Small Business, Enterprise and Employment Bill

Written evidence submitted by the Business Information Providers Association (SB 21)

1 Introduction

This paper has been prepared by the Business Information Providers Association (BIPA) for Members of the Select Committee reading the Small Business, Enterprise and Employment Bill specifically relating to Clauses 6 & 7 – the Disclosure of VAT registration information.

BIPA is made up of the principal commercial Credit Reference Agencies (CRA’s) – Dun and Bradstreet, Creditsafe, Equifax, Experian, Graydon and Jordans who collectively provide in excess of 65 million commercial trade credit reports per annum and monitor 35 million commercial trade credit accounts on behalf of 100,000 UK based customers. The data held by BIPA members is used in the credit assessment of more than 100 million commercial trade credit accounts per annum.

BIPA has two primary purposes;

i) Firstly to facilitate economic growth through the promotion and protection of statutory publicly available data used by the CRA’s. This information is essential because it helps to reduce the risk inherent in business transactions; deters fraud; and facilitates the granting of credit.

ii) Secondly to facilitate communication between the CRA’s and the business community to create greater awareness of the data held; how this data is used; and how it benefits business decisions and responsible lending.

The UK is one of the best places in the world for access to business information, Companies House provides detailed information on 3.3 million live companies and Registry Trust (The Registry of County Court Judgments) provides details of all County Court Judgments from the Courts Service (part of the Ministry of Justice). BIPA members process this publically available data to add value and enable credit reports, credit scores and recommended credit limits to be produced.

There are around 2.8 million sole traders and partnerships which together with limited companies make up the 6.1 million businesses operating in the UK, of which 35% are VAT registered.

2 Executive Summary

Since the demise of the Business Names Registry in the late 1970’s sole traders and partnerships have not been required to register their existence with a publically available Register or Authority, save those who trade above the VAT threshold (currently £81,000). These businesses are required to register with HMRC but this information is not accessible. Clauses 6 & 7 in the Small Business, Enterprise and Employment Bill will enable this valuable information to be used productively.

There are estimated to be around 2.8 million sole traders and partnerships operating in the UK making a significant contribution to GDP, but unlike those businesses that choose to operate as limited companies it is difficult to verify their existence, what they do, how long they have been in business and who the owners are. Because of the lack of verifiable data they are disadvantaged when seeking trade credit and potentially other forms of finance. Around 12 million (18%) of all requests made to CRA’s for commercial trade credit reports are on sole traders and partnerships.

There are 2.1 million businesses registered for VAT. 729,440 (35%) are sole traders and partnerships; the majority of these businesses will have a turnover in excess of £81,000 the VAT threshold (although some businesses do register voluntarily). This represents a significant proportion of businesses where no positive publically available data can be accessed.

When HMRC announced their intention to consult on the release of non-financial VAT data in July 2013 this was welcomed and supported by BIPA members. The announcement also contained details of a joint research project with CRA’s to assess the economic value of VAT registration information.

The research project was conducted with three CRA’s, Dun & Bradstreet, Equifax and Experian under robust security safeguards with each participant meeting Government criteria and standards for data storage, handling and security. To manage the project each participant set up dedicated teams with VAT registration information held in secure environments. (This remains core criteria in clauses 6 & 7).

The research project involved each CRA receiving VAT registration information on 50,000 randomly selected businesses (limited companies, partnerships and sole traders evenly spread geographically and by size throughout the UK). Prior to undertaking the research project the Knowledge, Analysis and Intelligence (KAI) unit of HMRC validated each participant’s credit scoring methodology. (KAI later validated the anonymised outputs of the Research Project and analysis).

To undertake the research project each participant set up a secure data laboratory that enabled them to simulate their live environments. This ensured that the VAT registration data on the 50,000 businesses was kept completely separate from CRA databases and could not be accessed by third parties.

The CRA’s used their existing credit scoring methodologies to assess the impact VAT registration information would have on the recommended credit limits of VAT registered businesses. Each CRA’s output was validated by KAI and the outputs from the three CRA’s were aggregated by an independent consultant to produce anonymised results that could be published. (This was published by HMRC June 2014).

The anonymised results when extrapolated demonstrated that:

i) 459,947 (63%) of VAT registered sole traders and partnerships would either receive a credit limit for the first time or have an increased credit limit.

ii) 210,222 (17%) of VAT registered limited companies would receive an increase in their credit limit (this was in line with expectations due to the amount of information already publically available on limited companies).

iii) A total of 662,169 (31%) of VAT registered businesses would receive an increased credit limit due to VAT registration information becoming available.

When extrapolated to the 2.1 million VAT population the impact on commercial trade credit limit increases is £1.8 billion. 97% of the VAT population are SME’s and having access to increased recommended credit limits is the cheapest form of finance available.

These estimates are believed to be conservative as, during the Research Project it was not possible for CRA’s to recalibrate their credit scoring methodologies. If they had done so it is believed newly formed limited companies would have benefited with receiving credit limits earlier in their existence. In 2013 – 2014 there were 533,032 new incorporations at Companies House.

Based upon the positive impact the release of the VAT Register will have on the ability of SMEs to access trade credit and other alternative forms of finance BIPA strongly supports Clauses 6 & 7 in the Small Business, Enterprise and Employment Bill.

3 Issue Overview

Much of the VAT Registration information is already in the public domain (e.g. Companies House, self-promotion, invoices, letterheads, directories, websites and much more) but is not verifiable from an official source. By having VAT registration information available on 2.1 million businesses will in addition to increasing access to finance through higher recommended credit limits improve the accuracy of fraud detection and money laundering checks.

The non-financial VAT registration information to be released on each VAT registered businesses in Clauses 6 & 7 is:

· VAT Registration Number

· Full Organisational Name (i.e., name of proprietor or entity) and any previous Organisational Names

· Dates for any Organisational Name changes

· Full Trading Name and any previous Trading Names Dates for any Trading Name changes

· Current address (i.e., principal place of business) and any previous addresses Dates for any address changes

· Telephone Number and any previous Telephone Numbers Dates for any Telephone Number changes

· Mobile Number and any previous Mobile Numbers Dates for any Mobile Number changes

· Email Address and any previous Email Addresses Dates for any Email Address changes

· Fax Number and any previous Fax Numbers Dates for any Fax Number changes

· Web Address and any previous Web Addresses Dates for any Web Address changes

· Legal Entity Status (e.g., partnership, sole proprietor, company, public corporation, local authority, other)

§ Incorporation Number (if company)

§ Incorporation Date (if company)

§ Effective Date of Registration

§ Date of insolvency (if insolvent)

§ Date of deregistration (if deregistered)

§ Date of transfer of going concern

§ Current Trade Classification SIC Code

§ 40 character (maximum) Trade Classification SIC Code description

4 Current Overview

The disclosure of VAT registration information as set out in Clause 6 (Sections 1 – 12) of the Small Business, Enterprise and Employment Bill will be the enabler in providing businesses, and mainly SME’s, with access to higher credit limits from suppliers. This will ultimately benefit supply chains, increase economic activity and allow SME’s to fulfil their potential and grow faster.

BIPA estimates that trade credit is 2.5 times bank lending and contributes in excess of £500 billion to GDP. The following analysis, which is anonymised, is a sample taken from the Research Project undertaken by the CRA’s and clearly demonstrates how VAT registration information will impact credit limits.

Business

Line of business

Business type

Years Registered for VAT

Limit prior to VAT data

Limit after VAT data

Increase in recommended credit limit

A

Technology and computer services

Limited company

13

£0

£400

£400

B

Specialist goods retailers

Sole trader

4

£750

£1,500

£750

C

Beauty shops

Sole trader

12

£0

£1,000

£1,000

D

Restaurant

Partnership

14

£1,000

£3,000

£2,000

E

Management consultants

Partnership

16

£0

£3,000

£3,000

F

Specialist designers

Limited company

3

£600

£3,600

£3,000

G

General contractors

Sole trader

20

£1,000

£5,000

£4,000

H

Travel services

Limited company

14

£500

£4,800

£4,300

I

Electrical installation engineers

Partnership

6

£1,000

£7,500

£6,500

J

Cleaning services

Sole trader

17

£0

£7,500

£7,500

K

Management consultancy

Partnership

11

£2.000

£22,500

£20,000

L

Business support services

Partnership

12

£2,500

£22,500

£20,000

M

Management consultancy

Partnership

4

£2,000

£30,000

£28,000

N

Food retailer

Sole trader

4

£6,000

£40,000

£34,000

O

Farming

Sole trader

6

£6,000

£40,000

£36,000

P

Carpentry and joinery manufacturers

Sole trader

14

£2,205,000

£2,835,000

£635,000

October 2014

Prepared 15th October 2014