New research from FreeAgent, the cloud accounting software company reveals that the cost of living caution is hitting the UK’s budding entrepreneurs with 70% of working Brits saying they are reluctant to start their own business in the current climate.
The research lays bare the current state of entrepreneurial spirit in light of the economic climate; with just 8% of survey respondents planning to start their own business within the year – and a further 16% saying they plan to do so in the next few years.
In addition, 56% said they had been disheartened from starting a business by the impact of COVID, including a lack of available staff and difficulty finding business loans.
According to FreeAgent’s research, would-be entrepreneurs in London appear to feel slightly less hindered by the current economic climate than those across the rest of the UK. However, almost half (46%) of respondents in the Capital still highlighted the impact of COVID as a major reason that was putting them off from starting their own business.
Entrepreneurial spirit still in tact, but hindered by pressing concerns
However, despite the hesitant outlook among new business owners in the immediate future, entrepreneurial spirit still remains high with over half (55%) of UK respondents still dreaming of setting up their own business at some point – and 67% of Londoners aspiring to become a business owner one day.
The data also reveals that entrepreneurs are increasingly aware of the potential uphill challenges currently involved with starting a business, such as navigating ongoing uncertainty, rising costs, heightened inflation as well as post-COVID financial recovery.
Top concerns when setting up their own business are:
- The financial burden of setting up (50%)
- Confidence (35%)
- Managing business finances (31%)
- Dealing with tax (31%)
- Complying with biz regulations (26%)
- Lack of government support for freelance/small businesses (26%)
- Dealing with tech (10%)
- Finding available staff (18%)
Flexibility and autonomy remain driving force for UK entrepreneurship
When asked in 2021 what motivated them to start a business, working Brits said that the ability to choose what work they do (41.7%) and the ability to earn more as their own boss (36.3%) were the top two reasons. At the beginning of 2022 however, the top reason was creating ‘a better work life balance’ (cited by half of respondents – 47%), while earning more was only the 7th most popular reason (27%).
Similarly to the start of the year, this latest research shows that motivations have not drastically shifted – with the top reason remaining to have a better work life balance (46%), closely followed by choosing what work to do (40%) and being their own boss (40%).
Government has not shifted the needle on MTD awareness and communication
The research also shows that the government’s ongoing strategy to digitise tax for UK businesses has not gathered enough traction among would-be entrepreneurs. Only 19% of respondents demonstrated awareness of Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) – which comes into effect in 2024 and will require all business owners to digitally submit quarterly reports about their business income and expenses, rather than an annual Self Assessment tax return.
This an increase of just 1% from the last study FreeAgent conducted in January 2022 – and is led by the youngest age group (18-34-year-olds) of whom 24% were aware of MTD for ITSA, compared to 18% of 35-54-year-olds and 15% of people aged 55+.
With a staggering 81% of Brits still unaware of the MTD for ITSA, FreeAgent believes that the government needs to step up its communication and education over the policy, to ensure that new entrepreneurs are fully informed about the new legislation.
Roan Lavery, CEO and co-founder of FreeAgent said, “Our last research from January 2022 showed that, despite major economic challenges such as COVID and Brexit, entrepreneurial sentiment in the UK was fairly positive. However, it’s clear that this positivity has been whittled away over the past six months, due to rising inflation, the cost of living crisis, political instability and the removal of government support for small businesses suffering from the impact of COVID.
“I would therefore urge the next Prime Minister to fully prioritise alleviating the financial burdens for setting up new businesses and increasing support for new entrepreneurs – whether that’s through cutting red tape, providing financial aid or alleviating their tax burden. There also needs to be significantly better communication on upcoming regulatory changes such as MTD, which many would-be business owners appear to still be in the dark about.
“Small businesses are the backbone of the economy, comprising around 95% of all UK businesses. Through their nimbleness, they are able to stimulate economic growth and drive forward our recovery – so we should be doing everything we can to nurture and support them.”