register a company for you in Roermond in Netherlands including all the administration and taxation matters.  We have a chartered accountant working inhouse and attached to that is the fulfilment so anything to do with order fulfilment if you are an online seller and we even have the platforms for you to sell on.  We take the orders from these platforms and fulfil them which means pick and pack them and then send them to the customer wherever in the world.

 

ES:  A really good example of where that’s useful is where you’re selling an electronic device, and you have your UK plugs and products, you can ship that quite easily around the UK.  But to sell a European version you can actually make sure the European plugs are packaged in that product.  So when you’re shipping it across the EU not only have you the practical logistics benefits but actually you’ve got simpler compliance with product regulations.

 

MB:  The services we supply to customers can be individually tailored to their needs.  Say you import British electronics with British plugs on it, you can say for the continental market, I’d like you to change the plugs, so we just get the plugs in and change them for you.  That’s not a problem we can do that.  So jobs like that we can do for people.  You can pick the packaging.  We’re green in general so anything is bio-degradable and we hardly ever use plastic unless we need to do it in terms of product safety.  We use LED lighting but apart from that we try to do the best in the interests for the customer and larger companies can’t do that.  I appreciate that because they have to work on the basis that one size fits all because they’re large companies.  We’re a medium sized company so we can fulfil all these individual requirements for people.

 

ES:  We’ve covered a lot there, what we should go back to, particularly for UK businesses, we know there’s a lot of uncertainty right now and we know that if the Johnson deal is signed there is a trapdoor to a no deal.

 

MB:  I have to explain that because people have been saying oh it’s a trapdoor but no one has been saying why.  If you look at the new deal, they are certain indications that are pretty obvious, for example, level playing field.  That’s an expression for the alignment of EU regulations and UK regulations and in May’s deal that was still mandatory, so that was part of the deal.  In Johnson’s deal it’s not legally binding anymore.

 

ES:  So we’re signaling to regulatory diversions?

 

MB: Yes.  That’s regulations on social, medical and agricultural standards.  That indicates moving away from the EU.  There’s a very good reason to assume by the end of 2020 or even before that, Johnson might say we don’t get anywhere with this trade deal, and Americans are already in pole position, there have been talks behind closed doors regarding salvaging the NHS for instance and other public services, and I think that would work very much in favour for Johnson.  So this is why people believe there’s a very good chance this deal with Europe might not happen and Europe will certainly not accept any deal that will soften their standards.  That will create a no deal.

 

ES:  It’ll create a big barrier.  So if we’re anticipating that happening, if you were to give your top five measures for a UK business, today.  What would they be?

 

MB: Well, I think given the fact that not every business is an exporting business, I would say, that the general advice is to prepare to make your business resilient to economic changes.  So first up would be to check all your legal requirements.  So you need to check IP Protection, Data Protection so GDPR, and all the contracts you have with suppliers and so on, just to make sure you’re working from a good legal base.  Then, obviously increase your capital base, save up money.  Review what your cost situation, what is your rent and other fixed costs and other costs per month and see if you could save.  Also, review your business model in general and maybe overhaul it, so maybe get rid of less profitable or costly sectors without a lot of future perspective and enhance your work on your core business.  Point 4 is that exporting businesses are a lot more resilient to any changes so see if you can grow your markets by exporting, online is probably a good idea if you have the right product.

 

ES:  E-commerce when something can be easily packaged and shipped around.

 

MB:  Exactly.  For exporting businesses, build a bridge into Europe to access new markets or merely stay competitive, say if you have a product from the Far East and you know you have to pay more tariffs that your competition on the continent, you might as well set up on the continent, which is where you come back to the services we provide.  We do exactly that.

 

ES:  Brilliant.  Marcus it’s been an absolute pleasure.  We may get you on again if we have a Brexit related podcast, maybe a debate or a discussion?

 

MB:  It would be a pleasure.  Thank you very much.

 

ES: Thank you Marcus.  Cheers.  Bye.

 

ES:  Just before we go onto some updates.  Louis you’ve been involved in the production of this podcast for the last couple of months, just tell us a little bit about what you think the most exciting thing with Mushroom is at the moment?

 

LD:  So a great thing about Mushroom at the moment is we’re really adapting from the feedback we’re having from our market.  We’re having quite a big website change at the moment as we and other members of our client base thought that our website was maybe a bit outdated.  So we’ve been adding loads of new bits to the website which you can see online.  With the Fun Guys, we’ve added a new tab so you can see the Jargon Buster, blogs and links to all the other podcasts online.  And it’s great to see different businesses coming onboard, and we’re helping them with loads of different things all the way from yoga studies ….

 

ES:  to PR agencies.  We’ve got manufacturing firms, international software companies, all sorts of crazy stuff.

 

LD:  We’ve got everything and I think when I came onboard I expected it to be quite flat and quite uninteresting with the businesses, let’s put it that way, but actually all the businesses have been very interesting and how we help them as a business is very interesting to learn from.

 

ES:  Yes I think so.  I think you’ve learned a lot.  Well done (laughs).

 

LD:  I definitely have.  Ed, is there anything our listeners should really watch out for in Mushroom in 2020? 

 

ES:  Yes loads.  So I think we’ve nearly approached 100 customers now so we’re sort of on target.  We are starting to scale up our operations so there’s a lot more automation going on internally, which means the value is uncomparable.  That’s the main point to get across.  The value prospective clients will get and current clients get already is going to be through the roof and I don’t think anyone’s going to touch us on quality and price.  So things to look out for in 2020.  We’re going to have more podcasts.  We’re actually going to have a couple of live ones, in the summer, which will be fun.  We have got the new site.  Another thing is our international market, we are approaching more international companies so there’s a big focus on Germany.  So if you’re German and you’re listening to this, get in touch (laughs).  We really want to make sure if you’re operating in the UK and you want to have a smooth transition into the new trading environment, you should definitely get in touch with us.  The amount of Gmbh’s is quite a proportion of the client base.  Gmbh is a German limited company.  You should definitely get in touch.  We’re also launching a platform so our services are going to be driven from our own members platform, and we’re hoping to get that released in probably January/February and we’re going to start doing more with our legal services which’ll be quite exciting.  So our legal services portal will be quite a spectacular piece of kit hopefully.  It’ll start off pretty simple but eventually it’ll take off.  Yes so lots of things to look forward to.  And in the New Year we’ll start again with the podcasts, probably the end of January, beginning of February.  We’ll get some good people on.  We’ve got a guy who specialises in insurance.  Now insurance is really dull. But actually, to talk about some insurance things is really important because more and more emerging risks are brewing in the background and so being able to make sure your company is resilient to those risks, cyber security being the main one, is essential.  We’ve got a lady coming on to talk about International Standards Organisation certifications, so ISO, you’ve got ISO9001 and ISO27701 and they help companies have a minimum standard of quality for things like manufacturing, customer service, information security, environment, privacy, so it’ll be interesting.

 

LD:  I think I might need to listen to that, that just sounds like numbers and letters to me (laughs).  Alright guys well thanks for listening and we’ll see you in the new year!

 

Episode 6: R&D Tax Claims with Michael Newnham, Quantum R&D Tax Specialist transcript

Ed Surman: [00:00:00] So what is the weirdest thing you’ve seen being added to an R&D tax claim?

 

Mike Newnham: [00:00:05] Well there’s a couple of things.  There was one, I didn’t add it to the R&D tax claim in the end, but we did a claim for a company that’s that’s really doing some innovative work in plant based drinks. Part of that important quality of water was that you have to talk nicely to the water.

 

Ed Surman: [00:00:26] This week I talked to Mike Newnham from Quantum R&D about R&D tax claims, inflation and party leaders pitching for business in the general election campaign, featured in the news, and I’ll be providing you with some updates from Mushroom.

 

Ed Surman: [00:00:45] Today, I’m with Mike Newnham, Technical Director of Quantum R&D Tax Ltd., a boutique R&D tax practice based in Malvern, Worcestershire. A successful claim with Quantum R&D puts money in the pockets of their clients, helping them grow more and innovate more. Mike was the principal technologist at Rolls-Royce for nine years before taking on the role of Global Head of Materials at A.B.B. Power Generation. Five years later, as Director of Engineering for Bowman Power, he developed the UK’s first micro turbine based combined heat and power system, aimed at reducing emissions, lowering energy costs and improving the quality and availability of onsite power. Mike is a devout vegan and has a keen interest in sustainability and innovation. Welcome to the show, Mike.

 

Mike Newnham: [00:01:34] Thank you very much. It’s a pleasure to be here.

 

Ed Surman: [00:01:36] Yeah, I just thought I’d say before we go ahead. We met recently at the Gloucestershire Business Show and I think we got on really well when we first met because, you know, we share all of the same passions about innovation; and also small businesses getting the most out of using the very best in new technologies, and doing simple things like R&D tax claims, which I think are probably one of the simplest, easiest ways to get rewarded for your innovation activities that, you know, can make a really big difference to your bottom line.

 

Ed Surman: [00:02:12] So, yeah, that’s great.  And obviously you’re based out of Malvern. It’s nice. It’s a really interesting area for business. I mean, they’ve got this accelerator, haven’t they? Well, let’s talk a bit more about that quickly.

 

Mike Newnham: [00:02:24] They do. So there’s the Malvern Hills Science Park, where a lot of small businesses there are incubating and growing. Malvern is a site for the 5G Testbed. So it’s one of the few sites in the UK where they’re rolling out 5G. And businesses are using the 5G in order to develop businesses and offerings, products and services and so on. So it’s a lot of activity around the 5G.

 

Ed Surman: [00:02:54] Yeah. I mean, and more generally as well, Cheltenham, it’s just down the road. There’s a huge cyber security facility there.

 

Mike Newnham: [00:03:04] It’s a cyber security hub for the UK.  And in fact, one of our clients recently got an MBE for services to cybersecurity. And they are Malvern based as well.

 

Ed Surman: [00:03:13] I mean, the area is fascinating. We were talking earlier about how there’s a big push from local government as well to promote this area as a destination for young graduates or, you know, professionals that are looking to move out to sort of, you know, outside London. Because I see now London is sort of the vacuum that can suck all the talent. I mean, I live and work there too so I’m a hypocrite.

 

Mike Newnham: [00:03:40] Yeah. But there’s there’s loads on offer here. I mean, there’s loads to attract new businesses. You know, you’ve got the quality of life, but also you’ve got the talent here.

 

Mike Newnham: [00:03:49] So, you know, the Quinetic in Malvern used to be the radar headquarters for the the UK. You know, you’ve got a lot. There’s a lot of technology based businesses in the area.

 

Ed Surman: [00:04:06] Yeah. It’s a great area. I mean I’m from here originally so I remember years growing up here. Schools were good. So yeah, if you’re thinking about leaving the big city of London or Birmingham even, you should come out to Malvern or Cheltenham, I’m also surprised you tell me that there are some fintech companies in Malvern as well.

 

Mike Newnham: [00:04:24] There are some. So startups and a lot of them, you know, using blockchain as well. A lot of businesses are trying to explore how to use blockchain and developing new offerings and on with our services.

 

Ed Surman: [00:04:35] Let’s not tell the Shoreditch hipsters who think fintech begins and ends in Old Street. Fantastic. Okay. So let’s just go on to R&D.  Before we go any further I would just like to say that while we are talking about tax, I wouldn’t want anyone listening to this show and thinking this is tax advice. Please, if you are thinking of going ahead with an R&D tax claim, you can contact Quantum. They are regulated by the ACCA, which is an accounting professional body, and they’ll be in our description on our podcast. And you can also find your local accountancy firm might have an R&D offering or there are plenty of R&D tax credit companies out there should you wish to engage.  But Quantum are the best! So, an R&D tax claim, I think it’s one of the best schemes when you combine the ease, it’s a pretty straightforward process and the effects it can have on your bottom line at the end of the year with your corporation tax is brilliant and obviously as a tax and accounting service, but a key part of the R&D business is that it’s really about the innovation of what is R&D claimable. And you obviously not an accountant or a tax advisor by trade. You know, you were engineering director for many years. So. What I want to know first of all, is that you started there and now you’re at Quantum R&D. So just describe that journey for me.

 

Mike Newnham: [00:06:09] Okay. So I’ve been in R&D all my life, really. So as I said with Rolls Royce and A.B.B. I first came across the R&D tax credit scheme way back in early 2000s when the scheme was first launched and I was engineering director for a company that was trying to develop what they called decentralised energy. So onsite heat and power. So this would be a system where you produce all your own heat and electricity instead of relying on the grid. And the idea is it would be more efficient and more secure and so on. People like Hilton Hotels were interested, McDonalds were very interested in the whole thing and people that needed to be data secure were all very interested in that concept. So it was really the next big thing after the dot com boom, actually so decentralized power. So we were riding a bit of a wave and but we needed cash into the business. And the R&D tax credit scheme was a way of getting, you know, a significant amount of cash that would keep the business running.

 

Ed Surman: [00:07:19] And by cash, we’re stopping a cash outflow for corporation tax, after a time period after your year end, you’ve got to pay out to HMRC. And obviously, you know, with tax credits, you can get that reduced even to zero and have tax credits for the following year, correct?

 

Mike Newnham: [00:07:35] Yeah, yeah. It was a really important support for us, really. I mean, the run rate at some point was about £750,000 a month. We were burning cash. So the R&D tax credit scheme was really valuable. So basically it started there and then as I moved on over the years, I came across the scheme again through my brother’s engineering company and somebody that I knew was looking to meet manufacturing companies particularly and tell them about the scheme and so on. I introduced them to my brother who didn’t think he was doing any R&D. And this is typical of companies. They just don’t they’re not aware that they’re doing research and development. But, you know, he’s had £120,000 out of this scheme over the years, which has been an incredible support to his business, you know. So with his business, you know, one bad debt can wipe out the profits for an entire year. So just a single bad debt. So that kind of support has been a lifeline.

 

Ed Surman: [00:08:46] Fantastic. Yeah. So let’s just go into the detail of what an R&D tax gain is. So the technical detail. If we were to say in a sort of a sentence or more, I’ll give you some room. What is an R&D tax claim specifically?

 

Mike Newnham: [00:09:05] So an R&D tax claim is basically an amendment to your corporation tax return essentially, that says we’ve been doing some research and development. This is what we’ve been doing. And these are the costs. And therefore, you know, we’re entitled to money back into the scheme. So it’s a slightly convoluted way around getting money into companies because essentially, they enhance the costs that you’ve got. So by enhancing the costs that you have in the business, it reduces the profits that you have in the business. So essentially, if you’ve already made a tax, you filled in your corporation tax return, then what the R&D tax credit claim does is it says basically I should pay less tax than I’ve already declared. So that’s how you get money back into the scheme.

 

Ed Surman: [00:10:04] Fantastic? So if I were an entrepreneur or a business owner that is just trundling along, doing quite well. Trying to create you know, you’re saying, you know, people don’t realise that solving problems can equate to innovation. How would you encourage that person to sort of spot when they think they should be looking at R&D, how it works for them, what the process looks like and sort of what sort of things you can claim against?

 

Mike Newnham: [00:10:35] Right. So I think the one thing that people should take from this podcast is that they should seriously look at the R&D tax credit scheme, because it’s highly likely that they’re probably doing something which is eligible. So the scheme says that you need to be trying to make a technical advance and you need to be trying to do something which is not obvious, you know, in your industry. So so there’s no simple solution. And then you need to be going through some iterations to try and arrive at a solution in the end. And it’s as broad as that. So it can be any industry and it could be any activity as long as you’re trying to overcome some kind of technical problem.

 

Ed Surman: [00:11:20] So a cleaning company. Cleaning, you know, a sports stadium realises a particular bit is an inefficient way of cleaning under the stand seats, so they invent a product that or they find a way of modifying something that cost them some money. But that’s R&D.

 

Mike Newnham: [00:11:34] Or they could find a surface that they’re trying to clean, which is difficult to clean, or it could be in a difficult location. So they might have to do some work, to try and get access to that location. And, you know, you know, which takes some time in order to develop how to get to the surface. Or it could be trying to look at more Eco-Friendly cleaning materials. It could be a whole range of things or it could be an app that they’ve developed or something, like a piece of software, something that could be back-office stuff maybe not even related to the, you know, the main part of what they do. But anything where they’ve had to try and overcome some difficulty, some problem, it means they’re probably doing some R&D which would be eligible.

 

Ed Surman: [00:12:17] So there’s a form right? A form you fill in is the C-T?

 

Mike Newnham: [00:12:23] So your corporation tax is the C-T 600. And then the R&D tax claim is an amendment to that form. And it’s all filed online. So it’s filed with basically two other reports. One is a financial report which says, this is what it cost us to do the R&D; and a technical report which says this is what we actually did. So, the financial side of it is collecting essentially four types of costs. So your salaries, your subcontractors if you’ve used any on projects and any consumables or materials or anything, for any prototypes you might have made or even some software that might be dedicated to the R&D project and then your utilities that you’ve used eg. gas, water, electric. So you collect all those costs. The technical report says, these were the projects we worked on. These were the difficulties that we had to overcome. This is how we went about it. And you don’t have to have succeeded. So it could be a complete commercial flop but as long as you’ve attempted some R&D. So the whole scheme is to encourage UK companies to innovate, to reward them for having done some innovation and to encourage them to do more.

 

Ed Surman: [00:13:45] Fantastic. So just go through some of the numbers quickly. I mean, obviously you’re on the innovation side, but they inflate the costs at what sort of percentage?

 

Mike Newnham: [00:13:54] Yeah. So it’s 130% So that’s the enhancement that’s that’s applied.

 

Ed Surman: [00:13:59] So they they add the 30 percent on top or is 30 percent of the costs? So £1000 will be £1300?

 

Mike Newnham: [00:14:05] Yeah. So let’s say you’ve done £100,000 worth of R&D expenditure and that’s probably, not that difficult to accumulate, particularly with salaries. It soon adds up. And then a couple of subcontractors, you know, three people working on a project for a year or whatever it might be. So it’s not difficult to accumulate £100,000. That’s then enhanced by 130%. So an additional £130,000. So now your total R&D costs are then £230,000 and not £130,000 that you thought they were.

 

Ed Surman: [00:14:40] Now the next thing on the back of that, obviously that could take you into loss making territory if you inflate those costs correct?

 

Mike Newnham: [00:14:47] Yeah. So you don’t have to have made a profit in order to claim R&D tax credits. So that’s an important point to make. So you’re either going to be loss making at the start or those enhanced costs take you into loss making territory.

 

Ed Surman: [00:15:04] So what happens then? Because no corporation tax is due so you can’t offset the claim against your corporation tax.

 

Mike Newnham: [00:15:12] You then surrender, essentially the claim for 14.5%. So that £230,000, if that’s £230,000 loss, you surrender that at 14.5% and you get that back as cash into the business.  And there are no strings attached to the cash. So you can do anything that you want with that cash. I mean in our experiences people use it to hire new employees or buy equipment that they couldn’t otherwise afford or do an R&D project that was within their mind but they’ve never really got around to do it or they’ve not been able to do it. But there’s no strings attached.

 

Ed Surman: [00:15:50] So the reason we chose that feature right now.  It’s pretty timely. So obviously, we’ve got a really big push of innovation anyway. You’ve seen lots of disruptive startups at the moment, but also it’s quite timely with the general election. I believe the Conservative Party have made a pitch to increase R&D spending, but a lot of companies are making use of the R&D scheme already quite, quite substantially.

 

Louis Duncan: [00:16:11] Definitely. I think it was a 22% increase from 2016 to 2017.

 

Ed Surman: [00:16:17] How many of those are startups?

 

Louis Duncan: [00:16:19] I think it’s about 77% of those.  However, it has been said that we’re far behind our competitors. And according to some stats I was looking at earlier, countries like Germany and Austria actually have about 3% of their GDP is R&D tax claims as opposed to ours was about 1.7%, which is quite poor.

 

Ed Surman: [00:16:44] Yeah, that’s actually a big difference.

 

Louis Duncan: [00:16:47] However, there has been reported delays in HMRC, that’s because obviously as more people get to know about these tax returns, they’re going to go and check everything. So I think the processing has actually taken a lot longer than the UK had expected which is a bit unfortunate.

 

Louis Duncan: [00:17:08] So actually my research shows that in the south of England, those are the most likely places for companies to be claiming their R&D tax claims.

 

Ed Surman: [00:17:18] So when we talk about regional distribution there’s a big imbalance between south and north in the UK.  Obviously northern companies may think that, actually we’ve got quite a lot of innovation we need to be claiming. And as the feature shows again, like with sort of HMRC checking these claims a bit more, there’s actually a lot of innovation that you probably have been doing that you’re not aware you can claim for.

 

Louis Duncan: [00:17:43] You could definitely claim back on that and I think it’s a good thing because, as we were talking about last week with the scale ups, I think that’s going to be a key point for some of the SME’s.

 

Ed Surman: [00:17:52] Yeah. I mean, and you’re also going to get cash or tax benefit from that so it’s just such a good little leg up in the growth cycle.

 

Louis Duncan: [00:18:00] Yeah. In other news, actually, we’ve seen that the UK inflation rate has been at its lowest pace for at least three years with this being as a result of electric and gas prices going down.

 

Ed Surman: [00:18:12] Yeah. So I’d say it might go up again with an exchange rate uncertainty by Brexit stuff. But actually, that’s pretty awesome. So there’s been quite high wage growth. So disposable income should be getting a little bit bigger. I think wage growth rate is 3.6% or something.

 

Louis Duncan: [00:18:27] How did you know that?

 

Ed Surman: [00:18:29] Mate, I’m a nerd.

 

Louis Duncan: [00:18:29] Read the news guys, read the news.

 

Ed Surman: [00:18:33] And then obviously the final thing in the news is obviously the general action business pitch happened, I think yesterday or day before.  They were at the CBI say. I mean, there wasn’t actually that much. I mean, Jeremy Corbyn had a bit of heckling. Jo Swinson pledged to stop Brexit, which will please lots of businesses. But actually the interesting one actually was Boris Johnson saying that they’re going to cap corporation tax cuts. So obviously the previous conservative administrations are going to keep taking the corporation tax rate down and maybe to 17.5%, maybe lower, but they’ve now capped it at 19% because everyone’s making spending commitments on things like NHS, education and, as a sort of a co-owner of a business, I’m okay with that actually. I think at the moment if we need to spend more money on public services, actually keeping a bit of corporation tax for the Treasury is okay, as long as the big companies start paying. Which is a big problem and they need to start paying what they owe.

 

Louis Duncan: [00:19:31] So what else do we have in terms of Mushroom updates?

 

Ed Surman: [00:19:34] So the free tast promotion is finishing in November. So, I mean, I’ve mentioned this every week, but we’ve had some really cool stuff. Black Friday is obviously coming up, next Friday. We’ve been asked to do a few Shopify products where we’re whacking on massive discounts and looking at, some of them do drop shipping. So we’ve been trawling, you know, to find gadgets and gizmos that may be good for Christmas. So, yeah, we’ve had a few hosts.

 

Louis Duncan: [00:20:02] It’s definitely not too soon to be shopping for Christmas. I don’t think, you know.

 

Ed Surman: [00:20:06] Well, our family, we have a lot of birthdays in November, so Christmas is on hold until the 1st of December.  Unfortunately for us.  You know, consumer Christmas starts early. All the Christmas cards already out. And I’ve heard a few sort of Christmas playlists in cafe’s already so Mariah Carey has come on in my ears at least about 35 times. So I think we’re well into the swing of things.

 

Louis Duncan: [00:20:29] Definitely. Alright so I guess we should just get onto the second part of the feature.

 

Ed Surman: [00:20:35] So we’ve just gone through quite a lot of detail there.  Lets just quickly for our listeners go over some of the technical terms So we can just do you know, do the jargon buster. C-T 600?

 

Mike Newnham: [00:20:47] That’s your corporation tax return.

 

Ed Surman: [00:20:49] Yeah. And the R&D claim?

 

Mike Newnham: [00:20:51] So the claim is the amendment to the CT 600.

 

Ed Surman: [00:20:53] which gives you your tax credit, which is?

 

Mike Newnham: [00:20:56] The deduction on your tax liability.

 

Ed Surman: [00:21:00] Cool.  Then just on the technical side, obviously eligible R&D tax claims means you have to make a technical advance. Explain that.

 

Mike Newnham: [00:21:08] So your technical advance is some advance in science or technology, which is not already out there.

 

Ed Surman: [00:21:14] Cool.  Financial report?

 

Mike Newnham: [00:21:17] The financial report is essentially collecting all of the costs that you’ve incurred as doing your research and development.

 

Ed Surman: [00:21:24] And then the technical report?

 

Mike Newnham: [00:21:26] And the technical report details those technical advances that you’ve tried to make and explains the difficulties that you encountered and you tried to overcome them.

 

Ed Surman: [00:21:36] That’s great. Just quickly, before we go onto the next couple of questions, a really important thing just to get across, you’re saying that it’s an advance in something in science and technology that hasn’t been done before. But obviously that might put some people off, right?

 

Mike Newnham: [00:21:52] Yeah, it’s a technical advance in science or technology that you’re not aware of. So you have to do some research and development. It does put people off because when they go to the government website and see that or they get told that, they think, well, you know, that’s the sort of work that NASA would do, you know. So they don’t feel that it’s something that their business would be involved in. And that’s simply not the case. You know, we’ve done a lot of claims for people in, you know, very straightforward, manufacturing businesses, engineering businesses or any kind of business, really.

 

Ed Surman: [00:22:28] And I mean, this leads to the question of innovation is, how much? I mean, you said there used to be a limit, right?

 

Mike Newnham: [00:22:35] Yeah. So there used to be £10,000 limit. So you couldn’t make a claim unless you incurred costs, which meant that the claim was about £10,000. So your costs that you would have incurred would have to have been I don’t know, let’s say £50,000.  And for small businesses that’s a lot of money.  But the government has removed that. So now very small businesses can claim. So you could make a claim for £1,000 or a £2,000. And for very small businesses that can make a big difference.

 

Ed Surman: [00:23:11] So moving on to how much innovation, what innovation. I think that the fun question is, what’s the weirdest thing you’ve seen be added to an R&D tax claim?

 

Mike Newnham: [00:23:21] Well, there’s a couple of things. There was one, I have to say, I didn’t add it to the R&D tax claim in the end, but we did a claim for a company that that’s really doing some innovative work in plant based drinks. But his firm belief was that the quality of the water was important to the drink. I can understand why but part of that important quality of the water was that you had to talk nicely to the water. So he pointed to some research that’s been done in Japan that backed him up. Yeah, we didn’t put that in.  But he did spend a lot of time actually swearing at the water and then tasting the drinks after he’d sworn at the water. And then after he’d sort of made kind of nice cooing noises.  So he put a lot of experiments in there. But I would say, I think it’s a little bit out there. A lot of the other stuff he was doing was really rock solid stuff. That was excellent. And then we did another one.  Again, it just shows you how you never know what R&D is. It was for a company that makes jumpers, you know, so they knit these jumpers. And this particular jumper was a joke Christmas jumper. And they wanted to put a pocket in the middle of the jumper so you could put your mobile phone in.

 

Ed Surman: [00:25:05] Well, Mike, it’s been a pleasure having you on. Just before we close off. What I would say is, with Quantum R&D, we have got the description of your company and in our podcast description, so if you’re out there and you need to need a dedicated R&D tax credit and claim done by a very knowledgeable man.

 

Mike Newnham: [00:25:32] Yeah just get in touch. We’ll have a chat about your business and we’ll just tell you whether or not we think you’ve got a claim or not. And if you’ve got a claim, well, other companies are available, but we’d be very happy to work with you. Great. And thanks very much Ed, I’ve really enjoyed this.

 

Ed Surman: [00:25:48] Ah cheers, you’re welcome.

 

Louis Duncan: [00:25:50] Well, that was really informative, wasn’t it?

 

Ed Surman: [00:25:52] Yeah. I mean, the stories are pretty funny as well. I think that water singing still makes me laugh today. I mean, the fact that someone was actually, you know, standing by a glass of water or a tank of water and singing at it. What that must look like from the outside! Say you were in a co-working space and you just walked down the corridor and you saw this this chap or this lady singing to some water, with your neck cocked to one side, taking a second look, being like, oh??

 

Louis Duncan: [00:26:17] I think the things that we do in business to try and get results is very crazy.

 

Ed Surman: [00:26:21] Yeah, mad. But on a serious note, we mentioned it in the interval. But actually it’s a really underutilised area.  I know HMRC are sort of looking at it a little bit more. But you know, innovation isn’t just developing like a cool AI product or a blockchain product or a product that’s going to disrupt like every industry. Improving business processes internally or or doing something to a chemical to make your life easier, when you’re doing something like cleaning, that counts as innovation and it’s stuff you should capitalise on. I think anyone in any business should really just look at, Am I doing something different to my competitors or am I doing something that’s really gonna make a difference to the productive output of this company? That is probably innovation. And I think you need to talk to a R&D tax company like Quantum and say, does this count? And they’d be like yeah, sure. And you’ve saved yourself some corporation tax money. You may even get a cash benefit and it is really, really useful.

 

Louis Duncan: [00:27:18] Well, what are we going to be looking at next week?

 

Ed Surman: [00:27:20] So we’re going to be looking at debt and when companies are not in a good shape. So when they’re about to go south.  We can always do talks on on all sorts of things and be positive and this will still be quite funny because Ron’s an awesome character but we also need to make sure that we cover things that aren’t necessarily the best situations that companies can find themselves in.  Ron works for a company called Business Rescue UK Ltd. They specialise in pre-insolvency debt management solutions. He’s actually he’s a really, really experienced business owner director. He’s in sales. He’s managed manufacturing processes and the insight he has on the warning signs when a company isn’t going well, it is really, really, really valuable. And I think anyone who, you know, going into the winter, some dark months, you know, if you are feeling like, you know, things aren’t going as well as they could be, it’s a really great interview to listen to.  Particularly the key message from that and we’ll hear more next week. But when you think the end is nigh, the end is maybe a lot further than you think because, you know, things don’t move as quickly as you may fear they do. And he really does end up giving you sort of giving you a fair amount of hope, and not just hope, but actually a realistic chance of working out where you can actually take what you’ve got and improve the situation. And a lot companies end up soaring on ahead. You know, you make a mistake once and it’s done.

 

Louis Duncan: [00:28:45] Exactly. And you never make that same mistake again. Okay. Hopefully. Well, we’ll see you guys next week.

Mushroom’s call to UK Businesses

Mushroom’s call to UK businesses: What can you do to help?

Across the country, caring volunteers are coming to the aid of the isolated and vulnerable members of their local communities, providing them with much needed support and engagement at a time when the consequences of loneliness, a shortage of supplies or an inability to get to a local shop for groceries or medication can be severe.

Local voluntary groups, many under the Covid-19 Mutual Aid UK banner, have gathered small armies of altruistic people with the ability and willingness to help those most in need. We have witnessed first-hand the effort and passion with which people have jumped-to, helping their neighbours with grocery deliveries, medicine runs or just being on the end of the phone to cheer them up with a chat.

It has been a concentrated movement with the power to restore any faith we might have lost in humanity.

Just as one example, a community group in Somerset received a call from a 92 year-old lady who had been without food for 2 days. Thanks to their group, groceries were bought and delivered to her immediately and they are ensuring she is provided with a hot meal every night.

We’re doing what we can, but we need your help too.

Since mid-March, Mushroom has committed time and money to help more than 70 Mutual Aid and voluntary organisations across the country setup new phone numbers with their local area code, linked through to a grouping of phone extensions that enable local volunteers to receive multiple inbound calls at once from their communities via an app on their phones, so they can be there to provide much needed support.

Our telephony provider Gradwell has pledged their backing for the initiative by providing the new phone-lines to Mushroom at heavily discounted monthly rates. If you’re part of a voluntary group or know one in need of this support, let them know that they can register here.

Mushroom is now calling on the UK business community at large to come forward and be counted during this unprecedented time of crisis.

Whether by donating time, money or specialist knowledge and skills, we want to hear what your company can do to help.

We’re compiling a directory of businesses and their available offerings to share with voluntary groups UK-wide – to play your part, sign-up here.

Helping you to help others

Mushroom is also offering dedicated business support for our UK SME clients during the Covid-19 pandemic, including the preparation of individual survival “battle plans”. Find out more here.

Our own business is far from immune from the effects of the current crisis, but with a company group that originated during the 2008 recession, we know from experience that the way we all survive is by coming together and making the very best of our new reality. 

What help is needed?

Every business will be able to bring its own value and creativity to this. As food for thought, here are some needs we have been informed of directly by leaders of some of the groups:

– Containers for doorstep deliveries/drop offs, such as cardboard boxes, crates or similar

– Mobile phones/SIM cards for volunteers to use to contact local residents the provision of lanyards for ID badges

– A way of liaising with local supermarkets to agree better arrangements for volunteers to shop on behalf of the elderly and vulnerable (such as access during the first hour of the day and the ability to buy more in bulk)

– Safe methods of transportation to/from hospital

– A simple method of determining which local shops are open/closed

– Antibacterial gels/equivalent to help sterilise deliveries and protect the isolated from infection

Join us and help us make the journey one to be proud of.

Press Release

April 2020

Covid-19 community groups use free communications software and phone lines to help them serve vulnerable residents

Business services company Mushroom is providing free phone lines and call-handling systems to over 70 Covid-19 community support groups from around the UK.

The phone systems – developed by telecoms provider, Gradwell – are playing a crucial role in helping volunteers communicate with vulnerable people to arrange local support including groceries, medication and other critical deliveries. Over 2,000 calls were made to these phone lines in the first week of April, equating to over 94 hours of talk time.

Genevieve Carnell, Tanya Salinder and Habiba Alli of Redbridge Covid-19 Mutual Aid have expressed the gratitude shared by many of the volunteers:

“It’s been a game changer and a life-saver. We are already receiving 20+ calls a day and have been able to provide a faster and more effective response to so many more people because of this. We’ve been able to take the group from covering patches of the local area through people sharing their personal numbers, to giving comprehensive support across the whole borough through a joined-up system. We recently helped get a food package to a homeless man who hadn’t eaten for days and we were able to get to him in time because he could call us directly”

Mushroom is still inviting voluntary groups to register for free telephone lines and those interested can register here.

Ed Surman, Co-founder of Mushroom said: “We are currently offering free phone lines, privacy policies and as much as we can to help the isolated and vulnerable during this difficult time. We’ve had an amazing response so far and the stories coming back from the groups we have helped are demonstrating that the efforts of the volunteers putting their lives on the line to help others are nothing short of heroic.”

Paul Ceaser, Gradwell’s Chief Technology Officer, said: “We’re delighted to be able to support this initiative. It’s so important that these groups have access to the tools they need to provide essential services to vulnerable individuals, and hopefully our phone systems can play a small part in their vital work.

More success stories

Another community group in Somerset shared the case of a 102 year-old World War 2 veteran who had contacted them to express his enormous gratitude for the help they had given his recently-deceased partner, listening to her fears with kindness, helping her by delivering shopping and prescriptions – and leading to her last conversation with him being bubbly and full of happiness at the way she had been looked after.

Covid-19: Taking care of your staff as you get back to work

Mental Health Awareness week: Kindness

There’s no doubt that Covid-19 is affecting us all.  Whether it’s business related, having children at home, not being able to see family and friends or anxiety about the virus itself.

It’s Mental Health Awareness Week this week, the theme being kindness.  So, we caught up with Mushroom’s HR Lead Charlotte Szeptycki about why it’s important for business owners and managers to be kind to their employees and how they can do this.  This is what she had to say:

You want to take care of your company – of course – but a company is only as good as the people working for it.  How do you ensure your people are as good as they can be?  Treat them well!  Not only will it help employee loyalty and retention, it’ll also help with productivity and performance.

Taking care of your staff means you’ll gain the reputation of being a good employer and a desirable place to work.  People will be eager to work for you, allowing you to attract higher quality candidates.  Sales Force has recently won the Best WorkPlace Award for 2020.  Paul Smith, VP and General Manager in the UK says “Making an impact in our industry and the communities we serve starts with building a great place to work.  People want real insights from real employees when looking to join a company.  What we do well, how we improve on the things we are not so good at and the opportunities on offer to actively engage and make a contribution to the culture”.

It‘s important to understand employees’ needs.  They may, for example:

  • have childcare issues
  • be home schooling
  • be shielding because they are vulnerable
  • be concerned about a family member who currently has Covid-19

Flexible working is so important, especially right now.  A colleague may wish to:

  • start or finish a little earlier
  • do fewer hours during the day, but make these hours up in the evening or over the weekend
  • do longer hours over fewer days

Listen to your employees’ concerns and be approachable.  You and your employee have a relationship, and you’re both working together to achieve the company’s goals.  Some flexibility and communication will not only motivate your staff but is also likely to be remembered and rewarded with higher performance and productivity.

Ensure you’re regularly checking in with your employees who are working from home. – not from a trust point of view but to ask them how they’re doing and if there are any difficulties (and not just with their work).  I think for most, the idea of working from home sounded good initially, but as humans we crave connection with others, we enjoy being in the office with its laughter and engagement, and we can thrive on routine and normality.  The opportunity to talk through a piece of work has more barriers now, so encourage your staff to reach out if they need support.  Daily team meetings could be offered as well as regular one to ones to help with this.  Maybe even a Friday evening virtual team catch up with drinks!

It may have taken a while to adapt to working from home, so for any staff returning to work, they might have some anxieties.  Take some time to listen to their concerns and help address them, so the change feels much easier.  Staff may wish to wear a face mask, move their desk or workstation away from others, not have anyone else make them a cup of tea.  People want to feel safe at work, not wasting time worrying, so help them achieve this.

On an ongoing basis, regular performance management activities should be conducted and not just when there’s a staff issue. Regular appraisals are the perfect opportunity for employee and employer to have a beneficial conversation, to discuss how each feels about their past, present and future at the company.  It allows positive feedback and reward to be given; constructive feedback, advice and support where needed; and to identify future training and progression within the business.

As you can see, kindness works both ways and as an employer, you’re often rewarded with more motivated, committed, productive and loyal staff that will go the extra mile for you willingly.  This kind of company culture is actively sought by high quality candidates.  Employees need to feel valued and respected.  Remember it’s not just the salary size that matters! 😉

Mushroom has supported many clients over the past couple of months with Furlough agreements, contract variations, Staff handbooks and much more besides. 

If you’re in need of advice and support, simply book a free 20-minute HR consultation by emailing theteam@mushroombiz.co.uk.