Small to Medium Sized Enterprises (SMEs) in hard hit sectors are increasingly starting to move to close down their businesses, according to a survey from ACCA UK (the Association of Chartered Certified Accountants) and The Corporate Finance Network (CFN) which has polled its accounting firm members.

The SME Tracker revealed that in February two accountancy practices reported that 20-25% of their SME clients had already liquidated or wound up, while other accountants showed a much lower figure between 0 and 2% of enterprises taking the decision to liquidate rather than struggle on.

These figures compare to an average reported to the SME Tracker between May and August 2020 of a more consistent figure across the board of around 1% of SMEs choosing to close their business.

Anecdotally, the jump in business closures is thought to be concentrated in certain sectors which have been hit hard in the pandemic, including construction, hospitality, retail and microbusinesses where directors have not received any government support.

The substantial trend in these sectors towards business owners giving up at this stage is being attributed to a combination of factors including SMEs running out of money, a reluctance to take on more debt, uncertainty over when restrictions will end and developments including Brexit making exporting more difficult.

The survey reported data from accountants representing 3,652 SME clients.

Ahead of the March budget, 3.1% of SMEs reported that they expect to run out of money in the next six months and are unlikely to be able to access any extra finance. Another 4.7% also thought they would run out of cash in the next six months but believed they would be able to secure funding to support them.

A substantial figure of 8.5% of small firms said they would be affected by new off-payroll (IR35) rules, which come into force for the private sector on April 6. The rule changes are expected to dampen the contractor employment market, as companies become responsible for determining the tax status of contractors, meaning extra workload and a risk of penalties.

The SME Tracker also asked accountants if they supported or opposed the introduction of changes to any of a raft of taxes in the March budget, including capital gains tax, income tax and inheritance tax.

While there was some support for changes, the majority hoped that the chancellor will resist making too many revisions to the current system, as accountants try to cope with a very heavy workload adapting to the many new government support schemes put in place since the start of the pandemic.

Claire Bennison, head of ACCA UK, said: ‘We are now beginning to see that owners in sectors like construction, hospitality and retail are increasingly taking the tough decision to close their businesses, rather than continue to battle against a perfect storm of financial issues.

‘Unfortunately, this survey shows that many have come to the conclusion that it is better for them to liquidate the business now because they do not want to take on further debt, especially as there is no clarity about when they may be able to trade normally again and government support schemes are due to come to an end within the next few months.

‘Others, like the directors of limited companies, have been missed out by government support and have little option but to close their companies.’

Kirsty McGregor, founder of The Corporate Finance Network, added: ‘Brexit is becoming another issue for SMEs in the export market. Added to the threats of Covid, exporters and importers are now being hit with extra costs, long delays and disruption to their supply chain or sales.

‘While larger companies could open a distribution facility in mainland Europe, this is out of reach for most small businesses and there appears to be little acknowledgment of this critical issue for many companies from central government.

‘Businesses are crying out for more information now from the chancellor to help them to plan for the future, such as when lockdown may be eased, and to highlight any further opportunities that might help their financial outlook. We are still waiting for any further details on the ‘Levelling Up’ fund and the UK Shared Prosperity Fund, which were both announced in Autumn.’

ACCA UK, the Federation of Small Businesses, Forgotten Ltd and Rebecca Seeley Harris of Re Legal Consulting Ltd, have pressed the Treasury to introduce a Director’s Income Support Scheme to include limited company directors in government assistance schemes.

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