The Fizz! Blog

Garbage statistics on business failure rates

You see lots of articles and hear lots of talks that refer to supposedly enormous failure rates amongst new businesses - two thirds fail within two years, only 5% last ten years and so on.

We've never been able to ascertain any credible source for these numbers.  There simply isn't one place where data on business failures are collated - and, in any case, what constitutes a business failure is a really grey area anyway.

One could try looking at the number of companies formed and dissolved by Companies House.  That doesn't work at all, though.  Lots of companies dissolved by Companies House (quite possibly the majority) aren't based on a business failure at all.  For example:

• An individual forms a company to do some freelancing.  One of their customers offers them and job, and they accept it.  They don't need the company any more.  That's not necessarily a failure.
• A couple of people with companies decide to go into business with each other.  They form a new company for that purpose.  They don't need their old companies any more.  That's certainly not two business failures.
• The owners of a company sell up.  The buyer (as would normally be the case) wants to buy the assets of the company and its goodwill, not the company itself.  After that happens, the old company isn't needed any more.  The former owners wander off with the millions of pounds they've made.  That's quite possibly a triumph, not a failure.

Similarly, some studies have been done of the numbers of businesses registering and deregistering for VAT.  But that's a terribly way of measuring failure too - often a business deregisters because the trade's being transferred to a company, for example, because things are going so well.  Or because of a retirement/sale/deliberate downsizing.  There are loads of possible reasons.

It seems to us that these stats are used principally to sell to you on the basis of fear ("you need to buy this if you're not going to become one of these millions of failures").  Take them with a massive pinch of salt.  We just treat them as fiction.

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Child Benefit – should you claim it even if you’ll have to give it back?

As of January this year, households where either parent earns £60,000 or more have had to give back any child benefit that has been paid to them.  If the higher earner has income of between £50,000 and £60,000 then some of it has to be returned.  You can, if you like, choose to just stop receiving the child benefit in the first place, and many people have done just that.

However, there might sometimes be an argument for continuing to claim the payments, before eventually giving them back.

You might prefer to have the money sitting in your account rather than HMRC’s.  It’s probably not worthwhile to have a couple of thousand pounds temporarily in your bank account if you’re earning a minimal interest rate on a savings account.  But if you have an offset mortgage, it might be worthwhile – having the money set against your debt, reducing the interest charged, could easily be worth £100 a year.

Also, if your circumstances change – you lose your job, or take a sabbatical – there’s always a chance you’ll forget to start claiming child benefit again.  So you might want to just claim throughout on those grounds.

So whilst some people may prefer to just not receive the payments in the first place, there may well be a rational case for many to carry on claiming, with the expectation of returning the money to HMRC down the line.

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If you're thinking of applying for a mortgage soon...

... then it's a really good idea to be certain about the proof of income that your lender is going to require from you right from the outset.

A few years ago, lenders were pretty flexible with the evidence they required from the Self-Employed and company owner-directors - a letter from your accountant was pretty much always acceptable, as was a certificate in the lender's own format, as would be a copy of your accounts or tax return.

Now, lenders have become extremely (sometimes comically) prescriptive.  To pick just one example, it's not uncommon for them to insist on an SA302 - that's an HMRC tax calculation that's hardly sent out to anyone by default, and which anyone who doesn't have to complete a personal tax return may not be able to get at all.  That includes many people with their own business - a company director with a small salary and dividends within the 20% tax band usually doesn't have to submit a personal tax return and so can't easily obtain an SA302.

So, if you're applying for a mortgage or remortgage soon, ask the lender right at the outset what evidence they're going to need, otherwise you could get a nasty surprise later on and find the whole process held up.  If you'd like to speak to a friendly mortgage broker who can talk you through what different lenders might ask for, let us know - we can put you in touch with one.

www.fizzhq.com