HMRC consulting on closing another tax avoidance loophole

tax avoidanceThe drive to maximise tax revenue continues with another consultation document of very limited duration.

Launched in April with consultations due to end this coming Friday HM Revenue and Customs (HMRC) has this time turned its attention to “arrangements entered into by UK individuals and traders that aim to place profits proper to the UK outside the scope of UK taxation” also known as Profit fragmentation.

The consultation, announced in the Autumn 2017 budget, is the first step to drafting new legislation, aimed at dealing with individuals and smaller enterprises who are deemed to be deliberately allocating excess profits to an overseas entity from which they, or someone else connected to them, can benefit.

Examples are described in the consultation document as service providers, such as an entertainer, asset manager or specialist producer of high value items. One such example cited is a management consultant resident in the UK and providing their services in the UK and overseas, where a proportion of the fees are paid in the UK but the rest is paid directly by customers to an offshore company.

The argument made by users of such arrangements is that the offshore company has no assets apart from access to the skills of the consultant who is exercising their skill from the UK.

HMRC argues that all the income comes from a single underlying activity operating solely from the UK and that therefore it should all be taxed in the UK as the consultant’s profits.

It emphasises that any proposed legislation should be properly targeted and not “weigh inappropriately” on those UK businesses that do pay all their tax in the UK.

It admits that there is existing legislation to tackle at least some of this issue and that the legislation, such as the transfer pricing and Diverted Profits Tax, contains specific exclusions for SMEs. It also admits that it can be difficult to identify persons using such arrangements.

It proposes that the legislation should include a legal requirement for people using such arrangements to notify HMRC. It calculates that it will affect “8-10,000 wealthy individuals who control a small number of businesses” and increase tax receipts by up to £50 million.

Assuming that such legislation is adopted it will be announced in the budget this autumn and is expected to commence from April 2019.

While maximising the tax revenue is perhaps a laudable aim I have to question whether the acknowledged difficulties of obtaining the detailed information required from offshore entities, as HMRC mentions in the consultation, for a relatively small number of targets and potential revenue is the best use of HMRC’s limited resources.

As with the HMRC consultation to prevent directors using insolvency to “game the tax collection system” that I covered in my blog of May 15 the question is whether these two consultations are straw clutching exercises resulting from pressure on HMRC by the Government.

 

K2 Key Indicator: is the UK construction industry in terminal decline?

construction industry at workThere is no doubt that the UK’s construction industry is facing a number of pressures including a lack of funding, inadequate planning approval processes and a severe skills shortage.

In this first of a monthly Key Indicator series that looks at major industries and their future, this month I look at the construction industry.

In the November 2017 Budget, the Government set a target to build 300,000 new homes per year to address the country’s chronic housing shortage. This has been estimated by the lender Urban Exposure as requiring £20 billion-plus of new funding.

In January this year, the Government launched a new national housing agency, Homes England, in order to help achieve this target. Its aim is to bring together existing planning expertise and new land buying powers.

Financing new housing development

There is a distinction to be made between the smaller house-building companies (those building 100-150 homes per year) and the relatively small number of large concerns.

Despite the controversial profits made by some larger house builders from the Help-to-Buy scheme, the House Builders Federation (HBF) estimated that between 2007 and 2009 after the 2008 Financial Crash one third of smaller companies stopped building homes. This equated to a loss of 25,000 homes per year being built.

Since then, of course, a combination of massive losses post-2008, consequent risk aversion and the tighter Basel 3 regulations on bank lending to what are termed High-Volatility Commercial Real Estate Loans (HVCRE Loans) has made borrowing by developers much more difficult.  Basel 3 means that banks are now required to set aside 18% of capital as a buffer for these loans compared to buy to let property loans of just 4%.

Consequently, lending to developers by the big banks, particularly to the smaller construction companies, who cannot access the bond markets direct, has plummeted. In 2016, CityAM reported that UK banks had halved their lending to property developers, down from £32.5bn in April 2014 to £14.9bn in April 2016.

The lending policies are clearly daft given that Loan-To-Value (LTV) on development property is typically 60% whereas the LTV on buy-to-let can be 95%

This has led to the growth of specialist property lenders such as Shawcross, Close Brothers and Paragon, the first two of which won top awards in this year’s online publication Moneyfacts awards. None of these specialist lenders has incurred any losses for some years which begs the question about the banks’ understanding of the market.

As yet, however, these specialist lenders, along with newer entrants such as HCA, Titlestone and Urban exposure, have not filled the funding gap.

In the meantime, according to a Reuters report on a survey mid-2017, the directors of small British construction businesses have been plugging the funding gap with their own resources but this has been limited and not at the amounts required, hence a significant scaling back by small builders.

Still, UK Finance reported in February 2018 that while, manufacturers’ borrowing had expanded slightly, the construction and property-related sectors had contracted.

Meanwhile despite the 300,000 target and the new Government agency, the Government continues to push its Help-to-Buy scheme that has improved the profits for larger firms by pushing up house prices due to limited supply.

The construction industry, planning, Brexit and the skills shortage

It would be impossible to fairly assess the future of the UK construction industry without considering planning, Brexit and the industry’s skills shortage. I make no apologies for calling it a crisis, not least because that is what the Federation of Master Builders (FMB) called it earlier this year.

This was after its quarterly survey into skills revealed that companies are particularly struggling to recruit bricklayers and carpenters, but that demand for skilled plumbers, electricians and plasterers is also outstripping supply.

This is also pushing up wages, thus adding to the costs being borne particularly by the smaller businesses many of which are losing staff to larger firms.

It has been estimated that one in five construction workers in the housebuilding sectors is foreign-born with 17.7% from EU countries. Across the country, Romania is by far the most common country of origin, followed by Poland, Lithuania and Ireland.

There has been plenty of evidence that EU nationals including construction workers have been leaving the UK in large numbers, while fewer have been coming since the June 2016 decision to leave the EU.

A combination of rising hostility towards migrant workers, the tediously lengthy and uncertain process of agreeing the status of migrant labour during the Brexit negotiations and more recently the revelations by the Home Office of a “hostile environment” for immigrants despite them having lived and worked in the UK for years are not helping the UK plug its construction skills gap.

Planning consent has been for some time an issue causing delay by depleted departments drowning in applications and appeals. This along with the system of local and regional planning committees staffed by inexperienced councillors dealing with NIMBY local inhabitants and the lack of local and regional frameworks to identify land for housebuilding are all contributing to a sclerosis in the planning system.

Myopia and an absence of joined-up thinking seem, sadly, to have been the characteristic features of Governments for some time and despite the rhetoric it continues, which bodes ill for the future of the construction industry.

I am not however yet willing to drive the final nail into the industry coffin.  There is a chorus of voices from many sectors of UK industry warning against the foolishness that characterises much of the Brexit negotiating stance, and the volume of noise is rising as the consequences emerge.

Being an optimist, I hope that they will be listened to and sanity will prevail before it is too late.

SMEs demand fair treatment from their High Street Banks

High Street banks sharkEver since the eruption of the 2008 Financial Crisis there has been a seemingly never-ending series of revelations about the way the big banks have treated their SME customers.

Perhaps the most high-profile of these has been RBS (Royal Bank of Scotland) and the devastation it has allegedly wreaked on approximately 16,000 small businesses through GRG, its so-called restructuring division.

Its behaviour was first highlighted in 2013 by the Government’s then business advisor Lawrence Tomlinson, suggesting that GRG applied higher interest rates, extorted high interest rate swaps, pressured customers to sell assets to repay loans, took equity stakes in businesses and pushed them into administration and in some instances bought their former client from their appointed administrator.

Eventually, after considerable lobbying, the situation was investigated by the Financial Conduct Authority (FCA), which published a summary of its findings earlier this year, although it took pressure from the Treasury Select Committee to get it published in full. RBS had a lot of dirty laundry that they wanted to hide from their clients.

However, RBS was only the most high-profile of such scandals, with HBOS, since acquired by Lloyds, also being exposed for its treatment of SMEs. HBOS Reading between 2003 and 2007, referred distressed clients to Quayside Corporate Services, a consultancy that in collusion with the bank plundered the clients’ assets. In this case, six people including bank managers have been jailed for fraud.

Lloyds seems to have done a good job with affected clients, either settling claims or at least managing its PR. RBS, however, has been publicly criticised for its poor progress in compensating the small business owners mistreated by GRG.

The UK’s future economy will depend on SMEs being able to trust their High Street Banks

It should be no surprise, therefore, in the light of such scandals and given the regular reports of the big banks’ inadequate support for their clients in difficulties and their lack of lending to SMEs, that trust among small firms in banks has been undermined and has resulted in SMEs feeling exploited.

Nor should it be surprising that many SMEs are not seeking finance from banks, and if they are seeking finance they are turning to alternative finance providers to fund their growth plans.

Indeed, the FCA’s report into GRG recommended that the turnaround units in all banks should be reviewed, as well as how banks interact with insolvency practitioners who generally act as their advisers when dealing with clients in difficulties. It also recommended enforceable standards of conduct for turnaround units.

There have been calls from the All Parliamentary Group on Fair Business Banking (APPG) for tougher action to protect SMEs from bullying by banks.

The Treasury Select Committee has also launched an inquiry into the whole issue of finance for SMEs, which will consider banks’ duties when dealing with SMEs as well as avenues for dispute resolution and redress.

It has taken 10 years to get to this point.  How many more years will it take before SMEs, the backbone of the UK economy, see effective, concrete action? And how many more for them to trust their bank?

Given the UK economy’s reliance on SMEs, when will banks support them and treat them fairly?

SMEs need help to navigate the business rates system

the potential effects of business rates?Retailers are the most high-profile sector of SMEs that are struggling with business rates and the appeals system following the April 2017 revaluation that came into force last month.

But it is not only the small retailers that are facing challenges.

SMEs’ problems have been repeatedly raised by the Federation of Small Businesses (FSB) and the British Retail Consortium (BRC) both of which have highlighted two issues.

These are the disproportionate business rates rises on smaller businesses compared with larger ones, and a new, revamped appeals system that the FSB in particular has criticised as seemingly “designed to be hostile” to companies.

National FSB chairman Mike Cherry has described the appeals system as bureaucratic and beset by glitches, while offering no in-person support, no phoneline or live chat options and involving a time consuming and opaque process for uploading supporting material when making an appeal.

Why am I not surprised that yet another Government-inspired online system is proving not fit for purpose?  Excessive reliance on digital systems is something to which I shall return in a forthcoming blog.

According to the Government’s guidance on business rates relief SMEs are eligible for relief if their business property’s rateable value is less than £15,000. Those whose property’s rateable value is less than £12,000 are exempt from business rates. There are also transitional reliefs if SMEs’ revaluations took them out of exemption with a cap on bills so that their monthly payments would not increase by more than £50.

However, it seems that 71% of companies are “very dissatisfied” with the Valuation Office appeals process and that appeals had plummeted by as much as 99% between April and December 2017, according to a report in the Daily Telegraph.

On top of this a £500 fine was introduced for any business that was found to have appealed wrongly.

In April the then Communities Minister, Sajid Javid, announced an independent review of the way the business rates system operates. The review is to be led by former Director General for Public Services at Her Majesty’s Treasury, Andrew Hudson. Who had also previously held the position of chief executive of the Valuation Office Agency, as well as having worked in local government. Business rates are collected on the Government’s behalf by local authorities.

Of course, Javid has since relocated to the Home Office, and, so far, there has been no further information on the review.

It is often said that SMEs are the backbone of the UK economy, and according to FSB and BRC figures they inhabit approximately 1 million of the 1.7 million business premises in the UK on which the tax is payable.

If the economy is to survive the still unknown outcomes of Brexit in anything like reasonable shape it will be relying on these SMEs to preserve jobs, to grow and expand.

This means they need a system of fair taxation, a robust and user-friendly rates appeal system and the minimum of red tape and bureaucracy to have a fighting chance of doing more than simply surviving.

SME tendering opportunities amid the doom and gloom

There are tendering opportunities despit the storm cloudsIt can seem, amid the uncertainty over the future of UK business as the shape of Brexit remains shrouded in mystery, that there is nothing but relentlessly dire news for SMEs.

Here’s a selection of snippets from the last week or so:

A major bank (Santander) announces that its loans to corporate clients during the first quarter of 2018 were down by 4% amid a slowing demand for business finance.

There is a dramatic fall of 48% in the numbers of new French, Dutch and Belgian businesses registering in the UK (Companies House).

UK GDP growth comes in at just 0.1% quarter-on-quarter in Q1, with factory order growth in April 2018 slowing to its weakest level in two years and yet more “big name” retail casualties and announcements of shop closures, this time M & S.

On top of this it has been estimated that there has been just a minuscule 10% opt-in rate to all those marketing emails attempting to comply with tomorrow’s GDPR deadline and issued by SMEs, sometimes when they did not actually need to, and potentially decimating their marketing plans.

It should be no surprise, therefore, that there is some anecdotal evidence that some SMEs are finding business life just too difficult and deciding to throw in the towel. The recent growth in self-employment and those setting up in business for themselves may be coming to an end.

Despite the changing marketplace there are always opportunities for SMEs, especially nimble ones.

SMEs should explore tendering opportunities

There is undoubtedly a great deal of work outstanding on unfinished projects around the UK as a result of the collapse of Carillion. Sooner or later there will have to be invitations to businesses to tender for them, and hopefully lessons will have been learned about breaking these down into smaller contracts that could encourage SMEs to bid for them.

There are public-sector tendering opportunities at local, regional and national level and while the process can be lengthy, detailed and sometimes costly, wise SMEs can start exploring the options and preparing the material they might need to submit. It gets easier the more you do.

Firstly, if, as I often advise, you regularly review monthly management accounts, have a solid business plan and control over cash flow and overheads, you should be able to identify the services your business can realistically offer, and this should help you to find the right projects for which to consider tendering.

Secondly, you can find regular updates on contracts worth over £10,000 coming up on the Government’s Contracts Finder website and search for more details.  There are other opportunities and more guidance on tendering on this Government website – follow the links as appropriate. For more local projects you can also contact your local authority or LEP (Local Enterprise Partnership).

The advantage of tendering for public sector partnerships is in the quality of the contract and the likelihood that payment terms and dates are more favourable.

Once you identify tendering opportunities that fit the capabilities of your business you will need to factor in the time it takes to gather the information needed and go through the process. It helps to have someone within the company who has responsibility for managing the bid, from doing the research to writing and checking drafts.

During the bidding process your application will first be “scored” by the government department or agency, to create a shortlist of those who will be invited for interview by a panel of experts.

While the tendency has been to look for the lowest price bids, with much less attention paid to other criteria such as SME preference, quality and service based on the applicants’ track record for delivery and their financial stability, it is to be hoped that lessons will have been learned from the Carillion failure and a more comprehensive and realistic appraisal of SME applicants will result.

Hopefully this will help to level the playing field for SME applicants.

 

Is the UK freight infrastructure fit for the future?

UK Freight infrastructure for the futureIt is fair to say that the UK’s economic future as a trading nation post-Brexit will depend heavily on the efficiency of its ports, road haulage and rail freight transport, but the big question is whether the existing freight infrastructure is in a fit state to cope.

According to the Road Haulage Association 80% of all goods transported by land in Gt Britain are moved directly by road and the remainder will often need road haulage to complete the journey.

Road Haulage transports 98% of food and agricultural products and 98% of all consumer products and machinery and the industry employs 2.54 million people. It is the UK’s fifth largest employer and contributes £124 Billion in GVA (Gross Added Value) to the economy.

While the ports are investing heavily in their processes’ efficiency to attract trade, they are not responsible for the road and rail network on which they need to rely to move goods onwards.

A recent BPA (British Ports Association) report, Port Futures, highlighted some of the issues. These included a cumbersome planning process and lack of Government commitment to invest in improvements.

The RHA, too, has criticised the state of UK roads, 20% of which, it says, are five years away from being unusable and the Asphalt Industry Alliance has highlighted a sharp increase in pothole-related breakdowns resulting in expensive damage and delays to HGVs and citing Government neglect.

The FHA (Freight Haulage Association) points out that funding for rail improvement has been falling and added its voice to calls for infrastructure improvement.

Plainly the verdict of those within the freight transport industry is “could do better”.

Investigations on freight infrastructure – but will meaningful action follow?

In November last year the Government’s National Infrastructure Commission was tasked with carrying out an investigation into the issues facing the freight industry and the actions needed to solve them.

Led by Lord Adonis it is tasked with exploring options to improve the infrastructure, as well as looking at ways to use new technology to improve freight movement, covering congestion, capacity and carbon reduction.

It will produce an interim report in the Autumn.

The FHA is also holding a one-day conference in London on June 20 called Keep Britain Trading.

Topics will include the UK’s readiness for Brexit, specific issues affecting critical supply chains, border readiness at the ports and the vexed issue of managing Customs arrangements.

Will any significant action towards a new integrated national freight infrastructure result or will the outcome be yet more hot air?

Retail CVAs – are they a triumph of hope over reality?

failed CVA? boarded up shopsMothercare has reported today that it is “in a perilous financial position”.

It seems that rarely a week goes by on the High Street when yet another retailer or restaurant chain announces that it is seeking to restructure its business by entering into a CVA (Company Voluntary Agreement) with creditors.

With footfall on the High Street plummeting, by 6% in March and 3.3% in April, while rents have continued to rise, trading conditions are continuing to be challenging, to put it mildly.

The inexorable shift to online shopping can account for some of this, but there are still retailers that have weathered the storm by developing more agile business models, often by combining online and in-store shopping, by making it easy to “click and collect” or by providing a great in-store experience.

Among the retailers that have announced that they will use a CVA as part of a restructure alongside divesting themselves of under-performing stores and food chains have been BHS, Toys R Us, Byrons, New Look, Prezzo, Select, Carpetright, House of Frazer and now Mothercare.

What are the attractions of a CVA?

Although the CVA is an insolvency process, unlike all the others it can be used to save companies. The others involve the eventual closure of the company.

A CVA requires the support of a majority of creditors who are offered better prospects for being paid than the alternative of closing down the company.

This is likely to be welcomed by a business’ employees who keep their jobs and those landlords and suppliers who keep a customer.

Restructuring provides the chance for a business to raise further capital and also the opportunity to renegotiate onerous contracts, such as leases to agree rent reductions.  From the landlords’ point of view a CVA means they can continue to receive some rent instead of being left with empty buildings for which they will need to find new tenants in a declining market.

From the viewpoint of the struggling business, it offers scope for reorganising the business to address the underlying issues that caused the problems and put it on a more sustainable footing, although they may need the help of a restructuring and turnaround adviser.

Despite the attractions and approval of a CVA, many businesses subsequently fail due to a lack of fundamental change to the organisation and business model as all too often the CVA is simply used for financial restructuring to write down debts and get rid of onerous obligations. It is rarely used as an opportunity to turn around the business.

Key to a successful CVA is the underlying business model

Toys R Us and BHS are perhaps the most high-profile examples of CVAs that failed. Both initially entered into CVAs but shortly after had to admit defeat with Administrators closing down each business.

Clearly, the terms of the CVA are crucial to a successful restructuring effort. It is a binding agreement between a company and those to whom it owes money.

This means that the directors must be honest with themselves about the problems and must take advice from experienced advisers, who will have carried out an in-depth and detailed look at every aspect of the business to identify what can be saved and what cannot.

Crucially for CVAs to succeed, they need to be realistic in terms of retaining debt that can be serviced, including any CVA contributions, but the underlying business needs to be viable with sufficient profits and cash flow to justify survival. If these cannot be achieved they will fail.

HMRC looking to prevent directors from using insolvency to game the system and avoid paying tax

There are clear signs that HMRC is ramping up its efforts to improve its tax collection rates.

Among several initiatives, about which there will be more in subsequent blogs, it is focusing on what it calls the “misuse” of insolvency as a means of tax avoidance or evasion.

Since the loss of its preferential status on enactment of the Enterprise Act 2002, HMRC has to wait in line alongside other unsecured creditors during insolvency proceedings.

In a consultation document issued in April HMRC is now proposing that it should be able to use litigation to allow an insolvent company’s tax debts to be transferred to the person(s) responsible for the avoidance/evasion or that directors or shareholders should be made jointly and severally liable for the company’s tax debts.

HMRC’s discussion document acknowledges that Insolvency Practitioners (IPs) must still have a duty of care to the interests of creditors as a whole.

Assets realised into cash during insolvency are distributed to creditors by the IP according to strict insolvency rules. Secured creditors, normally banks and other lenders, and then employees as preferential creditors are paid in full before sharing out any remaining balance among unsecured creditors.

Given the payment priority, HMRC like the other unsecured creditors rarely get anything.

However, if HMRC were to pursue directors through the courts the question is who will be liable?

Will HMRC move up the ranking of creditors of the insolvent company which could risk loss to secured and preferential creditors, and heap further losses on unsecured creditors?

Or will directors and shareholders become personally liable for overdue tax?

There is also a worry that if HMRC proposals were approved this would undermine the recent shift in insolvency regulation, which included a moratorium on creditors’ action, to allow time for a restructure and turnaround plan to be devised.

HMRC is clearly redoubling efforts to recover the maximum amount of tax debt it can. This week a Freedom of Information request revealed that its spending on debt collection services had increased by more than 500% in three years, from £6.2m in 2014 to £39.1m in 2017.

phoenix company and tax debtsThe implications on a rescue culture might go further given that HMRC often exercise their blocking vote to reject proposals for a Company Voluntary Arrangement. This generally leaves a Phoenix as the only option.

In other developments around insolvencies

A HM Treasury minister has urged the Financial Conduct Authority (FCA) to take action on the use of phoenix companies, which it has been argued, allow directors of an insolvent company to walk away from their debts to creditors by setting up a new (phoenix) company enabling it to effectively carry on trading under a different identity.

Robert Jenrick, the Exchequer secretary to the Treasury, was responding to a case where a company offering financial advice had used the phoenix option to effectively “walk away” from its previous business taking its clients with it. However, this had enabled its owner to retain his FCA approval and avoid paying compensation to some unhappy clients despite a Financial Ombudsman investigation finding that the previous company had made “completely unsuitable” investments for the complainants, who had then lost money.

Is the rise of the Sharing Economy an opportunity for SMEs?

Sharing economy ideasFrom renting a city-centre bicycle, a place to stay overnight to a taxi ride, there are plenty of examples of the sharing economy, also called the “access economy” or the “demand economy”.

The big, established names in the sector include Airbnb, Uber and Etsy and what they all have in common is that they have been made possible by developments in IT and its widespread use, coupled with the idea that consumers may want access to goods or services for only a short time rather than buying them long-term.

But there is no reason why this type of business should only be the preserve of big businesses.  It is less about economies of scale because the overheads are relatively small, and more about being able to provide something that customers want.

One example is an Essex-based business, Borrowaboat.com, that allows boat owners to rent out their vessels. Within 18 months of launching they had 17,000 boats registered on their platform as available for hire all over the world, from Thailand to Suffolk’s River Orwell.

Arguably, therefore, there is no reason why SMEs cannot be successful in this sector. Suppose someone wants to an hour of a handyman’s time for help with a small household job, or for help with assembling a flat pack. Both are examples of potential services that could be small, shared economy businesses.

While there is clearly potential for consumer-oriented services that does not mean there are no opportunities in Business to Business, such as having people do research or handle business calls for short periods such as when you are on holiday.

What do SMEs need to do to build a successful Sharing Economy business?

The first and most obvious is to thoroughly research the mechanics of a Sharing Economy business model. There is plenty of information both online and in book form about the concept.

There are several online platforms like Kajabi, QE Bot, Simplero, Kartra that make it easy to set up and go.

Knowing your target customers and identifying their needs is crucial to launching a successful Sharing Economy business as is finding the resources to satisfy them.

What possessions or skills do people have that they are most likely to want to share and need to advertise, and are they things for which there is likely to be a demand from sufficient customers?

It doesn’t matter from which end you approach the market since you are finding suppliers looking for customers and customers for them, so essentially you are making it easier for both parties.

Marketing is key and often relies on paid-for promotion and Social Media to create awareness of the service.

One of the benefits of the Sharing Economy is the opportunity to differentiate your proposition for example by emphasising a commitment to minimising waste, to sustainable growth or to corporate social responsibility. It is surely more ethical to share goods or services than it is to own them but use them only rarely. Equally, demonstrating an awareness of the financial constraints many people experience and offering a solution through sharing can be a sign of a responsible, civic-minded business.

Creating a successful Sharing Economy business is about identifying a need and offering a solution that works well both for the business and for the individuals using its services.

How should SMEs adapt their Social Media marketing after the recent data scandal?

social media marketingThe harvesting by Cambridge Analytica (CA) of the personal details of an estimated 87 million Facebook users is rightly being investigated by the UK’s Information Commissioner’s Office (ICO).

It has been alleged that CA, which has since gone out of business, used the data to help their customers to try to influence the outcome of elections and referenda in many parts of the world, notably during the US presidential campaign and also during the UK’s 2016 referendum on leaving the EU.

Whether these attempts were successful remains to be seen, but the episode does raise questions about individuals’ rights on Social Media, especially in the light of the imminent introduction of new Data Protection Regulations (GDPR).

While individuals ultimately have the responsibility for deciding who can see their interactions on social media, and therefore, if they don’t act could be argued to be fair game, it is likely that GDPR will at least force social media platforms to be more careful to whom they permit data access.

What difference does all this make to promotional activities on Social Media?

The first question is whether Facebook, Twitter and other social media users will be less active on these platforms.

So far, it seems not. Research by Reuters/Ipsos in the US has found that a quarter of Facebook users in the survey said they used it less or had left it but another quarter said they used it even more. The other half said their use had not changed.

As yet, there have been no similar surveys on the other side of the Atlantic and the situation is only likely to become a little clearer when Facebook reveals its next quarterly profits.

Facebook, particularly, but also other platforms, derives most of its revenue from advertising on its pages. This has been claimed to be particularly useful to small businesses, especially those that operate within defined local areas.

But it is questionable whether using it to generate sales directly is quite so effective as is claimed. Indeed, Facebook users have recently had to choose whether Facebook can collect and use personal data to serve targeted ads where the opt-out means users will see general ones; there was no opt-out from seeing ads.

Businesses can also use Social Media effectively to raise their brand’s profile, enhance their reputation and drive visitors to their websites and so far, there appears to be no reason why they should not continue to do so. However, like Google AdWords that are served to online searches the social media platforms are restricting visibility in favour of paid-for access to eyeballs.

Nevertheless, despite the influence peddled by CA and restrictions imposed by GDPR, businesses should still recognise that Social Media is becoming a key ingredient of the promotion mix.

As a consequence, businesses need to be very careful about collecting and analysing the personal data of customers, especially with regard to consent.