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2012 – We’re Facing a Challenging Year

Unfortunately, it looks as if 2012 will continue the theme of the last couple of years for businesses. The year ahead will be very challenging, however, the north east of Scotland may weather the year better than some areas due to oil prices and exploration and production companies firming up their capex spend for the following year. The Wood Mackenzie annual report issued last week suggested that capital investment in the North Sea in 2011 reached a high of £7.5billion, though this did not meet the £8billion forecast set by industry body Oil and Gas UK.

2011 is ending with continuing uncertainty about the Euro crisis and it looks as if this issue will dominate the political and economic agenda for months to come. Domestically, there are still few ‘green shoots’ on the horizon and the long hoped for return to economic growth is still no more than a hope.

2012 may also see a new problem for the banks and their clients. Five or six years ago, prior to the ‘credit crunch’, banks were offering leveraged lending deals; and this will lead to them confronting a ‘maturity spike’. This will undoubtedly bring further pain for the corporate sector as deals are renegotiated with the potential for the withdrawal of bank lending and other financial support for companies in various 'red flag or at risk' sectors. Refinancing is more complicated today, and hopefully businesses will have been keeping in touch with their banks throughout 2011 to ease the negotiations. The banking system is set for a charge of companies who have to renegotiate facilities; those who have not been in close contact with their banks may find themselves on the sharp end of some very difficult negotiations. There are a number of new entrant banks which can offer an alternative to the well known high street banks. Banks like Aldermore, DnB Nor and Handelsbanken, with healthy balance sheets, offer a return to solid banking principles and professional advice for their customers. These organisations may also present a sound option for business and corporate lending outside of the better known operators.

Professional advisors face the challenge of supporting their clients to try and secure some measure of fair play when the client company finds itself facing an unplanned and possibly unwarranted withdrawal of financial support, as a result of the ever tightening banking credit policies. If the company can't refinance, then it might have to dramatically restructure or could even go out of business.

It’s important that advisors work with their clients to demonstrate to their financiers that their company has a sound underlying business model.

More positively, there are many new innovators out there with new business ideas and innovations with will create a new tier of entrepreneurs. The changes to the Enterprise Investment Scheme (EIS) and the new Seed Enterprise Investment Scheme (SEIS) should encourage new investment and new more business start-ups. EIS is a relatively new initiative introduced by the Government to encourage investment into smaller companies in need of additional finance as start-up capital or development capital for the business. These companies tend to be relatively small and these investments present a higher risk, than ordinary investments into equities more easily traded. These major tax incentives and benefits will hopefully encourage more investment into such companies. The EIS is now the only UK tax efficient scheme to offer Capital Gains Tax Deferral; it also offers income tax relief at, capital gains free growth and, through Business Property Relief, relief from Inheritance tax if the shares are held for more than two years. The new SEIS also offers the same tax benefits, but income tax relief at 50%, providing certain conditions are met.

The employee limit for EIS will change in 2012 from fewer than 50 to fewer than 250 and a size threshold to gross assets of no more than £15m before investment and £16m after. The maximum annual amount that can be invested in an individual company will be £10m.

The Treasury has also said it will create a SEIS that would apply to smaller companies, those with 25 or fewer employees and assets of up to £200,000, which are carrying on or preparing to carry on a new business. The maximum investment in the smaller company is £100,000.

These schemes are to be welcomed by many and will hopefully kick-start the economy.

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