Brewdog chief savages ‘absurd’ tax regime that hurts UK economy
Having built a business with a predicted 2010 turnover of £4m, Brewdog co-founder James Watt (pictured) employs 45 staff at premises in Fraserburgh (around 50km north of Aberdeen) that produce artisanal beers such as Tokyo (an 18.2% stout) and pale ale Punk IPA.
But despite stating in the letter that Brewdog has done "reasonably well" since it started in April 2007, Watt slammed “absurd administrative rules that give us a massive incentive to look abroad when it comes to both buying equipment and selling our beers”.
Forced to buy Italian kit
When Brewdog bought its bottling line for £110,000 in late 2007, Watt said, it went to an Italian firm because it did not have to pay VAT, although it would have preferred to have bought the machine from a UK supplier.
Buying from the UK would have meant finding an extra £19,250 (given the need to pay VAT at 17.5%), which Brewdog could have reclaimed after three months, but Watt said the firm “simply did not have” the money to fund the excess for this period.
Another current issue for Brewdog involves UK domestic beer duty, Watt said, with prompt payment thereof (£9,000 for a single shipment) demanded by HMRC soon after the firm shipped to customers, but 80 days before the latter paid for the beer.
Since importers to countries such as Sweden and France were responsible for duty payments, Watt said "this anomaly gives startups a massive incentive to sell abroad rather than focusing on the domestic market and helping bolster the home economy".
David Andrew Payne, a tax partner based at Baker Tilly's Glasgow office told FoodManufacture.co.uk that he sympathised with startups such as Brewdog, adding that the need to simplify a complex tax system was an issue successive governments struggled with.
HMRC should presume honesty
“James Watt from Brewdog also mentions issues with bank funding, but there’s an equal responsibility upon HMRC to presume that tax claims are genuine,” he said, adding that the Revenue currently seems to presume that businesses are out to ‘fiddle’ the system.
Payne mentioned a raft of recent HM Treasury schemes to help small businesses in recent years, such as flat-rate VAT payment schemes, tax holidays for disadvantaged areas (PAYE exemptions), and small company business rate relief.
“The problem is that, while all these schemes are laudable, the perception remains that HMRC are hell-bent on not making things work," said Payne. "For instance, once tax credit claims are submitted, sometimes HMRC simply refuses to accept them.”
Payne praised banks for helping small firms during the recession, but said institutions could do more, adding that during recent tendering for a London 2012 Olympic contract, a German firm was preferred to a Scottish business because the former was able to secure an essential funding guarantee from a German bank at shorter notice.
All of which made things tough for fledgling British businesses such as Brewdog, said Payne: “To reach a turnover of £4m in the current climate they’re doing very well. There are fewer startups in Scotland than the rest of the UK, and the UK average lags behind that in certain areas of Europe.”
Banks tighten purse strings
John Heseltine, founder of juice producer Cherrygood agreed that securing finance for food and beverage startups was tough: "I started a firm called Lovejuice in 2002, which I exited in 2007, and securing finance was certainly less of a problem then."
Before Cherrygood - which was founded just 14 months ago and turned over £1.4m in its first year of trading - secured a recent £600,000 loan from Clydesdale Bank, Heseltine said the firm had struggled to raise funds from banks.
"Now the banks seem to have more reasons to say 'no' rather than 'yes', they say there is not enough security for a loan, or the business is not big enough. We were told by certain institutions to come back in six months after securing supermarkets orders.
"We did so and went back to them, but they moved the goalposts again. It raises the question of whether the money was there in the first place, or if there was any intention to lend it."
