Show me the money

“Can you help me financially to start a business” or more bluntly “How do I get a government grant to start a business” is by far the most popular enquiry that Capital Enterprise members and Business Link receives. In the vast majority of cases, the answer is a qualified ‘No‘ or a long winded answer that tells the exasperated would-be entrepreneur that there are no grants to start up a business in London. In fact there are only grants for trading businesses to do exceptional things that are socially worthy such as employ a person who is long term unemployed, renovate a listed building or invest in cutting edge green technology.

Sometimes a Capital Enterprise member will hedge their bets by referring any check out the usually fruitless grant finder service at J4B. In past years members such as GLE or ELSBC and The Prince’s Trust would be offering soft loans to a small target group of individuals who wanted to start a business. But today even these funds are severely limited or are simply restricted to trading businesses. (If you are a trading business then check out the Access To Finance website.)

So are there no funds out there to support people especially the unemployed to start a business?

Well, there is the almost mythical self-employment credit which neither most Capital Enterprise members nor Job Centre Plus seem to know how you go about applying for. At present to claim it, people have to be out of work for six months before qualifying for the £50-a-week self-employment credit for the up to 16 weeks if it is deemed needed to help the newly self-employed to bridge the gap between the dole and an income earned from their new business.

So how do you go getting this credit?

Well at present neither Business Link, JCP, the Flexible New Deal Providers (Calder UK and A4E) nor most of my members seemingly have a clue. If you know how to apply for the self-employment credit then please let me know and I will publish it on this website.

In the meantime, the Chancellor is set to announce next week that unemployed people will get more government help to start their own businesses under plans to move Britain “from recession to recovery”. The jobless will receive up to £800 tax-free and intensive support and advice on how to become self-employed as soon as they sign on the dole under a new drive to bring down unemployment as soon as possible after the recession ends. The extra cash will be announced in a “Back to Work” White Paper published alongside the Chancellor Alistair Darling’s Pre-Budget Report on 9 December.

Lets hope it will be easier to apply for than the self-employment credit but in the meantime Jason Walden a senior business adviser at Centa has devised a clever way to use the present system to help an unemployed person to get additional cash support to start and run a new business. These are the 5 steps :

1. Register for Unemployment benefit with Job Centre Plus and do keep hassling your JCP or FND advisor to sign you up for the Self-employment Credit. £50 for 16 weeks will be very useful. But if you can’t get it then check out the next 4 steps.
2. Set-up a limited company. Most people start a business as a sole trader but for the purpose of getting extra money to start your business you are best starting a limited company. Most Capital Enterprise members operate a Company Formation Service and it generally costs between £70-£100 to get the business registered or alternatively you could do it yourself online at www.companieshouse.gov.uk. You will also need to find a bookkeeper or accountant that can provide a payroll service that will send you pay-slips each month. The service costs on average between £5-£10 per month.
3. Advertise the job of manager of your new business at Job Centre Plus, and if you have been unemployed for six months then recruit yourself to the role. This may seem a little odd that you are in effect recruiting yourself, but Jason Walden assures me that if you do this your company will be entitled to claim a £1000 pound for recruiting an unemployed person. The details on the programme can be found by the Job Centre Plus website. If you are still not convinced drop Jason an e-mail.
4. Pay the manager of the Limited Company – i.e., you – the minimum wage of £5.80 per hour for a 30 hour week. if you do so the salary will work out about £730 per month plus about £60 employer NI contribution. Get your accountant or bookkeeper to send you monthly payslips and these become the only evidence you need to be able to claim in work benefits. If you have the money in your bank account then pay yourself if you don’t you are under no obligation to pay yourself until funds are available.
5. Apply for the in work tax credits. You can find out more about them from the Citizens Advice Bureau. The amount you will receive is dependent on your circumstances in particular whether you are married or have a live-in partner and on whether you have any children. I checked out this tax credit calculator and found that even as a single man with no dependents I was entitled to £22 per week, and if I had a single dependant, I was entitled to about £120 per week. You should also be able to apply for Housing Benefit since it is awarded on the basis of income and not employment status.

In total, as a single person with no dependants, I and my theoretical limited Company would according to my basic calculations be able to claim in my first 6 months of trading a further £2372. If I was a single parent with a dependant, my claim goes up to £4920. As you can see, in either case it is not a lot of money but hopefully at the end of 6 months I would have earned enough money from my then profitable theoretical new business to be able to pay myself a fat dividend. Or maybe even a good steady income that would not require me to try to live off tax credits or other such benefits.

However, let’s face it, this process is so long winded and bureaucratic, and if you are going to do step 3, a little “odd” to say the least. So the most important recommendation is to get professional advice.

If the government does want to help the unemployed to start a business, I cannot see why the government does not just bring back the old Enterprise Allowance Scheme. Let’s hope that next Wednesday announcement by the Chancellor is the first step.