SMALL BUSINESSES, MICRO-BUSINESSES and sole traders are, as we are regularly reminded, the engine room of the economy.
It is surprising, then, given the opportunities in recent years around the taxation of contractors, that there aren’t more firms making hay in the sector.
Lancashire-based Danbro, though, are reaping the benefits.
“If you communicate with people, they usually appreciate it and work with you,” says managing partner Damian Broughton. “You have to find time to think about business development, rather than simply delivering the service.
Danbro, relatively speaking, is a young firm, having been founded in 1999 by Broughton after he took voluntary redundancy from the financial controller post he had at the time. Shortly afterward, Broughton and his co-founder wife Helen were working with clients from their living room in Kirkham.
“I’d seen the previous incumbent in the position I’d been made redundant from had set up his own practice helping contractors,” Broughton explains. “I’d helped some contractors myself. Within the manufacturing business we installed an ERP system and contractors helped us do that, and they were asking me questions about how to run their own limited company. We had a look at the market and decided to set something up.”
As Broughton points out, though, “you can’t start a business up just like that”, and it was a slow start. He found himself taking another job with Capgemini near Farnborough – a full 250 miles down the M6 – working evenings from his hotel room and weekends to satisfy the clients they had taken on.
After two years, and having grown the firm from six to 45 clients by “word of mouth”, Broughton “came home” after taking voluntary redundancy with Capgemini, which went some way towards procuring the firm a “super-duper” computer as Broughton sought to establish high-quality systems for the nascent practice.
“It was getting a bit much for Helen manning the phones during the day with, by then, two young children,” he said. “From an accountancy point of view, it was crazy to do that because the business wasn’t generating enough income to sustain us. Sometimes you’ve got to take a step on faith, and that was a risky time but we did it properly and the business managed to go.”
And go it did. Today the firm boasts more than 200 employees, a fee income of £10m and 8,000 clients worth a cumulative £166m across the UK with a head office in Lytham Saint Annes and a second office in London.
Moreover, Danbro has eschewed the typical partnership format with defined departments in favour of a more bespoke arrangement.
Instead, there’s a management team, including a group FD, an operations director and an accounting director who looks after around 55 accountants and trainees who deal with clients.
And while it serves clients local to its Lancashire base – 250 or so – it’d be a disservice to describe Danbro as a local firm.
Indeed, 50% of its clients are, in fact, based in the Home Counties.
“We wanted to have a base down in London so our clients in the region could pop in,” Broughton explains. “There’s a lot of business down there. London is and always has been very important to the UK economy. There are a lot of headquarters down there, a lot of recruiters down there and we wanted to have a base to say ‘we are near you’ and it helped our business development team to have a base there.”
Broughton points, too, to the “nature of the client”, many of whom travel extensively and work on big projects – particularly in the south east – with a proliferation of temporary contracts.
“We recognised what was happening and adapted to it,” he says. “We adapted our systems a processes to changes in the in the marketplace, and particularly taxation.”
And much adaptation has to take place on the tax front, not only from Danbro, but their clients.
In George Osborne’s first Budget of the all-Conservative government introducing swingeing changes to the taxation of dividends, which a huge portion of contractors use to pay themselves.
Under the new regime, the tax credit applied to dividends is to be replaced with a £5,000 allowance from April 2016.
Alongside the move, tax rates on dividend income will be increased to 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.
The “simpler” system will mean that only those with significant dividend income will pay more tax. Investors with modest income from shares will see either a tax cut or no change in the amount of tax they owe, the chancellor claimed in his Budget address.
“We’ve had numerous changes over the last 15-or-so years with regards to IR35, to managed service companies legislation, to agency workers regulations. There have been numerous times when we’ve had to change our systems and processes this is just another example of that,” Broughton explains.
“We’ve got to remember that 20% of the workforce is a self-employed or flexibly working, which is a huge chunk of UK plc and they’re not going to disappear,” he says.
“They’re not suddenly going to become employees of UK plc because the cost of employees is quite high when you take into account holiday pay and sick pay. We’re confident our sector and service will remain buoyant. There’s less of a tax advantage, but there is still a tax advantage.”
Danbro in numbers
Offices: Two, one in Lytham Saint Annes, one in London
Staff: 210, with two partners
Fee income: £10m, according to the Accountancy Age Top 50+50 survey
Service lines: Contractors, business services, financial services, umbrella companies
Bluffer’s guide to Danbro: During his student days, Broughton appeared on stage with Madonna at Manchester’s famous and now-defunct club Haçienda, which was broadcast on ‘80s TV programme The Tube
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