Entrepreneurs in the UK are bypassing the traditional method of registering a company early, a new report finds.
Findings from charity RSA reveals that some 20 per cent of small business owners had traded informally when starting their company.
The poll, conducted by YouGov, also finds that 40 per cent of respondents say the reason for avoiding registration is that they need ‘breathing space’ to get to a capacity where they could formally complete the process.
A desire to see whether their new venture is viable is named by 64 per cent of those interviewed as a reason for keeping their business under the radar.
Only 9 per cent say they engaged in informal trading to earn extra income.
RSA’s report looks at what it calls the ‘informal economy’, a situation which reportedly undermines the UK’s already unstable tax base, creates unfair competition for businesses that are compliant and leaves those failing to register in an insecure position in times of hardship.
On the back of the survey results, which also shows that 48 per cent of entrepreneurs identify red tape as one of the biggest factors in preventing them from being able to register their business, the RSA has a number of recommendations.
It says that the punitive approach that has been used historically is not working and that more should be done to support the registration process.
The government, it suggests, should consider recognising the informal economy as a ‘legitimate stepping stone’ that helps entrepreneurs. This recommendation comes after it found that 47 per cent of those questioned say that engaging in informal trading is a necessary step to becoming a successful entrepreneur.
The report goes on to recommend the creation of a single Hidden Economy National Committee which would draw together key stakeholders to share information and data and devise new interventions.
It would also like to see a programme whereby businesses can be established in a ‘very short’ timeframe and the establishment of a new initiative for the Work Programme whereby contractors are paid on a case-by-case basis for helping hidden entrepreneurs formalise their operations.
Duncan Cheatle, founder of Prelude Group, comments, ‘Yes, formalisation should be the goal for entprepreneurs whatever their background or difficulties […] but it is time to recognise the various hurdles that prevent people from realising this area.
‘Although the recommendations and questions raised by this report may prove politically hard for policymakers to swallow […] without confronting this issue head on we are likely to continue disregarding or even diminishing the valuable entrepreneurial talent of hidden entrepreneurs which the country is clearly in desperate need of.’