Doing Business 2016 United Kingdom 100839 Economy Profile 2016 United Kingdom Doing Business 2016 United Kingdom 2 © 2016 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved 1 2 3 4 18 17 16 15 This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Doing Business 2016 United Kingdom 3 CONTENTS Introduction .................................................................................................................................. 4 Starting a business ..................................................................................................................... 16 Dealing with construction permits ........................................................................................... 23 Getting electricity ....................................................................................................................... 36 Registering property .................................................................................................................. 45 Getting credit .............................................................................................................................. 58 Protecting minority investors ................................................................................................... 63 Paying taxes ................................................................................................................................ 69 Trading across borders .............................................................................................................. 74 Enforcing contracts .................................................................................................................... 80 Resolving insolvency .................................................................................................................. 88 Labor market regulation ........................................................................................................... 97 Distance to frontier and ease of doing business ranking .................................................... 104 Resources on the Doing Business website ............................................................................ 108 Doing Business 2016 United Kingdom 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is comparison, it also provides data for other selected for a local entrepreneur to open and run a small to economies (comparator economies) for each indicator. medium-size business when complying with relevant The data in this report are current as of June 1, 2015 regulations. It measures and tracks changes in (except for the paying taxes indicators, which cover the regulations affecting 11 areas in the life cycle of a period January–December 2014). business: starting a business, dealing with construction The Doing Business methodology has limitations. Other permits, getting electricity, registering property, getting areas important to business—such as an economy’s credit, protecting minority investors, paying taxes, proximity to large markets, the quality of its trading across borders, enforcing contracts, resolving infrastructure services (other than those related to insolvency and labor market regulation. Doing Business trading across borders and getting electricity), the 2016 presents the data for the labor market regulation security of property from theft and looting, the indicators in an annex. The report does not present transparency of government procurement, rankings of economies on labor market regulation macroeconomic conditions or the underlying strength of indicators or include the topic in the aggregate distance institutions—are not directly studied by Doing Business. to frontier score or ranking on the ease of doing The indicators refer to a specific type of business, business. generally a local limited liability company operating in In a series of annual reports Doing Business presents the largest business city. Because standard assumptions quantitative indicators on business regulations and the are used in the data collection, comparisons and protection of property rights that can be compared benchmarks are valid across economies. The data not across 189 economies, from Afghanistan to Zimbabwe, only highlight the extent of obstacles to doing business; over time. The data set covers 47 economies in Sub- they also help identify the source of those obstacles, Saharan Africa, 32 in Latin America and the Caribbean, 25 supporting policy makers in designing regulatory reform. in East Asia and the Pacific, 25 in Eastern Europe and More information is available in the full report. Doing Central Asia, 20 in the Middle East and North Africa and Business 2016 presents the indicators, analyzes their 8 in South Asia, as well as 32 OECD high-income relationship with economic outcomes and presents economies. The indicators are used to analyze economic business regulatory reforms. The data, along with outcomes and identify what reforms have worked, where information on ordering Doing Business 2016, are and why. available on the Doing Business website at This economy profile presents the Doing Business http://www.doingbusiness.org. indicators for United Kingdom. To allow useful Doing Business 2016 United Kingdom 5 CHANGES IN DOING BUSINESS 2016 As part of a two-year update in methodology, Doing The case study underlying the trading across borders Business 2016 expands the focus of five indicator sets indicators has been changed to increase its relevance. (dealing with construction permits, getting electricity, For each economy the export product and partner are registering property, enforcing contracts and labor now determined on the basis of the economy’s market regulation), substantially revises the comparative advantage, the import product is auto parts, methodology for one indicator set (trading across and the import partner is selected on the basis of which borders) and implements small updates to the economy has the highest trade value in that product. The methodology for another (protecting minority investors). indicators continue to measure the time and cost to export and import. The indicators on dealing with construction permits now include an index of the quality of building regulation and Beyond these changes there is one other update in its implementation. The getting electricity indicators now methodology, for the protecting minority investors include a measure of the price of electricity consumption indicators. A few points for the extent of shareholder and an index of the reliability of electricity supply and governance index have been fine-tuned, and the index transparency of tariffs. Starting this year, the registering now also measures aspects of the regulations applicable property indicators include an index of the quality of the to limited companies rather than privately held joint land administration system in each economy in addition stock companies. to the indicators on the number of procedures and the For more details on the changes, see the “What is time and cost to transfer property. And for enforcing changing in Doing Business?” chapter starting on page contracts an index of the quality and efficiency of judicial 27 of the Doing Business 2016 report. For more details processes has been added while the indicator on the on the data and methodology, please see the “Data number of procedures to enforce a contract has been Notes” chapter starting on page 119 of the Doing dropped. Business 2016 report. For more details on the distance to The scope of the labor market regulation indicator set frontier metric, please see the “Distance to frontier and has also been expanded, to include more areas capturing ease of doing business ranking” chapter in this profile. aspects of job quality. The labor market regulation indicators continue to be excluded from the aggregate distance to frontier score and ranking on the ease of doing business. Doing Business 2016 United Kingdom 6 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to start ECONOMY OVERVIEW is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing business Region: OECD high income based on indicator sets that measure and benchmark regulations applying to domestic small to medium-size Income category: High income businesses through their life cycle. Economies are ranked from 1 to 189 by the ease of doing business ranking. Population: 64,510,376 Doing Business presents results for 2 aggregate measures: the distance to frontier score and the ease of doing GNI per capita (US$): 42,690 business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier scores, DB2016 rank: 6 rounded to two decimals. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where DB2015 rank: 6* 0 represents the worst performance and 100 the frontier. Change in rank: 0 (See the chapter on the distance to frontier and ease of doing business). DB 2016 DTF: 82.46 The ease of doing business ranking compares economies with one another; the distance to frontier score DB 2015 DTF: 82.18 benchmarks economies with respect to regulatory best practice, showing the absolute distance to the best Change in DTF: 0.28 performance on each Doing Business indicator. When compared across years, the distance to frontier score * DB2015 ranking shown is not last year’s published shows how much the regulatory environment for local ranking but a comparable ranking for DB2015 that entrepreneurs in an economy has changed over time in captures the effects of such factors as data revisions absolute terms, while the ease of doing business ranking and the changes in methodology. See the data notes can show only how much the regulatory environment has starting on page 119 of the Doing Business 2016 changed relative to that in other economies. report for sources and definitions. The 10 topics included in the ranking in Doing Business 2016: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. The labor market regulation indicators are not included in this year’s aggregate ease of doing business ranking, but the data are presented in the economy profile. Doing Business 2016 United Kingdom THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2016 United Kingdom THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy regional average (figure 1.2). The economy’s rankings stands in the aggregate ranking on the ease of doing (figure 1.3) and distance to frontier scores (figure 1.4) business is useful. Also useful is to know how it ranks on the topics included in the ease of doing business relative to comparator economies and relative to the ranking provide another perspective. Figure 1.2 How United Kingdom and comparator economies rank on the ease of doing business Note: The rankings are benchmarked to June 2015 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. Doing Business 2016 United Kingdom 9 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - United Kingdom (Scale: Rank 189 center, Rank 1 outer edge) Figure 1.4 Distance to frontier scores on Doing Business topics - United Kingdom (Scale: Score 0 center, Score 100 outer edge) Source: Doing Business database. Note: The rankings are benchmarked to June 2015 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Doing Business 2016 United Kingdom 10 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business Doing Business introduced the distance to frontier score. tells only part of the story, so do changes in that ranking. This measure shows how far on average an economy is Yearly movements in rankings can provide some indication from the best performance achieved by any economy on of changes in an economy’s regulatory environment for each Doing Business indicator. firms, but they are always relative. Comparing the measure for an economy at 2 points in time Moreover, year-to-year changes in the overall rankings do allows users to assess how much the economy’s regulatory not reflect how the business regulatory environment in an environment as measured by Doing Business has changed economy has changed over time—or how it has changed over time—how far it has moved toward (or away from) in different areas. To aid in assessing such changes, the most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.5). Figure 1.5 How far has United Kingdom come in the areas measured by Doing Business? Note: The distance to frontier score shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator. Starting a business is comparable to 2010. Getting credit, protecting minority investors, paying taxes and resolving insolvency had methodology changes in 2014 and thus are only comparable to 2013. Dealing with construction permits, registering property, trading across borders, enforcing contracts and getting electricity had methodology changes in 2015 and thus are only comparable to 2014. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). See the data notes starting on page 119 of the Doing Business 2016 report for more details on the distance to frontier score. Source: Doing Business database. Doing Business 2016 United Kingdom 11 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part of regulation—such as a regulatory process that can be the story (table 1.1). The indicators, on their own or in completed with a small number of procedures in a few comparison with the indicators of a good practice days and at a low cost. Comparison of the economy’s economy or those of comparator economies in the indicators today with those in the previous year may region, may reveal bottlenecks reflected in large numbers show where substantial bottlenecks persist—and where of procedures, long delays or high costs. Or they may they are diminishing. reveal unexpected strengths in an area of business Table 1.1 Summary of Doing Business indicators for United Kingdom United Kingdom DB2016 United Kingdom DB2015 Best performer globally United States DB2016 Singapore DB2016 Germany DB2016 Ireland DB2016 Indicator France DB2016 Japan DB2016 DB2016 Starting a Business 17 43 32 107 25 81 10 49 New Zealand (1) (rank) Starting a Business (DTF 94.57 91.23 93.14 83.37 94.18 86.34 96.49 91.22 New Zealand (99.96) Score) Procedures (number) 4.0 6.0 5.0 9.0 4.0 8.0 3.0 6.0 New Zealand (1.00)* Time (days) 4.5 6.0 4.0 10.5 6.0 10.2 2.5 5.6 New Zealand (0.50) Cost (% of income per 0.1 0.3 0.8 1.8 0.2 7.5 0.6 1.1 Slovenia (0.00) capita) Paid-in min. capital (% 0.0 0.0 0.0 33.9 0.0 0.0 0.0 0.0 105 Economies (0.00)* of income per capita) Dealing with Construction Permits 23 23 40 13 43 68 1 33 Singapore (1) (rank) Dealing with Construction Permits 78.92 78.8 75.46 81.42 75.03 71.65 92.97 76.73 Singapore (92.97) (DTF Score) Procedures (number) 9.0 9.0 9.0 8.0 10.0 12.0 10.0 15.8 5 Economies (7.00)* Doing Business 2016 United Kingdom 12 United Kingdom DB2016 United Kingdom DB2015 Best performer globally United States DB2016 Singapore DB2016 Germany DB2016 Ireland DB2016 Indicator France DB2016 Japan DB2016 DB2016 Time (days) 105.0 105.0 183.0 96.0 149.5 197.0 26.0 80.6 Singapore (26.00) Cost (% of warehouse 1.1 1.2 4.7 1.1 6.2 0.6 0.3 1.0 Qatar (0.00) value) Building quality control 9.0 9.0 13.0 9.5 13.0 10.0 14.0 10.6 New Zealand (15.00) index (0-15) Getting Electricity 15 16 20 3 30 14 6 44 Korea, Rep. (1) (rank) Getting Electricity (DTF 89.12 89.11 85.78 98.78 84.17 89.88 94.34 81.52 Korea, Rep. (99.88) Score) Procedures (number) 4.0 4.0 5.0 3.0 5.0 3.4 4.0 4.8 14 Economies (3.00)* Time (days) 79.0 79.0 71.0 28.0 85.0 97.7 31.0 89.6 Korea, Rep. (18.00)* Cost (% of income per 26.7 29.2 41.3 42.0 70.8 0.0 25.9 24.6 Japan (0.00) capita) Reliability of supply and transparency of tariff 8.0 8.0 8.0 8.0 8.0 8.0 8.0 7.0 18 Economies (8.00)* index (0-8) Registering Property 45 44 85 62 39 48 17 34 New Zealand (1) (rank) Registering Property 74.5 74.41 64.94 69.35 76.27 73.91 85.66 76.85 New Zealand (94.46) (DTF Score) Procedures (number) 6.0 6.0 8.0 5.0 5.0 6.0 4.0 4.4 4 Economies (1.00)* Time (days) 21.5 21.5 49.0 39.0 31.5 13.0 4.5 15.2 3 Economies (1.00)* Cost (% of property 4.6 4.6 6.1 6.7 2.5 5.8 2.9 2.4 Saudi Arabia (0.00) value) Quality of the land administration index (0- 24.0 24.0 24.5 22.0 21.0 24.5 26.5 17.6 3 Economies (28.50)* 30) Doing Business 2016 United Kingdom 13 United Kingdom DB2016 United Kingdom DB2015 Best performer globally United States DB2016 Singapore DB2016 Germany DB2016 Ireland DB2016 Indicator France DB2016 Japan DB2016 DB2016 Getting Credit (rank) 19 17 79 28 28 79 19 2 New Zealand (1) Getting Credit (DTF 75 75 50 70 70 50 75 95 New Zealand (100) Score) Strength of legal rights 7.0 7.0 4.0 6.0 7.0 4.0 8.0 11.0 3 Economies (12.00)* index (0-12) Depth of credit 8.0 8.0 6.0 8.0 7.0 6.0 7.0 8.0 26 Economies (8.00)* information index (0-8) Credit registry coverage 0.0 0.0 45.1 1.6 0.0 0.0 0.0 0.0 Portugal (100.00) (% of adults) Credit bureau coverage 22 Economies 100.0 100.0 0.0 100.0 100.0 100.0 58.6 100.0 (% of adults) (100.00)* Protecting Minority 4 4 29 49 8 36 1 35 Singapore (1)* Investors (rank) Protecting Minority 78.33 78.33 65 60 73.33 63.33 83.33 64.67 Singapore (83.33)* Investors (DTF Score) Strength of minority investor protection 7.8 7.8 6.5 6.0 7.3 6.3 8.3 6.5 3 Economies (8.30)* index (0-10) Extent of conflict of interest regulation 8.3 8.3 5.7 5.0 8.7 7.0 9.3 8.3 Singapore (9.30)* index (0-10) Extent of shareholder governance index (0- 7.3 7.3 7.3 7.0 6.0 5.7 7.3 4.6 4 Economies (8.00)* 10) United Arab Emirates Paying Taxes (rank) 15 16 87 72 6 121 5 53 (1)* Paying Taxes (DTF United Arab Emirates 91.34 90.62 74.31 77 94.97 67.16 96.56 80.81 Score) (99.44)* Payments (number per 8.0 8.0 8.0 9.0 9.0 14.0 6.0 10.6 Hong Kong SAR, Doing Business 2016 United Kingdom 14 United Kingdom DB2016 United Kingdom DB2015 Best performer globally United States DB2016 Singapore DB2016 Germany DB2016 Ireland DB2016 Indicator France DB2016 Japan DB2016 DB2016 year) China (3.00)* Time (hours per year) 110.0 110.0 137.0 218.0 82.0 330.0 83.5 175.0 Luxembourg (55.00) Total tax rate (% of 32.0 33.5 62.7 48.8 25.9 51.3 18.4 43.9 Ireland (25.90) profit) Trading Across Borders 38 36 1 35 48 52 41 34 Denmark (1)* (rank) Trading Across Borders 91.4 91.4 100 91.77 87.25 85.9 89.35 92.01 Denmark (100)* (DTF Score) Time to export: Border 24 24 0 36 24 48 12 2 15 Economies (0.00)* compliance (hours) Cost to export: Border 280 280 0 345 305 306 335 175 18 Economies (0.00)* compliance (USD) Time to export: Documentary 4 4 1 1 1 3 4 2 Jordan (0.00) compliance (hours) Cost to export: Documentary 25 25 0 45 75 15 37 60 20 Economies (0.00)* compliance (USD) Time to import: Border 8 8 0 0 24 48 35 2 19 Economies (0.00)* compliance (hours) Cost to import: Border 205 205 0 0 253 337 220 175 28 Economies (0.00)* compliance (USD) Time to import: Documentary 2 2 1 1 1 3 1 8 21 Economies (1.00)* compliance (hours) Cost to import: Documentary 0 0 0 0 75 23 37 100 30 Economies (0.00)* compliance (USD) Enforcing Contracts 33 26 14 12 93 51 1 21 Singapore (1) Doing Business 2016 United Kingdom 15 United Kingdom DB2016 United Kingdom DB2015 Best performer globally United States DB2016 Singapore DB2016 Germany DB2016 Ireland DB2016 Indicator France DB2016 Japan DB2016 DB2016 (rank) Enforcing Contracts 69.36 70.86 74.89 75.08 57.88 65.26 84.91 72.61 Singapore (84.91) (DTF Score) Time (days) 437.0 437.0 395.0 429.0 650.0 360.0 150.0 420.0 Singapore (150.00) Cost (% of claim) 43.9 39.9 17.4 14.4 26.9 23.4 25.8 30.5 Iceland (9.00) Quality of judicial 15.0 15.0 12.0 12.0 8.5 7.5 15.5 13.8 3 Economies (15.50)* processes index (0-18) Resolving Insolvency 13 12 24 3 20 2 27 5 Finland (1) (rank) Resolving Insolvency 82.04 82.04 76.09 91.93 78.44 93.75 74.83 90.12 Finland (93.81) (DTF Score) Recovery rate (cents on 88.6 88.6 77.5 83.7 87.7 92.9 89.7 80.4 Japan (92.90) the dollar) Time (years) 1.0 1.0 1.9 1.2 0.4 0.6 0.8 1.5 Ireland (0.40) Cost (% of estate) 6.0 6.0 9.0 8.0 9.0 3.5 3.0 8.2 Norway (1.00) Outcome (0 as piecemeal sale and 1 as 1 1 1 1 1 1 1 1 going concern) Strength of insolvency 11.0 11.0 11.0 15.0 10.0 14.0 8.5 15.0 4 Economies (15.00)* framework index (0-16) Source: Doing Business database. Note: DB2015 rankings shown are not last year’s published rankings but comparable rankings for DB2015 that capture the effects of such factors as data revisions and changes to the methodology. The global best performer on time for paying taxes is defined as the lowest time recorded among all economies in the DB2016 sample that levy the 3 major taxes: profit tax, labor taxes and mandatory contributions, and VAT or sales tax. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” mark if regulation exists but is never used in practice or if a competing regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the ranking on t he relevant indicator. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Doing Business 2016 United Kingdom 16 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as well Preregistration (for example, name as to new markets. And their employees can benefit verification or reservation, notarization) from protections provided by the law. An additional benefit comes with limited liability companies. These Registration in the economy’s largest limit the financial liability of company owners to their business city 1 investments, so personal assets of the owners are not Postregistration (for example, social security put at risk. Where governments make registration registration, company seal) easy, more entrepreneurs start businesses in the formal sector, creating more good jobs and Time required to complete each procedure generating more revenue for the government. (calendar days) What do the indicators cover? Does not include time spent gathering information Doing Business records all procedures officially required, or commonly done in practice, for an Each procedure starts on a separate day (2 entrepreneur to start up and formally operate an procedures cannot start on the same day). industrial or commercial business, as well as the time Procedures that can be fully completed and cost to complete these procedures and the paid- online are recorded as ½ day. in minimum capital requirement. These procedures Procedure completed once final document is include obtaining all necessary licenses and permits received and completing any required notifications, verifications or inscriptions for the company and No prior contact with officials employees with relevant authorities. The ranking of Cost required to complete each procedure economies on the ease of starting a business is (% of income per capita) determined by sorting their distance to frontier scores for starting a business. These scores are the Official costs only, no bribes simple average of the distance to frontier scores for No professional fees unless services required each of the component indicators. by law or commonly used in practice To make the data comparable across economies, Paid-in minimum capital (% of income several assumptions about the business and the per capita) procedures are used. It is assumed that any required information is readily available and that the Deposited in a bank or with a notary before entrepreneur will pay no bribes. Assumptions about registration (or within 3 months) the business:  Is a limited liability company (or its legal  Has a start-up capital of 10 times income per equivalent), located in the largest business city capita and a turnover of at least 100 times 1 and is 100% domestically owned with five income per capita. owners, none of whom is a legal entity.  Has a company deed 10 pages long.  Has at least 10 and up to 50 employees, all of  Does not qualify for any special benefits. them domestic nationals.  Leases the commercial plant or offices and is not  Performs general commercial or industrial a proprietor of real estate. activities. 1 For 11 economies the data are also collected for the second largest business city. Doing Business 2016 United Kingdom 17 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in United Kingdom? largest business city of an economy, except for 11 According to data collected by Doing Business, starting a economies for which the data are a population-weighted business there requires 4.00 procedures, takes 4.50 days, average of the 2 largest business cities. See the chapter costs 0.10% of income per capita and requires paid-in on distance to frontier and ease of doing business minimum capital of 0.00% of income per capita (figure ranking at the end of this profile for more details. 2.1). Most indicator sets refer to a case scenario in the Figure 2.1 What it takes to start a business in United Kingdom Paid-in minimum capital (% of income per capita): 0.00 Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the starting a business indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Doing Business 2016 United Kingdom 18 STARTING A BUSINESS Globally, United Kingdom stands at 17 in the ranking of regional average ranking provide other useful 189 economies on the ease of starting a business (figure information for assessing how easy it is for an 2.2). The rankings for comparator economies and the entrepreneur in United Kingdom to start a business. Figure 2.2 How United Kingdom and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2016 United Kingdom 19 STARTING A BUSINESS Economies around the world have taken steps making it they often are part of a larger regulatory reform easier to start a business—streamlining procedures by program. Among the benefits have been greater firm setting up a one-stop shop, making procedures simpler satisfaction and savings and more registered businesses, or faster by introducing technology and reducing or financial resources and job opportunities. eliminating minimum capital requirements. Many have What business registration reforms has Doing Business undertaken business registration reforms in stages—and recorded in United Kingdom (table 2.1)? Table 2.1 How has United Kingdom made starting a business easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform The United Kingdom made starting a business easier by DB2014 providing model articles for use in preparing memorandums and articles of association. The United Kingdom made starting a business easier by DB2015 speeding up tax registration. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2016 United Kingdom 20 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY United Kingdom is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new Legal form: Private Limited Company (Ltd) firm. These are identified by Doing Business through collaboration with relevant local professionals and Paid-in minimum capital requirement: GBP 0 the study of laws, regulations and publicly available City: London information on business entry in that economy. Following is a detailed summary of those procedures, Start-up Capital: 10 times GNI per capita along with the associated time and cost. These procedures are those that apply to a company matching the standard assumptions (the “standardized company”) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Table 2.2 Summary of time, cost and procedures for starting a business in United Kingdom Time to No. Procedure Cost to complete complete Check availability of unique company name, complete application form IN01, and file for registration with Companies House Company founders have the option to check for unique company name and file for registration themselves, or to retain incorporation professionals to do so. Either way registration is done electronically. In case the company chooses to file for incorporation itself, model articles of incorporation and company memorandum are generated automatically by the registration website www.gov.uk/register-a- company-online. In addition the above forms, all companies must provide the following information to the relevant Registrar of Companies (i.e., for England and Wales, Scotland, or Northern Ireland): • Statement of compliance with all requirements of the 2006 GBP 30 for same Less than one day 1 Companies Act; day online (online procedure) • Application form IN01, which includes: registration o proposed company name; o country of registration office (e.g. England and Wales (or Wales), Scotland or Northern Ireland); o Whether the liability of the members is to be limited and if so whether by shares or guarantee; and; o Whether the company is public or private; • In the case of a company with a share capital, the application must also include a statement of the capital and initial shareholdings, including the name and address of the subscriber. • A statement of the proposed officers, being the first director and company secretary (unless in the case of a private company, where the appointment of a company secretary is optional); • A statement of the intended registered office address. Doing Business 2016 United Kingdom 21 Time to No. Procedure Cost to complete complete On completing the online form if the company name provided cannot be used the website will alert you to this and may provide you with alternative suggestions. Fees for filing incorporation documents are as follows: online incorporation - GBP 15, software Incorporation is GBP 13, and paper incorporation is GBP 40. Same-day incorporation costs GBP 30 for software incorporation, and GBP 100 for paper incorporation. In case the company chooses to retain incorporation agents to file for registration, in addition to the above documents, the application file must include the agents’ name and address. Note that in case the company wants to amend model articles of association or company memoranda it cannot file for registration online via www.gov.uk/register-a-company-online. Instead, the company must use professionals to compose incorporation documents and submit them via specialized software to Companies House. Registration is typically completed within a few hours. Agency: Companies House Contact HMRC and register for VAT A business will need to register for VAT if its taxable goods and services supplied within the UK for the previous 12 months is more than the current registration threshold of £82,000, or the business expects it to go over that figure in the next 30 days alone, it must register for VAT. However, the business may also voluntarily choose to register for VAT if its VAT taxable goods fall under the £82,000 threshold. Most businesses, including Limited Companies, can register for VAT Less than one day 2 no charge account online at: https://online.hmrc.gov.uk/registration or send paper (online procedure) forms through the post. Most applications for VAT registration can be completed online but there are some circumstances where a business has to apply by post. To register online for VAT or use other VAT online services, a business will first need to sign up for HMRC Online Services or the Government Gateway. Agency: HMRC * Contact HMRC and register for PAYE The company must contact the HMRC to set up a contribution scheme for national insurance and pay-as-you-earn (PAYE) tax, which deducts 3 days, tax from employee wages or salary. The company will be issued with an simultaneous with 3 activation PIN within 5 business days – typically less - and will have to no charge previous activate this PIN within 28 days (or else request a new PIN). The procedure company will use the PIN to register and enroll online. For security reasons, a check is run on the data provided. A small percentage of registrations who fail the security check can take longer. Otherwise, activation is instant. Doing Business 2016 United Kingdom 22 Time to No. Procedure Cost to complete complete Since 6 April 2013, companies will need to report their PAYE in real time. This means that companies must either report online or require their accountants to submit reports every time they pay their employees. Agency: HMRC Sign up for employer’s liability insurance The Employers’ Liability (Compulsory Insurance) Act of 1969 requires all employers in the United Kingdom to maintain employers’ liability insurance from an approved insurance company. The minimum legal requirement for employers’ liability insurance is a limit of indemnity of GBP 5,000,000. The Employers’ Liability (Compulsory Insurance) Act of 1969 requires 1 day no charge 4 that proof of insurance be posted at the workplace. Since October 1, 2008, it is possible to display this information electronically, although a company that wishes to do this will need to ensure that its employees know how and where to find the certificate and have reasonable access to it. Agency: Insurance company * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Doing Business 2016 United Kingdom 23 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid excessive PERMITS INDICATORS MEASURE constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in time and money, Procedures to legally build a warehouse many builders opt out. They may pay bribes to pass (number) inspections or simply build illegally, leading to Submitting all relevant documents and hazardous construction that puts public safety at risk. obtaining all necessary clearances, licenses, Where compliance is simple, straightforward and permits and certificates inexpensive, everyone is better off. Submitting all required notifications and What do the indicators cover? receiving all necessary inspections Doing Business records all procedures required for a Obtaining utility connections for water and business in the construction industry to build a sewerage warehouse along with the time and cost to complete Registering and selling the warehouse after its each procedure. In addition, this year Doing Business completion introduces a new measure, the building quality Time required to complete each procedure control index, evaluating the quality of building (calendar days) regulations, the strength of quality control and safety mechanisms, liability and insurance regimes, and Does not include time spent gathering professional certification requirements. information The ranking of economies on the ease of dealing with Each procedure starts on a separate day. Procedures that can be fully completed online construction permits is determined by sorting their are recorded as ½ day distance to frontier scores for dealing with construction permits. These scores are the simple Procedure considered completed once final average of the distance to frontier scores for each of document is received the component indicators. No prior contact with officials To make the data comparable across economies, Cost required to complete each procedure (% several assumptions about the construction of warehouse value) company, the warehouse project and the utility Official costs only, no bribes connections are used. Building quality control index (0-15) Assumptions about the construction company Sum of the scores of six component indices: The construction company (BuildCo): Quality of building regulations (0-2)  Is a limited liability company (or its legal equivalent). Quality control before construction (0-1)  Operates in the economy’s largest business Quality control during construction (0-3) city. For 11 economies the data are also Quality control after construction (0-3) collected for the second largest business Liability and insurance regimes (0-2) city. Professional certifications (0-4)  Is 100% domestically and privately owned.  Has five owners, none of whom is a legal entity.  Is fully licensed and insured to carry out construction projects, such as building warehouses. Doing Business 2016 United Kingdom 24 The construction company (BuildCo) (continued):  Will be a new construction (there was no previous construction on the land), with no  Has 60 builders and other employees, all of trees, natural water sources, natural reserves them nationals with the technical expertise or historical monuments of any kind on the and professional experience necessary to plot. obtain construction permits and approvals.  Will have complete architectural and  Has at least one employee who is a technical plans prepared by a licensed licensed architect or engineer and architect. If preparation of the plans requires registered with the local association of such steps as obtaining further architects or engineers. BuildCo is not documentation or getting prior approvals assumed to have any other employees who from external agencies, these are counted as are technical or licensed experts, such as procedures. geological or topographical experts.  Will include all technical equipment required  Has paid all taxes and taken out all to be fully operational. necessary insurance applicable to its general business activity (for example,  Will take 30 weeks to construct (excluding all accidental insurance for construction delays due to administrative and regulatory workers and third-person liability). requirements).  Owns the land on which the warehouse will be built and will sell the warehouse upon Assumptions about the utility connections its completion. The water and sewerage connections:  Is valued at 50 times income per capita.  Will be 150 meters (492 feet) from the Assumptions about the warehouse existing water source and sewer tap. If there The warehouse: is no water delivery infrastructure in the economy, a borehole will be dug. If there is  Will be used for general storage activities, no sewerage infrastructure, a septic tank in such as storage of books or stationery. The the smallest size available will be installed or warehouse will not be used for any goods built. requiring special conditions, such as food, chemicals or pharmaceuticals.  Will not require water for fire protection reasons; a fire extinguishing system (dry  Will have two stories, both above ground, system) will be used instead. If a wet fire with a total constructed area of protection system is required by law, it is approximately 1,300.6 square meters assumed that the water demand specified (14,000 square feet). Each floor will be 3 below also covers the water needed for fire meters (9 feet, 10 inches) high. protection.  Will have road access and be located in the  Will have an average water use of 662 liters periurban area of the economy’s largest (175 gallons) a day and an average business city (that is, on the fringes of the wastewater flow of 568 liters (150 gallons) a city but still within its official limits). For 11 day. Will have a peak water use of 1,325 liters economies the data are also collected for (350 gallons) a day and a peak wastewater the second largest business city. flow of 1,136 liters (300 gallons) a day.  Will not be located in a special economic  Will have a constant level of water demand or industrial zone. Will be located on a land and wastewater flow throughout the year. plot of approximately 929 square meters (10,000 square feet) that is 100% owned by  Will be 1 inch in diameter for the water BuildCo and is accurately registered in the connection and 4 inches in diameter for the cadastre and land registry. sewerage connection. Doing Business 2016 United Kingdom 25 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to build business city of an economy, except for 11 economies for a warehouse in United Kingdom? According to data which the data are a population-weighted average of the collected by Doing Business, dealing with construction 2 largest business cities. See the chapter on distance to permits there requires 9.00 procedures, takes 105.00 frontier and ease of doing business ranking at the end of days and costs 1.10% of the warehouse value (figure 3.1). this profile for more details. Most indicator sets refer to a case scenario in the largest Figure 3.1 What it takes to comply with formalities to build a warehouse in United Kingdom Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the dealing with construction permits indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. . Doing Business 2016 United Kingdom 26 DEALING WITH CONSTRUCTION PERMITS Globally, United Kingdom stands at 23 in the ranking of other useful information for assessing how easy it is for 189 economies on the ease of dealing with construction an entrepreneur in United Kingdom to legally build a permits (figure 3.2). The rankings for comparator warehouse. economies and the regional average ranking provide Figure 3.2 How United Kingdom and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2016 United Kingdom 27 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while an effort to ensure building safety while keeping making compliance easy and accessible to all. Coherent compliance costs reasonable, governments around the and transparent rules, efficient processes and adequate world have worked on consolidating permitting allocation of resources are especially important in sectors requirements. What construction permitting reforms has where safety is at stake. Construction is one of them. In Doing Business recorded in United Kingdom (table 3.1)? Table 3.1 How has United Kingdom made dealing with construction permits easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform The United Kingdom made dealing with construction permits DB2012 easier by increasing efficiency in the issuance of planning permits. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2016 United Kingdom 28 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for United Kingdom are BUILDING A WAREHOUSE based on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through Estimated value of information collected from experts in construction GBP 1,358,408 warehouse : licensing, including architects, civil engineers, construction lawyers, construction firms, utility City : London service providers and public officials who deal with building regulations. These procedures are those that apply to a company and structure matching the The procedures, along with the associated time and cost, standard assumptions used by Doing Business in are summarized below. collecting the data (see the section in this chapter on what the indicators cover). Table 3.2 Summary of time, cost and procedures for dealing with construction permits in United Kingdom Time to No. Procedure Cost to complete complete Hire an Approved Inspector BuildCo signs a contract with an Approved Inspector. Approved Inspectors (AI) are companies or individuals authorized under the Building Act 1984 to carry out building control work in England and Wales. An Approved Inspector will: • Advise BuildCo on how the building regulations apply to its work (to a degree) • Check plans for compliance with building regulations • Issue a planning certificate (if requested) • Inspect the work as it progresses • Issue a final completion certificate (if requested) The building control process was extended under the Building Act 1984 to include AIs as well as Local Authorities. Currently, there are 91 AIs on CICAIR Limited's register covering England 1 day GBP 2,964 1 and Wales, accounting for about 60% of all building control work. AIs are licensed by CICAIR Limited for every 5 years. A list of AIs is available from the Construction Industry Council website. Local Authorities have statutory time limits of 6 to 8 weeks for approving plans while AIs do not have any time limits so may provide a faster turnaround. By hiring AIs it eliminates need for companies to deal with the Building Control Department at the Local Authority. However, the Local Authority is still responsible for the enforcement of the regulations. AIs usually operate nationally and bring consistency of interpretation of the Building Regulations. While the planning permission (consent) is being obtained from Planning Department in Local Authority, the AI sends an Initial Notice to the Building Control Departement of Local Authority to inform them that it will take responsbilty over the building control process. The Local Authority Building Control Doing Business 2016 United Kingdom 29 Time to No. Procedure Cost to complete complete Departement has 5 days in which to reject the notice. If the Initial Notice is not rejected within 5 days construction work may begin. AI, for BuildCo's case, would conduct approximately 8-9 inspections at various stages of construction on a risk assessment basis. AIs are in competition with local authority building control and have no restrictions on how much they can charge. AI fees are usually lower than local authority building control who are covered by the Building (Local Authority Charges) Regulations 2010 which requires local authorities to fix their charges by means of a scheme, full cost recovery and the fact that the user should pay for the actual service they receive. The cost for the services of AI is comprised of several elements and is mostly charged on a hourly rate. The below estimate is a sample of what an average cost breakdown by an AI looks like: • Plan checking: (16 hours x GDP 60) = GBP 960.00 • Inspections: (9 sessions x 2h x GBP 60.00) = GBP 1,080.00 • Structural checking: (2 hrs x GBP 60.00) = GBP 120.00 • Consultations: (0.5 hrs x GBP 60) = GBP 30.00 • Electronic/Internet drawings GBP 75.00 • Meetings: (3.75 hrs x GBP 60.00) = GBP 225.00 • Administrative: (0.5 hrs x GBP 60.00) = GBP 30.00 • Inspections petrol fee: (40 miles x GBP 3.60) = GBP 144.00 • Contingency: (5 hrs x GBP 60.00) = GBP 300.00 Total: GBP 2,964 Agency: Approved Inspector Obtain planning permission BuildCo must obtain planning permission from the local planning authority. In London, the decision-maker is the relevant London borough where the site is located. There are 33 boroughs in Greater London. The planning application must be accompanied by a plan of the site, drawings showing the proposed development, and any other information the local authority considers necessary. The local authority publishes a list with the information it considers 2 necessary on its website, so that applicants know what is 56 days GBP 6,676 required of them. The relevant legislative framework is the Development Management Procedure Order (2010). If BuildCo is submitting a paper application, it must also provide at least 3 copies of the accompanying documents. Alternatively, BuildCo can apply online via the Planning Portal, which accepts electronic planning applications on behalf of all London boroughs, using a standard application form that was introduced across England in 2008. If it applies electronically, no further copies are required. A fee is charged for the planning application, based on the amount of floor space that would be created by the scheme. Doing Business 2016 United Kingdom 30 Time to No. Procedure Cost to complete complete The size of BuildCo's proposed development falls below the threshold for a “major application”, which means that the time frame for a decision is 8 weeks rather than 13. During this period, the local planning authority will publicize the application in the surrounding area and consult a number of statutory consultees - - bodies with a specialist responsibility such as nature conservation, heritage protection, highways -- who may wish to comment on the acceptability of the proposal from their perspective. The local authority accepts these comments and the comments of any local people who wish to comment on the application. They will be taken into account in the decision to grant or refuse permission. If no decision is made within 8 weeks, or if the authority decides to refuse permission, the applicant is entitled to appeal to the Secretary of State. Additionally, in April 2010, the Government introduced new 'permitted development' rights for businesses who seek to extend their existing premises. This means that minor extensions, which would previously have required planning permission, may proceed without it, thereby saving time for the business owners and enabling the local planning authority staff to concentrate on larger and more important projects. In May 2013, the Government further extended these rights to allow for larger extensions of pre-existing agricultural buildings and warehouses. Agency: Planning Department of Local Authority Approved Inspector files the initial notice to the Local Authority Once the contract is signed and the terms of reference are outlined, the builder and the AI jointly notify the local authority of their intention to build -- also called an initial notice. This initial notice will inform the Local Council that the AI has been retained. Once this notice has been accepted by the local authority, the responsibility for plan checking and site inspection will be formally placed on the AI. 3 The local council has 5 days to accept or reject the initial notice 5 days no charge in writing (via email, fax or post). Acceptance is given by default if the local authority does not respond within the 5-day period. During that period of time, no work can be done. Once construction work commences, the AI would conduct at least 8 -- 9 inspections at various stages of construction and risk- based factors (for BuildCo’s case). Agency: Local Authority Submit application to local Fire and Rescue Authority and obtain approval 4 21 days no charge Approved Inspector submits (via mail) the respective elements of the drawing and plans pertinent to fire safety to a local Fire Doing Business 2016 United Kingdom 31 Time to No. Procedure Cost to complete complete Safety Office to ensure that the building is compliant with the latest fire safety legislation and that the appropriate fire and life safety systems are in place. By law, the Fire Safety Office must respond within 15 business days (21 calendar days) and send its comments and approval. This is done as part of plan approval process and is recorded as an independent procedure since AI interacts with a Fire Officer. Upon the completion of the building, BuildCo used to obtain a Fire Certificate from Fire Safety Office. However, the Fire Certificate is no longer required following the reforms in the Regulatory Reform (Fire Safety) Order 2005 (FSO 2005) which came into effect in October 2006, and replaced over 70 pieces of fire safety laws. The FSO applies to all non-domestic premises in England and Wales, including the common parts of blocks of flats and houses in multiple occupations (HMOs). The FSO 2005 is a tool for self- regulation of businesses for the fire risk of the premises. Under the FSO, the responsible person must carry out a fire safety risk assessment and implement and maintain a fire management plan. The companies have to carry out a risk assessment by completing a 5-step fire risk assessment survey online: (http://www.fire.gov.uk/Workplace+safety/WhatTheLawRequires/ ) According to this survey -- FSO 2005 the warehouse of BuildCo would be classified as medium risk object. Since there will be more than 5 people occupying/working in the building, BuildCo would need to file the copy of completed FSO 2005 to the local Fire Safety Office. BuildCo does not need to wait for the approval or any other consent before using the premises. This risk is with the building operators, as they are deemed liable for any problems. The Fire Safety Office may conduct an inspection under a risk- based scheme: whether there was a similar track record of companies with fire, or neighbors complain, etc. Small scale and standard objects would be seldom inspected. Also, given that this would be a new building it would be assumed by the Fire Safety Office that the latest techniques of fire safety prevention would have been considered during the planning process. Agency: Fire and Rescue Authority * Apply for water and sewage connection 5 1 day no charge Agency: Thames Water Utilities Ltd. Doing Business 2016 United Kingdom 32 Time to No. Procedure Cost to complete complete Receive inspection from the water and sewage provider Upon approval the engineer instructs Thames Water’s contractor to assess the physical work involved to make the connection. This includes a site survey, size of site gang/workforce, equipment and materials needed, plus any involvement with the local highway department as to whether there is any significant impact on the public road network. This element takes approximately 2-3 weeks. 6 1 day no charge The contractor will then send their report to the engineer with the scope of work, survey and technical proposal. The engineer will prepare and authorize the quote and send it out to BuildCo within 5 days of receipt of the contractor’s report. Agency: Thames Water Utilities Ltd. Obtain water and sewerage connection 7 20 days GBP 5,321 Agency: Thames Water Utilities Ltd. * Request and receive energy performance certificate from Accredited Energy Assessor Following the nationwide implementation of the "Energy Performance of Buildings Directive" adopted, on December 16, 2002, as of October 1, 2008 all commercial buildings whenever built, rented or sold require an Energy Performance Certificate. The certificate records how energy effcient a property is as a building and provides A+ to G ratings. It is the responsibilty of the builder/constructor to give the Energy Performance Certificate to the Purchaser on physical completion of the building and notify the local authority Building Control officers or approved inspectors, who will not issue a Certificate of Completion until the issue of an EPC has occurred. 8 1 day GBP 78 They are produced using standard methods and assumptions about energy usage so that the energy effciency of one building can easily be compared with another building of the same type. This allows prospective buyers, tenants, owners, occupiers and purchases to see information on the energy effciency and carbon emissions from their building so they can consider energy effciency and fuel costs as part of their investment. An EPC always includes a recommendation report that lists cost effective and other measures (such as low and zero carbon generating systems) to improve the energy rating. A rating is also given showing what could be achieved if all the recommendations were implemented. The fee for producing an EPC is determined by the market and Doing Business 2016 United Kingdom 33 Time to No. Procedure Cost to complete complete may vary between GBP 55.00 to GBP 100.00. Agency: Accredited Energy Assessor File completion certificate with the Local Building Control Department Once the building is completed, BuildCo would notify AI about the completion. AI completes the final inspection within 24 hours and prepares the final certificate of completion. AI will send a copy of the final completion certificate to the Building Control 9 Department of Local Authority and BuildCo within 5 days after 1 day no charge completion of the final inspection. The Local Authority keeps the final completion certificate in a public register. There would be no local authority inspection. Agency: Local Building Control Department * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Doing Business 2016 United Kingdom 34 DEALING WITH CONSTRUCTION PERMITS Building Quality Control Index The building quality control index is the sum of the The index ranges from 0 to 15, with higher values scores on the quality of building regulations, quality indicating better quality control and safety mechanisms in control before construction, quality control during the construction permitting system. construction, quality control after construction, The indicator is based on the same case study liability and insurance regimes, and professional assumptions as the measures of efficiency. certifications indices. Table 3.3 Summary of quality control and safety mechanisms in United Kingdom Answer Score Building quality control index (0-15) 9.00 Quality of building regulations index (0-2) 2.00 In what way are the building regulations (including the building code) or any regulations dealing with construction permits made Available online. 1.0 available? (0-1) List of required Which requirements for obtaining a building permit are clearly documents; Fees to be specified by the building regulations or by any accessible website, 1.0 paid; Required brochure or pamphlet? (0-1) preapprovals. Quality control before construction index (0-1) 1.00 Who is part of the committee or team that reviews and approves building permit applications in the relevant permit-issuing Licensed engineer. 1.0 agency? (0-1) Quality control during construction index (0-3) 3.00 Inspections by external What types of inspections (if any) are required by law to be engineer or firm; Risk- 2.0 carried out during construction? (0-2) based inspections. Mandatory inspections Do legally mandated inspections occur in practice during are always done in 1.0 construction? (0-1) practice. Quality control after construction index (0-3) 3.00 Is there a final inspection required by law to verify that the Yes, external engineer building was built in accordance with the approved plans and submits report for final 2.0 regulations? (0-2) inspection. Final inspection always Do legally mandated final inspections occur in practice? (0-1) 1.0 occurs in practice. Liability and insurance regimes index (0-2) 0.00 Which parties (if any) are held liable by law for structural flaws or No party is held liable 0.0 problems in the building once it is in use? (0-1) under the law. Which parties (if any) are required by law to obtain an insurance No party is required by 0.0 policy to cover possible structural flaws or problems in the law to obtain insurance Doing Business 2016 United Kingdom 35 Answer Score building once it is in use? (0-1) . Professional certifications index (0-4) 0.00 What are the qualification requirements for the professional Being a registered responsible for verifying that the architectural plans or drawings 0.0 architect or engineer. are in compliance with existing building regulations? (0-2) What are the qualification requirements for the professional who Being a registered 0.0 supervises the construction on the ground? (0-2) architect or engineer. Source: Doing Business database. Doing Business 2016 United Kingdom 36 GETTING ELECTRICITY Access to reliable and affordable electricity is vital for WHAT THE GETTING ELECTRICITY businesses. To counter weak electricity supply, many firms in developing economies have to rely on self- INDICATORS MEASURE supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the first step for Procedures to obtain an electricity connection a customer is always to gain access by obtaining a (number) connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for a Completing all required notifications and local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to complete them. These Obtaining external installation works and procedures include applications and contracts with possibly purchasing material for these works electricity utilities, clearances from other agencies Concluding any necessary supply contract and and the external and final connection works. In obtaining final supply addition, this year Doing Business adds two new measures: the reliability of supply and transparency Time required to complete each procedure of tariffs index (included in the aggregate distance to (calendar days) frontier score and ranking on the ease of doing Is at least 1 calendar day business) and the price of electricity (omitted from these aggregate measures). The ranking of Each procedure starts on a separate day economies on the ease of getting electricity is Does not include time spent gathering determined by sorting their distance to frontier information scores for getting electricity. These scores are the Reflects the time spent in practice, with little simple average of the distance to frontier scores for follow-up and no prior contact with officials each of the component indicators. To make the data comparable across economies, several assumptions Cost required to complete each procedure (% are used. of income per capita) Assumptions about the warehouse Official costs only, no bribes The warehouse: Excludes value added tax  Is owned by a local entrepreneur. The reliability of supply and transparency of tariffs index  Is located in the economy’s largest business city. For 11 economies the data Sum of the scores of six component indices: are also collected for the second largest Duration and frequency of outages business city. Tools to monitor power outages  Is located in an area where similar warehouses are typically located. In this Tools to restore power supply area a new electricity connection is not Regulatory monitoring of utilities’ performance eligible for a special investment promotion Financial deterrents aimed at limiting outages regime (offering special subsidization or faster service, for example). Transparency and accessibility of tariffs  Is located in an area with no physical Price of electricity (cents per kilowatt-hour)* constraints. For example, the property is Price based on monthly bill for commercial not near a railway. warehouse in case study  Is a new construction and is being *Price of electricity is not included in the calculation of connected to electricity for the first time. distance to frontier nor ease of doing business ranking Doing Business 2016 United Kingdom 37 Assumptions about the monthly consumption The warehouse (continued):  It is assumed that the warehouse operates 8 hours a day for 30 days a month, with  Has two stories, both above ground, with a equipment utilized at 80% of capacity on total surface area of approximately 1,300.6 average, and that there are no electricity cuts square meters (14,000 square feet). The (assumed for simplicity). The subscribed plot of land on which it is built is 929 capacity of the warehouse is 140 kVA, with a square meters (10,000 square feet). power factor of 1 (1 kVA = 1 kW). The  Is used for storage of goods. monthly energy consumption is therefore 26,880 kWh, and the hourly consumption 112 kWh (26,880 kWh/30 days/8 hours). Assumptions about the electricity connection  If multiple electricity suppliers exist, the The electricity connection: warehouse is served by the cheapest supplier.  Is a permanent one.  Tariffs effective in March of the current year  Is a three-phase, four-wire Y, 140-kilovolt- are used for calculation of the price of ampere (kVA) (subscribed capacity) electricity for the warehouse. connection (where the voltage is 120/208 V, the current would be 400 amperes; where it is 230/400 B, the current would be nearly 200 amperes).  Is 150 meters long. The connection is to either the low-voltage or the medium- voltage distribution network and either overhead or underground, whichever is more common in the area where the warehouse is located.  Requires works that involve the crossing of a 10-meter road (such as by excavation or overhead lines) but are all carried out on public land. There is no crossing of other owners’ private property because the warehouse has access to a road.  Includes only a negligible length in the customer’s private domain.  Will supply monthly electricity consumption of 26,880 kilowatt-hours (kWh).  Does not involve work to install the internal electrical wiring. This has already been completed, up to and including the customer’s service panel or switchboard and installation of the meter base. Doing Business 2016 United Kingdom 38 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity connection Most indicator sets refer to a case scenario in the largest in United Kingdom? According to data collected by business city of an economy, except for 11 economies for Doing Business, getting electricity there requires 4.00 which the data are a population-weighted average of the procedures, takes 79.00 days and costs 26.70% of 2 largest business cities. See the chapter on distance to income per capita (figure 4.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 4.1 What it takes to obtain an electricity connection in United Kingdom Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Doing Business 2016 United Kingdom 39 GETTING ELECTRICITY Globally, United Kingdom stands at 15 in the ranking of regional average ranking provide another perspective in 189 economies on the ease of getting electricity (figure assessing how easy it is for an entrepreneur in United 4.2). The rankings for comparator economies and the Kingdom to connect a warehouse to electricity. Figure 4.2 How United Kingdom and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2016 United Kingdom 40 GETTING ELECTRICITY What are the details? The indicators reported here for United Kingdom are OBTAINING AN ELECTRICITY CONNECTION* based on a set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution utility— Name of utility: UK Power Networks identified by Doing Business. Data are collected from the distribution utility, then completed and verified by Price of electricity electricity regulatory agencies and independent (US cents per kWh): 16 professionals such as electrical engineers, electrical contractors and construction companies. The electricity City: London distribution utility surveyed is the one serving the area (or areas) in which warehouses are located. If there is a *Price is calculated as a monthly consumption of 26,880 kWh choice of distribution utilities, the one serving the largest for business customers, based on a standardized case study number of customers is selected. adopted by the getting electricity methodology. Doing Business measures the price of electricity but does not include these The procedures are those that apply to a warehouse and data when calculating the distance to frontier score for getting electricity connection matching the standard electricity or the ranking on the ease of getting electricity. assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). The procedures, along with the associated time and cost, are summarized below. Table 4.2 Summary of time, cost and procedures for getting electricity in United Kingdom Time to No. Procedure Cost to complete complete Submit application to UK Power Networks and await quotation and connection offer The application can be submitted online, in person or by mail. The connection requestor has to attach with the application: completed application form and site drawings. At this stage the applicant can choose either UK Power Networks or an Independent Connection Provider to design the network extension while only UK Power Networks can design the point of connection and any upstream reinforcement works. 1 20 calendar days GBP 0 The connection may also be provided by an Independent Distribution Network Operator (IDNO). With this option the IDNO would continue to own and operate the distribution system assets installed. The majority of the clients customers choose UK Power Networks to complete all parts of the connection for this type of project. Since September 2008 UK Power Networks has not required assessment and design charges to be paid in advance of quotation and these costs are now included in the quotation such that the customer will pay only if the quotation is accepted. This follows a consultation by the GB energy regulator. Doing Business 2016 United Kingdom 41 Time to No. Procedure Cost to complete complete A budget estimate and connection offer is issued free of charge. By law all of the quotations should be provided as soon as reasonably practicable with an absolute backstop of three months – this is a requirement of Standard License Condition 12 of the Electricity Distribution License. In addition since 2010 all connection works carried out by an electricity distributor must be carried out in the manner described, and to the time scales as set out in the Electricity (Connection Standards of Performance) Regulations 2010. Agency: UK Power Networks Await completion of external works by UK Power Networks Some of the external connection works which are contestable (not all works are contestable) can be performed by an approved contractor or by UK Power Networks. In the majority of cases for this type of connection customers choose UK Power Networks to carry out all the external connection works. Given the case assumptions the most common arrangement would be the installation of a 200 amp TP & N (three phases and neutral) service off a passing LV main. 59 calendar days GBP 7,256.9 2 The utility obtains the excavation permit at the local authority or Highways Agency or specific body such as TFL in London. Agency: UK Power Networks * Obtain supply number to provide to electricity supplier and await meter installation UK Power Networks issues a supply number (Metering Point Administration Number or MPAN) after the connection offer has been accepted by the customer (normally within 1 calendar day). UK Power Networks will issue a MPAN to the customer before the connection works are completed. The customer will pass the MPAN to its chosen 7 calendar days GBP 0 3 electricity supplier. The supplier must register the MPAN with UK Power Networks. The supplier will co-ordinate metering, energisation and application of energy rates. The supply contract start date is aligned with connection energized date. The supplier will need to receive an estimate, or could work with the applicant to develop a load profile to be able to provide a supply contract. Doing Business 2016 United Kingdom 42 Time to No. Procedure Cost to complete complete UK Power Networks is required to install the connection in the time scale it has agreed with the customer (mandatory requirement: the Electricity (Connection Standards of Performance) Regulations 2010). This means that the customer may arrange with the supplier for the meter to be installed and supply to commence immediately following the installation of the connection. Agency: UK Power Networks/Supplier * Receive meter installation and internal wiring inspection by meter operator, then electricity flow The metering industry in the UK is an open competitive market, and the applicant can choose their own Meter Operator or can choose to use the Meter Operator services provided by the electricity supplier. The electricity supplier normally appoints the meter operator. Requirements regarding the conclusion of the meter operation contract vary. The applicant can sign a separate contract with the chosen meter operator or cost can be passed on through the supply contract . The internal wiring must be completed by the electrician to BS7671 standards. The electrician must carry out a full inspection and testing of the internal wiring and then provide a BS7671 certificate to both the meter operator and to the electricity distributor before the connection 14 calendar days GBP 0 4 can be energized. The inspection of the internal wiring is done when a meter is installed. Inspection of internal wiring is done through a visual inspection by a meter operator. It is a good practice that somebody is present during the installation of the meter/internal wiring inspection. The metering must be installed before a supply of electricity can be provided. The electricity can start flowing on the same day the external connection works are finished providing the supplier and the metering operator have sufficient notice. Agency: Meter Operator/Supplier * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2016 United Kingdom 43 GETTING ELECTRICITY Reliability of supply and transparency of tariffs index The reliability of supply and transparency of tariffs Doing Business uses the system average interruption index encompasses quantitative data on the duration duration index (SAIDI) and the system average and frequency of power outages as well as interruption frequency index (SAIFI) to measure the qualitative information on the mechanisms put in duration and frequency of power outages in the largest place by the utility for monitoring power outages business city of each economy (for 11 economies the data and restoring power supply, the reporting are also collected for the second largest business city). relationship between the utility and the regulator for SAIDI is the average total duration of outages over the power outages, the transparency and accessibility of course of a year for each customer served, while SAIFI is tariffs and whether the utility faces a financial the average number of service interruptions experienced deterrent aimed at limiting outages (such as a by a customer in a year. Annual data (covering the requirement to compensate customers or pay fines calendar year) are collected from distribution utility when outages exceed a certain cap). companies and national regulators on SAIDI and SAIFI. Both SAIDI and SAIFI estimates include load shedding. The index ranges from 0 to 8, with higher values indicating greater reliability of electricity supply and greater transparency of tariffs. Table 4.3 Reliability of Supply and Transparency of Tariff Index in United Kingdom Answer Score Reliability of supply and transparency of tariff index (0-8) 8.00 Total duration and frequency of outages per customer a year (0-3) 3.00 System average interruption duration index (SAIDI) 0.4 System average interruption frequency index (SAIFI) 0.2 Mechanisms for monitoring outages (0-1) 1.0 Does the distribution utility use automated tools to monitor outages? Yes Mechanisms for restoring service (0-1) 1.0 Does the distribution utility use automated tools to restore service? Yes Regulatory monitoring (0-1) 1.00 Does a regulator—that is, an entity separate from the utility—monitor Yes the utility’s performance on reliability of supply? Financial deterrents aimed at limiting outages (0-1) 1.00 Does the utility either pay compensation to customers or face fines by Yes the regulator (or both) if outages exceed a certain cap? Communication of tariffs and tariff changes (0-1) 1.00 Are effective tariffs available online? Yes Link to the website, if available online www.switchmybu Doing Business 2016 United Kingdom 44 Answer Score siness.com Are customers notified of a change in tariff ahead of the billing cycle? Yes Source: Doing Business database. Note: If data on power outages is not collected or if the SAIFI index or SAIDI index are above the threshold of 100, the economy is not eligible to obtain a score in the Reliability of Supply and Transparency of Tariff Index. If SAIDI and SAIFI are 12 (equivalent to an outage of one hour each month) or below, a score of 1 is assigned. If SAIDI and SAIFI are 4 (equivalent to an outage of one hour each quarter) or below, 1 additional point is assigned. Finally, if SAIDI and SAIFI are 1 (equivalent to an outage of one hour per year) or below, 1 more point is assigned. Doing Business measures the price of electricity but does not include these data when calculating the distance to frontier score for getting electricity or the ranking on the ease of getting electricity. The price of electricity is measured in cents per kilowatt-hour. On the basis of the assumptions about monthly consumption, a monthly bill for a commercial warehouse in the largest business city of the economy is computed for the month of March. As noted, the warehouse uses electricity 30 days a month, from 9:00 a.m. to 5:00 p.m., so different tariff schedules may apply if a time-of-use tariff is available. Doing Business 2016 United Kingdom 45 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being accepted immovable property (number) as collateral for loans—limiting access to finance. Preregistration (for example, checking for liens, notarizing sales agreement, paying property What do the indicators cover? transfer taxes) Doing Business records the full sequence of Registration in the economy’s largest business procedures necessary for a business to purchase city 2 property from another business and transfer the property title to the buyer’s name. The transaction is Postregistration (for example, filing title with the municipality) considered complete when it is opposable to third parties and when the buyer can use the property, Time required to complete each procedure use it as collateral for a bank loan or resell it. In (calendar days) addition, this year Doing Business adds a new Does not include time spent gathering measure to the set of registering property information indicators, an index of the quality of the land administration system in each economy. The Each procedure starts on a separate day. ranking of economies on the ease of registering Procedures that can be fully completed online are recorded as ½ day. property is determined by sorting their distance to frontier scores for registering property. These scores Procedure considered completed once final are the simple average of the distance to frontier document is received scores for each of the component indicators. To No prior contact with officials make the data comparable across economies, several assumptions about the parties to the Cost required to complete each procedure transaction, the property and the procedures are (% of property value) used. Official costs only, no bribes The parties (buyer and seller): No value added or capital gains taxes included  Are limited liability companies, 100% Quality of land administration index (0-30) domestically and privately owned and  Is located in a periurban commercial zone, and perform general commercial activities and no rezoning is required. are located in the economy’s largest business city .  Has no mortgages attached, has been under 2 the same ownership for the past 10 years.  Have 50 employees each, all of whom are nationals.  Consists of 557.4 square meters (6,000 square feet) of land and a 10-year-old, 2-story The property (fully owned by the seller): warehouse of 929 square meters (10,000  Has a value of 50 times income per capita. square feet). The warehouse is in good The sale price equals the value and entire condition and complies with all safety property will be transferred. standards, building codes and legal  Is registered in the land registry or cada- requirements. There is no heating system. stre, or both, and is free of title disputes. 2 For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2016 United Kingdom 46 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in Most indicator sets refer to a case scenario in the largest United Kingdom? According to data collected by Doing business city of an economy, except for 11 economies for Business, registering property there requires 6.00 which the data are a population-weighted average of the procedures, takes 21.50 days and costs 4.60% of the 2 largest business cities. See the chapter on distance to property value (figure 5.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 5.1 What it takes to register property in United Kingdom Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the registering property indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Doing Business 2016 United Kingdom 47 REGISTERING PROPERTY Globally, United Kingdom stands at 45 in the ranking of the regional average ranking provide other useful 189 economies on the ease of registering property information for assessing how easy it is for an (figure 5.2). The rankings for comparator economies and entrepreneur in United Kingdom to transfer property. Figure 5.2 How United Kingdom and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2016 United Kingdom 48 REGISTERING PROPERTY Economies worldwide have been making it easier for the time required substantially—enabling buyers to use entrepreneurs to register and transfer property—such as or mortgage their property earlier. What property by computerizing land registries, introducing time limits registration reforms has Doing Business recorded in for procedures and setting low fixed fees. Many have cut United Kingdom (table 5.1)? Table 5.1 How has United Kingdom made registering property easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform The United Kingdom made transferring property easier by DB2014 introducing electronic lodgment for property transfer applications. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2016 United Kingdom 49 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business through information collected from local property lawyers, Property value: GBP 1,358,408 notaries and property registries. These procedures are those that apply to a transaction matching the City: London standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). The procedures, along with the associated time and cost, are summarized below. Table 5.2 Summary of time, cost and procedures for registering property in United Kingdom Time to No. Procedure Cost to complete complete Standard enquiries of the seller delivered to the buyer's solicitor with a title pack Commercial Property Standard Enquiries (CPSE) are used by solicitors to find out details that cannot be inferred from the searches, eg. who is in actual occupation, how long the property has been used for its present use. Most solicitors use the commercial property standard enquiries prepared by members of the London Property Support Lawyers Group and endorsed by the British Property Federation. Depending on the 1-4 weeks enquiries raised, the seller's solicitor would typically spend 1-3 billable GBP 3,500 - GBP 1 (simultaneous hours to prepare the enquiries taking his client's instructions. It would 10,000 with Procedure 2) probably take the buyer's solicitor 30 minutes to 1 hour to review the replies. If there was no particular urgency, this part of the process would typically be started at the same time as the searches are requested, and would be completed in around 1 week after the results of all the searches are received. Agency: Solicitors of the parties * Conduct searches on the property The buyer's solicitor will review the registered title to the property. It is the responsibility of the buyer's conveyancer to confirm to the buyer that it will be acquiring good and marketable title to the property. 1-3 weeks GBP 300 to GBP 2 (simultaneous As part of the due diligence to determine whether the title is good and 1000 with Procedure 1) marketable, the purchaser's solicitor will conduct the following searches: 1. Investigation of the title: to know whether the land is registered at the Land Registry and know what interests affect this land and if there are any limitations. If the land is unregistered, the solicitor would have to look at the deeds and correspondence between the persons that appear Doing Business 2016 United Kingdom 50 Time to No. Procedure Cost to complete complete on those deeds. This will be decreasingly the case as registration is now compulsory. 2. Conveyancing searches, which would include: • Local Authority Search • Planning history (eg. permissions) • Desktop environmental search (to determine any environmental issues, such as flooding or contamination) • Public highway search • Chancel repair liability search (in this case the solicitor does not search the property itself, but the area in which the property is. If the area turns out to be affected by the liability to contribute to chancel repairs, then the property has to be insured against any future chancel repair claims. The amount of the insurance depends on the value of the property) • Other searches depending on the area, eg. coal mine shaft search or underground search (these issues affect the value of the property) 3. Seller company search: to see the articles of association and what powers the representatives have For a property in London, solicitors usually request most of these searches through a search portal. These search portals are the one stop shop for most searches, and solicitors need a user name to access them. The search portals will pass on to the solicitor the information that they acquire from the relevant authorities. In total, these searches are usually 300 to 1000 pounds, depending on the number of searches requested, the amount that each local authority charges, and whether the solicitor requests the standard searches or is adding additional questions, which increase the cost. The results of the searches take from one day to 2/3 weeks to come back, depending on the search. The local authority search is the lengthiest one. Once satisfied with the results of the searches, the information provided in the standard enquiries and the title pack, the buyer's solicitor will prepare a report for the buyer on the title and other matters affecting the property. Agency: Search portal Drafting of contracts and exchange of contracts once agreed Property transactions are conducted by licensed conveyancers or solicitors. However, in the case of commercial properties, these transactions are usually conducted by solicitors. The seller's solicitor will 1 day prepare a draft of the contract and submit it to the purchaser's solicitor included in 3 (simultaneous once approved by his/her client. The purchaser's solicitor will review the Procedure 1 with Procedure 4) draft and suggest any suitable amendments. Once the two parties agree on the contract, contracts are exchanged. The solicitors acting for the buyer and seller can meet to exchange contracts, but that is rare. The exchange is usually done over the telephone in accordance with a specific formula for exchanging contracts over the phone. The most Doing Business 2016 United Kingdom 51 Time to No. Procedure Cost to complete complete common is formula B where each solicitor holds a 'part' contract signed by his client. The solicitors agree over the phone specific terms of the contract (e.g., the amount of the deposit, completion date, etc.) and record the time of exchange and other details. Each solicitor sends their client's part contract to the other solicitor in the post that day. The buyer's solicitor will also send a check for the deposit (usually 10% of the purchase price). It is usual for there to be a gap in time between exchange of contracts and completion of the transfer of the property. Agency: Lawyer's office * Pre-completion search with priority requested at the Land Registry The buyer's solicitor raises pre-completion enquiries of the seller's Less than a day solicitor known as 'requisitions on title' and a 'pre-completion search GBP 3 if lodged (online with priority' in order to block any movements on the property until electronically; GBP 4 procedure), completion of the property tansfer. 7 if lodged in simultaneous paper with Procedure 3 Agency: Land Registry Complete and lodge a Land Transaction Return and pay the Stamp Duty Land Tax (SDLT) (available on-line) The buyer's solicitor would usually prepare the Land Transaction Return for the approval of the buyer (as SDLT is a self-assessment tax) prior to completion. For every land transaction the purchaser must complete, sign and send the land transaction return to be received by HM Revenue & Customs before the end of 30 days following the effective date of the transaction. The return includes a self-assessment of the stamp duty land tax chargeable on the transaction returned. The completed Land Transaction Return must be sent by post to the Revenue's Rapid Data Capture center in Netherton (near Liverpool) or submitted electronically (functionality available since 2006). When the Return is submitted, the correct amount of SDLT must also be paid either by cheque, through the Less than a day 5 CHAPS automated payment system or via direct bank transfer. Once the (online GBP 13 + 4% SDLT Return has been processed by the Revenue the Revenue will issue a Land procedure) Transaction Return Certificate. If the Return has been submitted electronically, the Certificate is typically received within two hours (since 2009). If the Return has been submitted in the post, the Certificate is typically received within one month. The issue of a Land Transaction Return Certificate merely evidences that a Return has been filed at the Revenue; issuance of a Certificate does not necessarily mean that the information contained within the Return and/or amount of SDLT paid is correct. The Certificate must be sent to the Land Registry when an application for registration of the transfer is made. If the buyer acquires the property with financing, any legal charge created by it (if it is a company) must be registered at Companies House within 21 days of its creation, failing which the charge is void against a liquidator or another creditor of the company. Doing Business 2016 United Kingdom 52 Time to No. Procedure Cost to complete complete SDLT is calculated according to the following schedule: For property value under GBP 150,000, the rate is 0%. Between GBP 150,000 and GBP 250,000, the rate is 1%. Between GBP 250,000 and GBP 500,000, the rate is 3% Above GBP 500,000, the rate is 4%. Agency: HM Revenue & Customs The transfer and any legal charges are registered at the Land Registry The buyer's solicitor drafts a Transfer Deed and sends it to the seller's solicitor for approval. Once approved, it is signed by the parties. The Transfer deed makes the transfer of the property to the buyer effective on completion. Parties register the transfer deed (and any legal charges) at the Land Registry by submitting the appropriate documents and paying the Land Registry's fees. A cheque made payable to "Land Registry" must accompany the application for registration to the correct office of the Land Registry (unless there was a prior authorized agreement with the Registry to pay by direct debit) On completion of the registration the Land Registry will send to the buyer's solicitor a title information document. The documentation shall include: - Completed Land Registry form AP1 - Original and certified copy of transfer deed Less than a day 6 - Land transaction certificate (online), 7 days GBP 455 - Original and certified copy mortgage if the buyer acquires the property (paper-based) with financing The law requires conveyancers, from 10 November 2008, when they submit an application to register the interest of their client in a property, to provide details of the conveyancers who acted for all other parties involved in the transaction. If any involved person (including a company) is not represented by a conveyancer, the person lodging the application must either confirm that they are satisfied that sufficient steps have been taken to verify the identity of the unrepresented person or otherwise lodge evidence of the unrepresented person's identity. If confirmation of identity is required for an application, but is not provided, the Land Registry will reject the application. Identification requirements extend to buyers, sellers, landlords, tenants, borrowers and lenders. Land registry information available at www.landregistry.gov.uk. Agency: Land Registry * Takes place simultaneously with another procedure. Doing Business 2016 United Kingdom 53 Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Doing Business 2016 United Kingdom 54 REGISTERING PROPERTY Quality of land administration The quality of land administration index is the sum of If private sector entities were unable to register property the scores on the reliability of infrastructure, transfers in an economy between June 2014 and June transparency of information, geographic coverage 2015, the economy receives a “no practice” mark on the and land dispute resolution indices. procedures, time and cost indicators. A “no practice” economy receives a score of 0 on the quality of land The index ranges from 0 to 30, with higher values administration index even if its legal framework includes indicating better quality of the land administration provisions related to land administration. system. Table 5.3 Summary of quality of land administration in United Kingdom Answer Score Quality of the land administration index (0-30) 24.00 Reliability of infrastructure index (0-8) 8.00 Her Majesty's What is the institution in charge of immovable property registration? Land Registry In what format are the majority of title or deed records kept in the Computer/Fully largest business city—in a paper format or in a computerized format 2.0 digital (scanned or fully digital)? Is there an electronic database for checking for encumbrances (liens, Yes 1.0 mortgages, restrictions and the like)? Institution in charge of the plans showing legal boundaries in the Her Majesty's largest business city: Land Registry In what format are the majority of maps of land plots kept in the Computer/Fully largest business city—in a paper format or in a computerized format 2.0 digital (scanned or fully digital)? Is there an electronic database for recording boundaries, checking plans and providing cadastral information (geographic information Yes 1.0 system)? Is the information recorded by the immovable property registration Different agency and the cadastral or mapping agency kept in a single database, databases but 1.0 in different but linked databases or in separate databases? linked Do the immovable property registration agency and cadastral or Yes 1.0 mapping agency use the same identification number for properties? Transparency of information index (0–6) 5.00 Who is able to obtain information on land ownership at the agency in Anyone who pays 1.0 charge of immovable property registration in the largest business city? the official fee Is the list of documents that are required to complete any type of Yes, online 0.5 Doing Business 2016 United Kingdom 55 Answer Score property transaction made publicly available–and if so, how? https://www.gov. uk/government/o Link for online access: rganisations/land -registry Is the applicable fee schedule for any property transaction at the agency in charge of immovable property registration in the largest Yes, online 0.5 business city made publicly available–and if so, how? https://www.gov. uk/government/c Link for online access: ollections/fees- land-registry- guides Does the agency in charge of immovable property registration commit to delivering a legally binding document that proves property No 0.0 ownership within a specific time frame–and if so, how does it communicate the service standard? Link for online access: Is there a specific and separate mechanism for filing complaints about a problem that occurred at the agency in charge of immovable property Yes 1.0 registration? https://www.gov. uk/government/o rganisations/land Contact information: - registry/about/co mplaints- procedure Are there publicly available official statistics tracking the number of Yes 0.5 transactions at the immovable property registration agency? Number of property transfers in the largest business city in 2014: 1,320,813 Anyone who pays Who is able to consult maps of land plots in the largest business city? 0.5 the official fee Is the applicable fee schedule for accessing maps of land plots made Yes, online 0.5 publicly available—and if so, how? https://www.gov. uk/government/c Link for online access: ollections/fees- land-registry- guides Doing Business 2016 United Kingdom 56 Answer Score Does the cadastral or mapping agency commit to delivering an updated map within a specific time frame—and if so, how does it No 0.0 communicate the service standard? Link for online access: Is there a specific and separate mechanism for filing complaints about Yes 0.5 a problem that occurred at the cadastral or mapping agency? https://www.gov. uk/government/o rganisations/land Contact information: - registry/about/co mplaints- procedure Geographic coverage index (0–8) 4.00 Are all privately held land plots in the economy formally registered at No 0.0 the immovable property registry? Are all privately held land plots in the largest business city formally No 0.0 registered at the immovable property registry? Are all privately held land plots in the economy mapped? Yes 2.0 Are all privately held land plots in the largest business city mapped? Yes 2.0 Land dispute resolution index (0–8) 7.00 Does the law require that all property sale transactions be registered at the immovable property registry to make them opposable to third Yes 1.5 parties? Is the system of immovable property registration subject to a state or Yes 0.5 private guarantee? Is there a specific compensation mechanism to cover for losses incurred by parties who engaged in good faith in a property transaction Yes 0.5 based on erroneous information certified by the immovable property registry? Does the legal system require a control of legality of the documents necessary for a property transaction (e.g., checking the compliance of Yes 0.5 contracts with requirements of the law)? If yes, who is responsible for checking the legality of the documents? Registrar; Lawyer. Does the legal system require verification of the identity of the parties Yes 0.5 to a property transaction? If yes, who is responsible for verifying the identity of the parties? Registrar; Lawyer. Doing Business 2016 United Kingdom 57 Answer Score Is there a national database to verify the accuracy of identity No 0.0 documents? Land Registration For a standard land dispute between two local businesses over tenure division of the rights of a property worth 50 times gross national income (GNI) per Property capita and located in the largest business city, what court would be in Chamber, First- charge of the case in the first instance? tier Tribunal How long does it take on average to obtain a decision from the first- Less than a year 3.0 instance court for such a case (without appeal)? Are there any statistics on the number of land disputes in the first Yes 0.5 instance? The total number of disputed applications referred to the Land Registration division of the Number of land disputes in the largest business city in 2014: Property Chamber, First- tier Tribunal between 1 January 2014 and 31 December 2014 was 863. Source: Doing Business database. Doing Business 2016 United Kingdom 58 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders’ rights to view a potential borrower’s financial Strength of legal rights index (0–12) history (positive or negative)—valuable information to Rights of borrowers and lenders through consider when assessing risk. And they permit collateral laws borrowers to establish a good credit history that will Protection of secured creditors’ rights through allow easier access to credit. Sound collateral laws bankruptcy laws enable businesses to use their assets, especially movable property, as security to generate capital— Depth of credit information index (0–8) while strong creditors’ rights have been associated Scope and accessibility of credit information with higher ratios of private sector credit to GDP. distributed by credit bureaus and credit registries What do the indicators cover? Credit bureau coverage (% of adults) Doing Business assesses the sharing of credit information and the legal rights of borrowers and Number of individuals and firms listed in lenders with respect to secured transactions through largest credit bureau as percentage of adult 2 sets of indicators. The depth of credit information population index measures rules and practices affecting the Credit registry coverage (% of adults) coverage, scope and accessibility of credit Number of individuals and firms listed in information available through a credit registry or a credit registry as percentage of adult credit bureau. The strength of legal rights index population measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses two case scenarios, Case A and Case B, to determine the scope of the secured transactions system, involving a  Has up to 50 employees. secured borrower and a secured lender and  Is 100% domestically owned, as is the lender. examining legal restrictions on the use of movable collateral (for more details on each case, see the Data The ranking of economies on the ease of getting Notes section of the Doing Business 2016 report). credit is determined by sorting their distance to These scenarios assume that the borrower: frontier scores for getting credit. These scores are the distance to frontier score for the strength of legal  Is a private limited liability company. rights index and the depth of credit information  Has its headquarters and only base of index. operations in the largest business city. For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2016 United Kingdom 59 GETTING CREDIT Where does the economy stand today? How well do the credit information system and collateral Globally, United Kingdom stands at 19 in the ranking of and bankruptcy laws in United Kingdom facilitate access 189 economies on the ease of getting credit (figure 6.1). to credit? The economy has a score of 8.00 on the depth The rankings for comparator economies provide other of credit information index and a score of 7.00 on the useful information for assessing how well regulations strength of legal rights index (see the summary of and institutions in United Kingdom support lending and scoring at the end of this chapter for details). Higher borrowing. scores indicate more credit information and stronger legal rights for borrowers and lenders. Figure 6.1 How United Kingdom and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2016 United Kingdom 60 GETTING CREDIT One way to put an economy’s score on the getting credit rights index for United Kingdom and shows the scores indicators into context is to see where the economy for comparator economies as well as the regional stands in the distribution of scores across economies. average score. Figure 6.3 shows the same for the depth Figure 6.2 highlights the score on the strength of legal of credit information index. Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared — and lenders? and how widely? Economy scores on strength of legal rights index Economy scores on depth of credit information index Source: Doing Business database. Source: Doing Business database. Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a credit registry or a credit bureau, Source: Doing Business database. to facilitate lending decisions. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Doing Business 2016 United Kingdom 61 GETTING CREDIT What are the details? The getting credit indicators reported here for United The data on the legal rights of borrowers and lenders are Kingdom are based on detailed information collected in gathered through a survey of financial lawyers and that economy. The data on credit information sharing are verified through analysis of laws and regulations as well collected through a survey of a credit registry and/or as public sources of information on collateral and credit bureau (if one exists). To construct the depth of bankruptcy laws. For the strength of legal rights index, a credit information index, a score of 1 is assigned for each score of 1 is assigned for each of 10 aspects related to of 8 features of the credit registry or credit bureau (see legal rights in collateral law and 2 aspects in bankruptcy summary of scoring below). law. Strength of legal rights index (0–12) Index score: 7.00 Does an integrated or unified legal framework for secured transactions that extends to the creation, publicity and enforcement of functional equivalents to security interests in movable No assets exist in the economy? Does the law allow businesses to grant a non possessory security right in a single category of Yes movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of its Yes assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend automatically to Yes the products, proceeds or replacements of the original assets? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement include a Yes maximum amount for which the assets are encumbered? Is a collateral registry in operation for both incorporated and non-incorporated entities, that is No unified geographically and by asset type, with an electronic database indexed by debtor's name? Does a notice-based collateral registry exist in which all functional equivalents can be registered? No Does a modern collateral registry exist in which registrations, amendments, cancellations and No searches can be performed online by any interested third party? Are secured creditors paid first (i.e. before tax claims and employee claims) when a debtor Yes defaults outside an insolvency procedure? Are secured creditors paid first (i.e. before tax claims and employee claims) when a business is Yes liquidated? Are secured creditors subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure? Does the law protect secured creditors’ rights by No providing clear grounds for relief from the stay and/or sets a time limit for it? Does the law allow parties to agree on out of court enforcement at the time a security interest is created? Does the law allow the secured creditor to sell the collateral through public auction and Yes private tender, as well as, for the secured creditor to keep the asset in satisfaction of the debt? Doing Business 2016 United Kingdom 62 Depth of credit information index (0–8) Credit bureau Credit registry Index score: 8.00 Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative credit data distributed? Yes No 1 Are data from retailers or utility companies - in addition to data from banks and financial institutions - Yes No 1 distributed? Are at least 2 years of historical data distributed? (Credit bureaus and registries that distribute more than 10 years Yes No 1 of negative data or erase data on defaults as soon as they are repaid obtain a score of 0 for this component.) Are data on loan amounts below 1% of income per Yes No 1 capita distributed? By law, do borrowers have the right to access their data Yes No 1 in the credit bureau or credit registry? Can banks and financial institutions access borrowers’ credit information online (for example, through an online Yes No 1 platform, a system-to-system connection or both)? Are bureau or registry credit scores offered as a value- added service to help banks and financial institutions Yes No 1 assess the creditworthiness of borrowers? Note: An economy receives a score of 1 if there is a "yes" to either bureau or registry. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Coverage Credit bureau Credit registry Number of firms 4,990,319 0 Number of individuals 47,231,331 0 Total 52,221,650 0 Total percentage of adult population 100.00 0.00 Source: Doing Business database. Doing Business 2016 United Kingdom 63 PROTECTING MINORITY INVESTORS Protecting minority investors matters for the ability of companies to raise the capital they need to grow, WHAT THE PROTECTING MINORITY innovate, diversify and compete. Effective regulations INVESTORS INDICATORS MEASURE define related-party transactions precisely, promote clear and efficient disclosure requirements, require shareholder participation in major decisions of the Extent of disclosure index (0–10) company and set detailed standards of accountability Review and approval requirements for related-party for company insiders. transactions; Disclosure requirements for related- What do the indicators cover? party transactions Doing Business measures the protection of minority Extent of director liability index (0–10) investors from conflicts of interest through one set of Ability of minority shareholders to sue and hold indicators and shareholders’ rights in corporate interested directors liable for prejudicial related-party governance through another. The ranking of economies transactions; Available legal remedies (damages, on the strength of minority investor protections is disgorgement of profits, fines, imprisonment, determined by sorting their distance to frontier scores rescission of the transaction) for protecting minority investors. These scores are the Ease of shareholder suits index (0–10) simple average of the distance to frontier scores for the extent of conflict of interest regulation index and the Access to internal corporate documents; Evidence extent of shareholder governance index. To make the obtainable during trial and allocation of legal data comparable across economies, a case study uses expenses several assumptions about the business and the Extent of conflict of interest regulation index transaction. (0–10) The business (Buyer): Simple average of the extent of disclosure, extent of director liability and ease of shareholder indices  Is a publicly traded corporation listed on the economy’s most important stock exchange Extent of shareholder rights index (0-10) (or at least a large private company with Shareholders’ rights and role in major corporate multiple shareholders). decisions  Has a board of directors and a chief executive Extent of ownership and control index (0-10) officer (CEO) who may legally act on behalf of Buyer where permitted, even if this is not Governance safeguards protecting shareholders from undue board control and entrenchment specifically required by law. Extent of corporate transparency index (0-10) The transaction involves the following details: Corporate transparency on ownership stakes,  Mr. James, a director and the majority compensation, audits and financial prospects shareholder of the company, proposes that the company purchase used trucks from Extent of shareholder governance index (0– another company he owns. 10)  The price is higher than the going price for Simple average of the extent of shareholders rights, used trucks, but the transaction goes forward. extent of ownership and control and extent of corporate transparency indices  All required approvals are obtained, and all required disclosures made, though the Strength of investor protection index (0–10) transaction is prejudicial to Buyer. Simple average of the extent of conflict of interest regulation and extent of shareholder governance  Shareholders sue the interested parties and indices the members of the board of directors. Doing Business 2016 United Kingdom 64 PROTECTING MINORITY INVESTORS Where does the economy stand today? How strong are minority investor protections against protection index (figure 7.1). While the indicator does self-dealing in United Kingdom? The economy has a not measure all aspects related to the protection of score of 7.80 on the strength of minority investor minority investors, a higher ranking does indicate that an protection index, with a higher score indicating stronger economy’s regulations offer stronger minority investor protections. protections against self-dealing in the areas measured. Globally, United Kingdom stands at 4 in the ranking of 189 economies on the strength of minority investor Figure 7.1 How United Kingdom and comparator economies perform on the strength of minority investor protection index Source: Doing Business database. Doing Business 2016 United Kingdom 65 PROTECTING MINORITY INVESTORS One way to put an economy’s scores on the A summary of scoring for the protecting minority investors protecting minority investors indicators into context indicators at the end of this chapter provides details on is to see where the economy stands in the how the indices were calculated. distribution of scores across comparator economies. Figure 7.2 highlights the scores on the various minority investor protection indices for United Kingdom. Figure 7.2 Summary of the various minority investor protection indices for United Kingdom and comparator economies. Source: Doing Business database. Doing Business 2016 United Kingdom 66 PROTECTING MINORITY INVESTORS What are the details? The protecting minority investors indicators reported of conditions relating to disclosure, director liability, here for United Kingdom are based on detailed shareholder suits, shareholder rights, ownership and information collected through a survey of corporate and control and corporate transparency in a standard case securities lawyers about securities regulations, company study (for more details, see the Data Notes section of the laws and court rules of evidence and procedure. To Doing Business 2016 report). The summary below shows construct the six indicators on minority investor the details underlying the scores for United Kingdom. protection, scores are assigned to each based on a range Table 7.2 Summary of scoring for the protecting minority investors indicators in United Kingdom Answer Score Strength of minority investor protection index (0-10) 7.80 Extent of conflict of interest regulation index (0-10) 8.30 Extent of disclosure index (0-10) 10.00 Which corporate body can provide legally sufficient Shareholders excluding interested 3.0 approval for the Buyer-Seller transaction? (0-3) parties Is disclosure by the interested director to the board of Full disclosure of all material facts 2.0 directors required? (0-2) Is disclosure of the transaction in published periodic filings Disclosure on the transaction and 2.0 (annual reports) required? (0-2) on the conflict of interest Is immediate disclosure of the transaction to the public Disclosure on the transaction and 2.0 and/or shareholders required? (0-2) on the conflict of interest Must an external body review the terms of the transaction Yes 1.0 before it takes place? (0-1) Extent of director liability index (0-10) 7.00 Can shareholders sue directly or derivatively for the damage caused by the Buyer-Seller transaction to the company? (0- Yes 1.0 1) Can shareholders hold the interested director liable for the Liable if unfair or prejudicial 2.0 damage caused by the transaction to the company? (0-2) Can shareholders hold members of the approving body liable for the damage cause by the transaction to the Liable if negligent 1.0 company? (0-2) Must the interested director pay damages for the harm caused to the company upon a successful claim by a Yes 1.0 shareholder plaintiff? (0-1) Must the interested director repay profits made from the transaction upon a successful claim by a shareholder Yes 1.0 plaintiff? (0-1) Is the interested director fined and imprisoned or disqualified upon a successful claim by the shareholder No 0.0 plaintiff? (0-1) Can a court void the transaction upon a successful claim by Voidable if negligently concluded 1.0 a shareholder plaintiff? (0-2) Ease of shareholder suits index (0-10) 8.00 Before filing suit, can shareholders owning 10% of the Yes 1.0 Doing Business 2016 United Kingdom 67 company’s share capital inspect the transaction documents? (0-1) Can the plaintiff obtain any documents from the defendant Documents that directly prove 2.0 and witnesses during trial? (0-3) specific facts in the plaintiff’s claim Can the plaintiff request categories of documents from the Yes 1.0 defendant without identifying specific ones? (0-1) Can the plaintiff directly question the defendant and Yes 2.0 witnesses during trial? (0-2) Is the level of proof required for civil suits lower than that of Yes 1.0 criminal cases? (0-1) Can shareholder plaintiffs recover their legal expenses from Yes if successful 1.0 the company? (0-2) Extent of shareholder governance index (0-10) 7.30 Extent of shareholder rights index (0-10) 8.00 Does the sale of 51% of Buyer’s assets require shareholder Yes 1.0 approval? Can shareholders representing 10% of Buyer’s share capital Yes 1.0 call for an extraordinary meeting of shareholders? Must Buyer obtain its shareholders’ approval every time it Yes 1.0 issues new shares? Do shareholders automatically receive preemption rights Yes 1.0 every time Buyer issues new shares? Must shareholders approve the election and dismissal of the Yes 1.0 external auditor? Must changes to the voting rights of a class of shares be Yes 1.0 approved only by the holders of the affected shares? Assuming that Buyer is a limited company, does the sale of No 0.0 51% of Buyer’s assets requires shareholder approval? Assuming that Buyer is a limited company, can shareholders representing 10% of Buyer’s share capital call for an Yes 1.0 extraordinary meeting of shareholders? Assuming that Buyer is a limited company, must Buyer obtain its shareholders’ approval every time it issues new No 0.0 shares? Assuming that Buyer is a limited company, do shareholders automatically receive preemption rights every time Buyer Yes 1.0 issues new shares? Extent of ownership and control index (0-10) 6.00 Is the CEO prohibited from also being chair of the board of No 0.0 directors? Must the board of directors include independent and Yes 1.0 nonexecutive board members? Can shareholders remove members of Buyer’s board of Yes 1.0 directors without cause before the end of their term? Must Buyer’s board of directors include a separate audit Yes 1.0 committee? Must a potential acquirer make a tender offer to all Yes 1.0 shareholders upon acquiring 50% of Buyer? Must Buyer pay dividends within a maximum period set by No 0.0 law after the declaration date? Is a subsidiary prohibited from acquiring shares issued by its Yes 1.0 parent company? Doing Business 2016 United Kingdom 68 Assuming that Buyer is a limited company, can shareholders remove members of Buyer’s board of directors without Yes 1.0 cause before the end of their term? Assuming that Buyer is a limited company, must a potential acquirer make a tender offer to all shareholders upon No 0.0 acquiring 50% of Buyer? Assuming that Buyer is a limited company, must Buyer pay dividends within a maximum period set by law after the No 0.0 declaration date? Extent of corporate transparency index (0-10) 8.00 Must Buyer disclose direct and indirect beneficial ownership Yes 1.0 stakes representing 5%? Must Buyer disclose information about board members’ other directorships as well as basic information on their Yes 1.0 primary employment? Must Buyer disclose the compensation of individual Yes 1.0 managers? Must a detailed notice of general meeting be sent 30 days No 0.0 before the meeting? Can shareholders representing 5% of Buyer’s share capital Yes 1.0 put items on the agenda for the general meeting? Must Buyer's annual financial statements be audited by an Yes 1.0 external auditor? Must Buyer disclose its audit reports to the public. Yes 1.0 Assuming that Buyer is a limited company, must a detailed notice of general meeting be sent 30 days before the No 0.0 meeting? Assuming that Buyer is a limited company, can shareholders representing 5% of Buyer’s share capital put items on the Yes 1.0 agenda for the general meeting? Assuming that Buyer is a limited company, must Buyer's annual financial statements be audited by an external Yes 1.0 auditor? Source: Doing Business database. Doing Business 2016 United Kingdom 69 PAYING TAXES Taxes are essential. The level of tax rates needs to be carefully chosen—and needless complexity in tax WHAT THE PAYING TAXES INDICATORS rules avoided. Firms in economies that rank better MEASURE on the ease of paying taxes in the Doing Business study tend to perceive both tax rates and tax Tax payments for a manufacturing company administration as less of an obstacle to business in 2014 (number per year adjusted for according to the World Bank Enterprise Survey electronic and joint filing and payment) research. Total number of taxes and contributions paid, What do the indicators cover? including consumption taxes (value added tax, Using a case scenario, Doing Business records the sales tax or goods and service tax) taxes and mandatory contributions that a medium- Method and frequency of filing and payment size company must pay in a given year as well as Time required to comply with 3 major taxes measures of the administrative burden of paying (hours per year) taxes and contributions. This case scenario uses a set of financial statements and assumptions about Collecting information and computing the tax transactions made over the year. Information is also payable compiled on the frequency of filing and payments as Completing tax return forms, filing with well as time taken to comply with tax laws. The proper agencies ranking of economies on the ease of paying taxes is Arranging payment or withholding determined by sorting their distance to frontier scores on the ease of paying taxes. These scores are Preparing separate tax accounting books, if the simple average of the distance to frontier scores required for each of the component indicators, with a Total tax rate (% of profit before all taxes) threshold and a nonlinear transformation applied to one of the component indicators, the total tax rate . 3 Profit or corporate income tax All financial statement variables are proportional to Social contributions and labor taxes paid by 2012 income per capita. To make the data the employer comparable across economies, several assumptions Property and property transfer taxes are used. Dividend, capital gains and financial  TaxpayerCo is a medium-size business that transactions taxes started operations on January 1, 2013. Waste collection, vehicle, road and other taxes  The business starts from the same financial  Taxes and mandatory contributions include position in each economy. All the taxes corporate income tax, turnover tax and all and mandatory contributions paid during labor taxes and contributions paid by the the second year of operation are recorded. company.  Taxes and mandatory contributions are  A range of standard deductions and measured at all levels of government. exemptions are also recorded. The nonlinear distance to frontier for the total tax rate is equal to the distance to frontier for the total tax rate to the power of 0.8. 3 The threshold is defined as the total tax rate at the 15th percentile of the overall distribution for all years included in the analysis up to and including Doing Business 2015, which is 26.1%. All economies with a total tax rate below this threshold receive the same score as the economy at the threshold. Doing Business 2016 United Kingdom 70 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with 2 largest business cities. See the chapter on distance to taxes in United Kingdom—and how much do firms pay in frontier and ease of doing business ranking at the end of taxes? On average, firms make 8.00 tax payments a year, this profile for more details. spend 110.00 hours a year filing, preparing and paying Globally, United Kingdom stands at 15 in the ranking of taxes and pay total taxes amounting to 32.00% of profit 189 economies on the ease of paying taxes (figure 8.1). (see the summary at the end of this chapter for details). The rankings for comparator economies and the regional Most indicator sets refer to a case scenario in the largest average ranking provide other useful information for business city of an economy, except for 11 economies for assessing the tax compliance burden for businesses in which the data are a population-weighted average of the United Kingdom. Figure 8.1 How United Kingdom and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2016 United Kingdom 71 PAYING TAXES Economies around the world have made paying taxes and exemptions. Many have lowered tax rates. Changes faster, easier and less costly for businesses—such as by have brought concrete results. Some economies consolidating payments and filings of taxes, offering simplifying tax payment and reducing rates have seen electronic systems for filing and payment, establishing tax revenue rise. What tax reforms has Doing Business taxpayer service centers or allowing for more deductions recorded in United Kingdom (table 8.1)? Table 8.1 How has United Kingdom made paying taxes easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform The United Kingdom made paying taxes less costly for DB2013 companies by reducing the corporate income tax rate. The United Kingdom made paying taxes less costly for DB2015 companies by reducing the corporate income tax rate. On the other hand, it increased the landfill tax. The United Kingdom made paying taxes less costly for companies by reducing the corporate income tax rate and increasing the wage amount per employee that is exempted DB2016 from social security contributions paid by employers. On the other hand, the United Kingdom increased municipal tax rates and environment taxes. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2016 United Kingdom 72 PAYING TAXES What are the details? The indicators reported here for United Kingdom are LOCATION OF STANDARDIZED COMPANY based on the taxes and contributions that would be paid by a standardized case study company used by Doing Business in collecting the data (see the section City: London in this chapter on what the indicators cover). Tax practitioners are asked to review a set of financial statements as well as a standardized list of assumptions and transactions that the company The taxes and contributions paid are listed in the completed during its 2nd year of operation. summary below, along with the associated number of Respondents are asked how much taxes and payments, time and tax rate. mandatory contributions the business must pay and how these taxes are filed and paid. Table 8.2 Summary of tax rates and administration Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate taxable Corporate income tax 1 online 37 21% - 23% 19.2 profit 13.8% (floor gross Labor tax 1 online 48 of GBP 153 11.17 salaries per week) property Municipal business tax 1 various 1.27 value weight of GBP 78 per Environmental tax 1 active 0.13 tonne waste insurance Tax on insurance contracts 1 0.06 0.13 premium depending on weight Vehicle tax 1 various 0.09 and size of vehicle value not Sales tax 1 online 25 0.2 0 added included included in Fuel Tax 1 0 fuel price Doing Business 2016 United Kingdom 73 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate Labor tax paid by the various gross 0 0 employees rates salaries Totals 8.00 110.00 32.00 Source: Doing Business database. Doing Business 2016 United Kingdom 74 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE FOR IMPORT & EXPORT business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead Documentary compliance – cost (US$) & time to extra costs and delays for exporters and (hours) importers, stifling trade potential. Obtain, prepare and submit documents: What do the indicators cover? -During transport, clearance, inspections and port or border handling in origin economy Doing Business records the time and cost associated with the logistical process of exporting -Required by origin, transit and destination and importing goods. Under the new methodology economies introduced this year, Doing Business measures the Covers all documents by law and in practice time and cost (excluding tariffs) associated with Border compliance – cost (US$) & time (hours) three sets of procedures—documentary compliance, border compliance and domestic Customs clearance and inspections transport—within the overall process of exporting Inspections by other agencies or importing a shipment of goods. The ranking of Port or border handling economies on the ease of trading across borders is determined by sorting their distance to frontier Obtaining, preparing and submitting documents scores for trading across borders. These scores are during clearance, inspections and port or border the simple average of the distance to frontier handling scores for the time and cost for documentary Domestic transport* compliance and border compliance to export and Loading and unloading of shipment import. Transport between warehouse and terminal/port To make the data comparable across economies, a Transport between terminal/port and border few assumptions are made about the traded goods Obtaining, preparing and submitting documents and the transactions: during domestic transport Time Traffic delays and road police checks while shipment is en route  Time is measured in hours, and 1 day is 24 hours (for example, 22 days are * Although Doing Business collects and publishes data on the recorded as 22 × 24 = 528 hours). If time and cost for domestic transport, it does not use these customs clearance takes 7.5 hours, the data in calculating the distance to frontier score for trading data are recorded as is. Alternatively, across borders or the ranking on the ease of trading across suppose that documents are submitted borders. to a customs agency at 8:00 a.m., are Cost processed overnight and can be picked up at 8:00 a.m. the next day. In this case  Insurance cost and informal payments for which the time for customs clearance would be no receipt is issued are excluded from the costs recorded as 24 hours because the actual recorded. Costs are reported in U.S. dollars. procedure took 24 hours. Contributors are asked to convert local currency into U.S. dollars based on the exchange rate prevailing on the day they answer the questionnaire. Doing Business 2016 United Kingdom 75 Assumptions of the case study  For each of the 189 economies covered by  Shipping cost based on weight is assumed to be Doing Business, it is assumed that a shipment greater than shipping cost based on volume. travels from a warehouse in the largest  If government fees are determined by the value business city of the exporting economy to a of the shipment, the value is assumed to be warehouse in the largest business city of the $50,000. importing economy. For 11 economies the data are also collected, under the same case  The product is new, not secondhand or used study assumptions, for the second largest merchandise. business city.  The exporting firm is responsible for hiring and  The import and export case studies assume paying for a freight forwarder or customs different traded products. It is assumed that broker (or both) and pays for all costs related to each economy imports a standardized international shipping, domestic transport, shipment of 15 metric tons of containerized clearance and mandatory inspections by auto parts (HS 8708) from its natural import customs and other government agencies, port partner—the economy from which it imports or border handling, documentary compliance the largest value (price times quantity) of auto fees and the like for exports. The importing firm parts. It is assumed that each economy is responsible for the above costs for imports. exports the product of its comparative  The mode of transport is the one most widely advantage (defined by the largest export used for the chosen export or import product value) to its natural export partner—the and the trading partner, as is the seaport, economy that is the largest purchaser of this airport or land border crossing. product. Precious metal and gems, live animals and pharmaceuticals are excluded  All electronic submissions of information from the list of possible export products, requested by any government agency in however, and the second largest product connection with the shipment are considered to category is considered as needed. be documents obtained, prepared and submitted during the export or import process.  To identify the trading partners and export product for each economy, Doing Business  A port or border is defined as a place (seaport, collected data on trade flows for the most airport or land border crossing) where recent four-year period from international merchandise can enter or leave an economy. databases such as the United Nations  Government agencies considered relevant are Commodity Trade Statistics Database (UN agencies such as customs, port authorities, road Comtrade). For economies for which trade police, border guards, standardization agencies, flow data were not available, data from ministries or departments of agriculture or ancillary government sources (various industry, national security agencies and any ministries and departments) and World Bank other government authorities. Group country offices were used to identify the export product and natural trading partners.  A shipment is a unit of trade. Export shipments do not necessarily need to be containerized, while import shipments of auto parts are assumed to be containerized. Doing Business 2016 United Kingdom 76 TRADING ACROSS BORDERS Where does the economy stand today? The Trading across Border indicator refers to a case Globally, United Kingdom stands at 38 in the ranking of study scenario of a warehouse in the largest business city 189 economies on the ease of trading across borders of an economy (except for 11 economies for which the (figure 9.1). data are a population-weighted average of the 2 largest While not included in the distance to frontier or ease of business cities) trading with the main import and export doing business ranking, data on domestic transportation partner through the economy’s main border crossing. is also recorded for all economies and provided in Table 9.3. Figure 9.1 How United Kingdom and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2016 United Kingdom 77 TRADING ACROSS BORDERS What are the details? The indicators reported here for United Kingdom are LOCATION OF STANDARDIZED COMPANY based on a set of specific predefined procedures for trading a shipment of goods by the most widely used mode of transport (whether sea, land, air or some City: London combination of these). The information on the time and cost to complete export and import is collected The details on the predefined set of procedures, and the from local freight forwarders, customs brokers and associated time and cost, for exporting and importing a traders. shipment of goods are listed in the summary bellow, along with the required documents. Table 9.2 Summary of export and import time and cost for trading across borders in United Kingdom United Kingdom OECD high income Time to export: Border compliance (hours) 24 15 Cost to export: Border compliance (USD) 280 160 Time to export: Documentary compliance (hours) 4 5 Cost to export: Documentary compliance (USD) 25 36 Time to import: Border compliance (hours) 8 9 Cost to import: Border compliance (USD) 205 123 Time to import: Documentary compliance (hours) 2 4 Cost to import: Documentary compliance (USD) 0 25 Source: Doing Business database. Table 9.3 Summary of trading details, transport time and documents for trading across borders in United Kingdom Export Import HS 84 : Nuclear reactors, boilers, machinery and HS 8708: Parts and accessories Product mechanical appliances; parts of motor vehicles thereof Trade partner United States Germany Border Southampton port Southampton port Distance (km) 130 130 Domestic transport time (hours) 5 5 Domestic transport cost (USD) 483 483 Domestic transport speed (km/hour) 26.0 26.0 Domestic transport cost per distance (USD/km) 3.7 3.7 Doing Business 2016 United Kingdom 78 Source: Doing Business database. Note: Although Doing Business collects and publishes data on the time and cost for domestic transport, it does not use these data in calculating the distance to frontier score for trading across borders or the ranking on the ease of trading across borders. Documents to export Bill of lading Commercial invoice Customs Export Declaration Packing list Documents to import Bill of lading Commercial invoice Intrastat (document for collecting information and producing statistics on the trade in goods between countries of the EU) Packing list Source: Doing Business database. Note: Doing Business continues to collect data on the number of documents needed to trade internationally. Unlike in previous years, however, these data are excluded from the calculation of the distance to frontier score and ranking. The time and cost for documentary compliance serve as better measures of the overall cost and complexity of compliance with documentary requirements than does the number of documents required. Doing Business 2016 United Kingdom 79 Figure 9.2 Summary of United Kingdom on the ease of trading across borders Export Import Source: Doing Business database. Doing Business 2016 United Kingdom 80 ENFORCING CONTRACTS Effective commercial dispute resolution has many WHAT THE ENFORCING CONTRACTS benefits. Courts are essential for entrepreneurs INDICATORS MEASURE because they interpret the rules of the market and protect economic rights. Efficient and transparent courts encourage new business relationships because Time required to enforce a contract through businesses know they can rely on the courts if a new the courts (calendar days) customer fails to pay. Speedy trials are essential for Time to file and serve the case small enterprises, which may lack the resources to Time for trial and to obtain the judgment stay in business while awaiting the outcome of a long court dispute. Time to enforce the judgment What do the indicators cover? Cost required to enforce a contract through the courts (% of claim) Doing Business measures the time and cost for resolving a standardized commercial dispute through Attorney fees a local first-instance court. In addition, this year it Court fees introduces a new measure, the quality of judicial Enforcement fees processes index, evaluating whether each economy has adopted a series of good practices that promote Quality of judicial processes index (0-18) quality and efficiency in the court system. This new Court structure and proceedings (0-5) index replaces the indicator on procedures, which was eliminated this year. The ranking of economies Case management (0-6) on the ease of enforcing contracts is determined by Court automation (0-4) sorting their distance to frontier scores. These scores Alternative dispute resolution (0-3) are the simple average of the distance to frontier scores for each of the component indicators. The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. The  The value of the dispute is 200% of the case study assumes that the court hears an expert on income per capita or the equivalent in local the quality of the goods in dispute. This distinguishes currency of USD 5,000, whichever is greater. the case from simple debt enforcement. To make the  The seller sues the buyer before the court data comparable across economies, Doing Business with jurisdiction over commercial cases worth uses several assumptions about the case: 200% of income per capita or $5,000.  The dispute concerns a lawful transaction  The seller requests a pretrial attachment to between two businesses (Seller and Buyer), secure the claim. both located in the economy’s largest  The dispute on the quality of the goods business city. For 11 economies the data requires an expert opinion. are also collected for the second largest business city.  The judge decides in favor of the seller; there is no appeal.  The buyer orders custom-made goods, then fails to pay.  The seller enforces the judgment through a public sale of the buyer’s movable assets. Doing Business 2016 United Kingdom 81 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial on distance to frontier and ease of doing business dispute through the courts in United Kingdom? ranking at the end of this profile for more details. According to data collected by Doing Business, contract Globally, United Kingdom stands at 33 in the ranking of enforcement takes 437.00 days and costs 43.90% of the 189 economies on the ease of enforcing contracts (figure value of the claim. Most indicator sets refer to the 10.1). The rankings for comparator economies and the largest business city of an economy, except for 11 regional average ranking provide other useful economies for which the data are a population-weighted benchmarks for assessing the efficiency of contract average of the 2 largest business cities. See the chapter enforcement in United Kingdom. Figure 10.1 How United Kingdom and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2016 United Kingdom 82 ENFORCING CONTRACTS Economies in all regions have improved contract reducing backlogs by introducing periodic reviews to enforcement in recent years. A judiciary can be improved clear inactive cases from the docket and by making in different ways. Higher-income economies tend to look procedures faster. What reforms making it easier (or for ways to enhance efficiency by introducing new more difficult) to enforce contracts has Doing Business technology. Lower-income economies often work on recorded in United Kingdom (table 10.1)? Table 10.1 How has United Kingdom made enforcing contracts easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform The United Kingdom improved the process for enforcing DB2011 contracts by modernizing civil procedures in the commercial court. The United Kingdom made enforcing contracts more costly by DB2016 increasing the court fees for filing a claim. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2016 United Kingdom 83 ENFORCING CONTRACTS What are the details? The data on time and cost reported here for United ECONOMY DETAILS Kingdom are built by following the step-by-step evolution of a commercial sale dispute within the court, under the assumptions about the case County Court of England described above (figure 10.2). The time and cost of Court name: and Wales resolving the standardized dispute are identified through study of the codes of civil procedure and City: London other court regulations, as well as through questionnaires completed by local litigation lawyers (and, in a quarter of the economies covered by Doing Business, by judges as well). Figure 10.2 Time and cost of contract enforcement in United Kingdom and comparator economies Source: Doing Business database. Doing Business 2016 United Kingdom 84 Table 10.2 Details on time and cost for enforcing contracts in United Kingdom OECD high income Indicator United Kingdom average Time (days) 437 538 Filing and service 30 Trial and judgment 345 Enforcement of judgment 62 Cost (% of claim) 43.9 21.1 Attorney fees (% of claim) 35.0 Court fees (% of claim) 7.7 Enforcement fees (% of claim) 1.2 Source: Doing Business database. Doing Business 2016 United Kingdom 85 ENFORCING CONTRACTS Quality of judicial processes index The quality of judicial processes index measures The scores reported here show which of these good whether each economy has adopted a series of good practices are available in United Kingdom. practices in its court system in four areas: court This methodology was initially developed by Djankov and structure and proceedings, case management, court others (2003) and is adopted here with several changes. automation and alternative dispute resolution. The The quality of judicial processes index was introduced in score on the quality of judicial processes index is the Doing Business 2016. The good practices tested in this sum of the scores on these 4 sub-components. The index were developed on the basis of internationally index ranges from 0 to 18, with higher values recognized good practices promoting judicial efficiency. indicating more efficient judicial processes. Figure 10.3 Quality of judicial processes index in United Kingdom and comparator economies Source: Doing Business database. Doing Business 2016 United Kingdom 86 Table 10.3 Details of the quality of judicial processes index in United Kingdom Answer Score Quality of judicial processes index (0-18) 15.00 Court structure and proceedings (0-5) 4.5 1. Is there a court or division of a court dedicated solely to hearing Yes 1.5 commercial cases? 2. Small claims court 1.5 2.a. Is there a small claims court or a fast-track procedure for small Yes claims? 2.b. If yes, is self-representation allowed? Yes 3. Is pretrial attachment available? Yes 1.0 4. Are new cases assigned randomly to judges? Yes 0.5 Case management (0-6) 5.0 1. Time standards 1.0 1.a. Are there laws setting overall time standards for key court events in Yes a civil case? 1.b. If yes, are the time standards set for at least three court events? Yes 1.c. Are these time standards respected in more than 50% of cases? Yes 2. Adjournments 0.0 2.a. Does the law regulate the maximum number of adjournments that No can be granted? 2.b. Are adjournments limited to unforeseen and exceptional No circumstances? 2.c. If rules on adjournments exist, are they respected in more than 50% n.a. of cases? 3. Can two of the following four reports be generated about the competent court: (i) time to disposition report; (ii) clearance rate report; Yes 1.0 (iii) age of pending cases report; and (iv) single case progress report? 4. Is a pretrial conference among the case management techniques Yes 1.0 used before the competent court? 5. Are there any electronic case management tools in place within the Yes 1.0 competent court for use by judges? 6. Are there any electronic case management tools in place within the Yes 1.0 competent court for use by lawyers? Court automation (0-4) 3.5 Doing Business 2016 United Kingdom 87 Answer Score 1. Can the initial complaint be filed electronically through a dedicated Yes 1.0 platform within the competent court? 2. Is it possible to carry out service of process electronically for claims Yes 1.0 filed before the competent court? 3. Can court fees be paid electronically within the competent court? Yes 1.0 4. Publication of judgments 0.5 4.a Are judgments rendered in commercial cases at all levels made available to the general public through publication in official gazettes, No in newspapers or on the internet or court website? 4.b. Are judgments rendered in commercial cases at the appellate and supreme court level made available to the general public through Yes publication in official gazettes, in newspapers or on the internet or court website? Alternative dispute resolution (0-3) 2.0 1. Arbitration 1.5 1.a. Is domestic commercial arbitration governed by a consolidated law or consolidated chapter or section of the applicable code of civil Yes procedure encompassing substantially all its aspects? 1.b. Are there any commercial disputes—aside from those that deal with public order or public policy—that cannot be submitted to No arbitration? 1.c. Are valid arbitration clauses or agreements usually enforced by the Yes courts? 2. Mediation/Conciliation 0.5 2.a. Is voluntary mediation or conciliation available? Yes 2.b. Are mediation, conciliation or both governed by a consolidated law or consolidated chapter or section of the applicable code of civil No procedure encompassing substantially all their aspects? 2.c. Are there financial incentives for parties to attempt mediation or conciliation (i.e., if mediation or conciliation is successful, a refund of No court filing fees, income tax credits or the like)? Source: Doing Business database. Doing Business 2016 United Kingdom 88 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of businesses Time required to recover debt (years) to normal operation and increase returns to Measured in calendar years creditors. By clarifying the expectations of creditors and debtors about the outcome of insolvency Appeals and requests for extension are proceedings, well-functioning insolvency systems can included facilitate access to finance, save more viable Cost required to recover debt (% of debtor’s businesses and sustainably grow the economy. estate) What do the indicators cover? Measured as percentage of estate value Doing Business studies the time, cost and outcome of Court fees insolvency proceedings involving domestic legal Fees of insolvency administrators entities. These variables are used to calculate the recovery rate, which is recorded as cents on the Lawyers’ fees dollar recovered by secured creditors through Assessors’ and auctioneers’ fees reorganization, liquidation or debt enforcement Other related fees (foreclosure or receivership) proceedings. To determine the present value of the amount Outcome recovered by creditors, Doing Business uses the Whether business continues operating as a lending rates from the International Monetary Fund, going concern or business assets are sold supplemented with data from central banks and the piecemeal Economist Intelligence Unit. Recovery rate for creditors In addition, Doing Business evaluates the adequacy Measures the cents on the dollar recovered and integrity of the existing legal framework by secured creditors applicable to liquidation and reorganization proceedings through the strength of insolvency Outcome for the business (survival or not) framework index. The index tests whether economies determines the maximum value that can be adopted internationally accepted good practices in recovered four areas: commencement of proceedings, Official costs of the insolvency proceedings management of debtor’s assets, reorganization are deducted proceedings and creditor participation. Depreciation of furniture is taken into The ranking of economies on the ease of resolving account insolvency is determined by sorting their distance to Present value of debt recovered frontier scores for resolving insolvency. These scores are the simple average of the distance to frontier Strength of insolvency framework index (0- scores for the recovery rate and the strength of 16) insolvency framework index. The Resolving Sum of the scores of four component indices: Insolvency indicators do not measure insolvency Commencement of proceedings index (0-3) proceedings of individuals and financial institutions. The data are derived from questionnaire responses Management of debtor’s assets index (0-6) by local insolvency practitioners and verified through Reorganization proceedings index (0-3) a study of laws and regulations as well as public information on bankruptcy systems. Creditor participation index (0-4) Doing Business 2016 United Kingdom 89 RESOLVING INSOLVENCY Where does the economy stand today? According to data collected by Doing Business, resolving The resolving insolvency indicators are based on detailed insolvency takes 1.00 years on average and costs 6.00% information collected through questionnaires completed of the debtor’s estate, with the most likely outcome by insolvency experts, including lawyers, practitioners being that the company will be sold as going concern. (administrators, trustees), accountants and judges. Data The average recovery rate is 88.60 cents on the dollar. on the time, cost and outcome refer to the most likely in- Most indicator sets refer to a case scenario in the largest court insolvency procedure applicable under specific business city of an economy, except for 11 economies for case study assumptions. Data on provisions applicable to which the data are a population-weighted average of the judicial liquidation and reorganization is based on the 2 largest business cities. current law governing insolvency proceedings in each Globally, United Kingdom stands at 13 in the ranking of economy. 189 economies on the ease of resolving insolvency (figure 11.1). Figure 11.1 How United Kingdom and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2016 United Kingdom 90 Figure 11.2 Efficiency of proceedings - time, cost and recovery rate in United Kingdom and comparator economies. Source: Doing Business database. Note: The recovery rate is calculated based on the time, cost and outcome of insolvency proceedings involving domestic legal entities and is recorded as cents on the dollar recovered by secured creditors. The calculation takes into account the outcome: whether the business emerges from the proceedings as a going concern or the assets are sold piecemeal. Then the costs of the proceedings are deducted. Finally, the value lost as a result of the time the money remains tied up in insolvency proceedings is taken into account. The recovery rate is the present value of the remaining proceeds, based on end-2014 lending rates. Doing Business 2016 United Kingdom 91 Table 11.1 Details of data on efficiency of insolvency proceedings in United Kingdom Indicator Answer Explanation BizBank will most likely apply for the administration procedure. The directors could file for administration or else BizBank could put the company into administration since it appears to have a floating charge over substantially the whole of the company's property. Administration would be the most likely procedure to be chosen since it is a rescue procedure, designed to save all or part of the business. It would be more likely to preserve value for the creditors Proceedin reorganization than a liquidation, where fire sales can depress the value of the company's g property. An administrator's first objective is to rescue the company as a going concern, if possible. If this is not possible, his objective is to achieve a better result for the company's creditors as a whole than would be likely if the company were wound up, or failing that he must realize property to make a distribution to secured or preferential creditors. The administrator will be focused on achieving the best outcome for the creditors as a whole and in this case, this would be achieved by the sale of the business as a going concern. The administration moratorium provides protection for the company from various creditor enforcement actions: - enforcement of security- repossession of hire-purchase goods- forfeiture by landlords- commencement of legal proceedings against the company. This moratorium gives the company a breathing space in which to implement a solution to its Outcome going concern financial difficulties. The administrator takes over from the directors in the management of the company and has broad powers to carry on the business of the company so that it can continue to operate as a going concern. He can enter into new contracts on behalf of the company and pay the expenses of the administration in priority to all other creditors (apart from fixed charge holders) so that the business can continue to operate. The hotel is likely to be sold as a going concern. The administrator may continue to trade the business from administration while seeking a purchaser. The administration procedure will take approximately one year. BizBank, the company's directors (probably with BizBank's approval), or (less likely in practice) the company acting on a majority resolution of its shareholders could apply for the company's administration. If BizBank puts the company into administration, it would give notice of intention to appoint administrators to any prior ranking qualifying floating charge holder (N.B. this can be dispensed with if BizBank is certain there are no such charge holders). 2 business days later, BizBank would Time (in file a notice of appointment of administrator (and various short accompanying 1.0 documents) at court. The administrator's appointment takes effect from the years) moment of this filing. If the directors/company were to appoint the administrator, they would give notice of intention to appoint to BizBank. BizBank could either consent to the director/company's choice of administrator (probable since in practice the directors would probably consult BizBank on the choice of administrator) or appoint its own choice of administrator following the procedure above. Upon receiving Bizbank's consent, or after 5 business days if BizBank is silent and takes no action, the directors/company would file a notice of appointment and accompanying documents at court. The administrator's Doing Business 2016 United Kingdom 92 Indicator Answer Explanation appointment takes effect from the moment of this filing. The administrator is obliged to advertise his appointment, to send notice of his appointment to all creditors of whom he is aware and to give his name and the fact of the administration on all business documents issued by the company or administrator and on any company website. The administrator would take control of the management of the company and continue to run the hotel whilst seeking a buyer for the business. The administrator's duty on any sale is to achieve fair market value at the time of the sale, although he is not obliged to wait to sell in case more favorable market conditions materialize. The administrator is not obliged to seek the creditors' consent before concluding a sale but he would likely discuss any potential sale with BizBank as the secured creditor who stands to recover its loan from the sale proceeds. Within the first 8 weeks, the administrator must send a statement of his proposals to all creditors and shareholders detailing, amongst other things, (a) how he envisages the purpose of administration will/has been achieved (in this case, sale of the business) and how the administration will be brought to an end; (b) a statement of the company's affairs; and (c) the basis upon which his remuneration will be fixed. The administrator must hold a creditors' meeting within the first 10 weeks to approve his proposals. This creditors' meeting is not required if the company has insufficient property to make a distribution to unsecured creditors (which may be the case here), although in this situation creditors with at least 10% of the total debts can order the administrator to summon a creditors' meeting if they wish. The administrator would also investigate the affairs of the company, in particular (a) directors' conduct to establish whether there are any grounds for a potential disqualification action; and (b) recent transactions to determine whether he should apply to court to challenge any as transactions at an undervalue, preferences or transactions defrauding creditors. The administrator would pay out BizBank after receiving the sale proceeds and deducting the expenses of the administration. Major expenses include remuneration of the administrator (up to 4%), Cost (% of 6.0 auctioneer's fees (up to 2% and possible premium) and attorneys’ fees (around estate) 2%). Recovery rate: 88.60 Source: Doing Business database. Doing Business 2016 United Kingdom 93 RESOLVING INSOLVENCY A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in United Kingdom (table 11.2)? even viable businesses are liquidated. This is starting to Table 11.2 How has United Kingdom made resolving insolvency easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform Amendments to the United Kingdom’s insolvency rules DB2011 streamline bankruptcy procedures, favor the sale of the firm as a whole and improve the calculation of administrators’ fees. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2016 United Kingdom 94 RESOLVING INSOLVENCY Strength of resolving insolvency index The strength of insolvency framework index is the with higher values indicating insolvency legislation that is sum of the scores on the commencement of better designed for rehabilitating viable firms and proceedings index, management of debtor’s assets liquidating nonviable ones. United Kingdom’s score on the index, reorganization proceedings index and creditor strength of insolvency framework index is 11.00 out of 16. participation index. The index ranges from 0 to 16, Figure 11.3 Strength of insolvency framework index (0-16) in United Kingdom and comparator economies Source: Doing Business database. Note: Even if the economy’s legal framework includes provisions related to insolvency proceedings (liquidation or reorganization), the economy receives 0 points for the strength of insolvency framework index, if time, cost and outcome indicators are recorded as “no practice”. Doing Business 2016 United Kingdom 95 Table 11.3 Summary of data for the strength of insolvency framework index in United Kingdom Answer Score Strength of insolvency framework index (0-16) 11.00 Commencement of proceedings index (0-3) 3.00 (a) Debtor may What procedures are available to a DEBTOR when commencing insolvency file for both 1.0 proceedings? liquidation and reorganization (a) Yes, a creditor Does the insolvency framework allow a CREDITOR to file for insolvency of may file for both 1.0 the debtor? liquidation and reorganization (c) Both (a) and (b) options are What basis for commencement of the insolvency proceedings is allowed available, but 1.0 under the insolvency framework? only one of them needs to be complied with Management of debtor's assets index (0-6) 5.00 Does the insolvency framework allow the continuation of contracts No 0.0 supplying essential goods and services to the debtor? Does the insolvency framework allow the rejection by the debtor of overly Yes 1.0 burdensome contracts? Does the insolvency framework allow avoidance of preferential Yes 1.0 transactions? Does the insolvency framework allow avoidance of undervalued Yes 1.0 transactions? Does the insolvency framework provide for the possibility of the debtor Yes 1.0 obtaining credit after commencement of insolvency proceedings? (b) Yes over ordinary Does the insolvency framework assign priority to post-commencement unsecured 1.0 credit? creditors but not over secured creditors Reorganization proceedings index (0-3) 1.00 (b) Only creditors whose rights are Which creditors vote on the proposed reorganization plan? 1.0 affected by the proposed plan Does the insolvency framework require that dissenting creditors in No 0.0 Doing Business 2016 United Kingdom 96 Answer Score reorganization receive at least as much as what they would obtain in a liquidation? Are the creditors divided into classes for the purposes of voting on the reorganization plan, does each class vote separately and are creditors in No 0.0 the same class treated equally? Creditor participation index (0-4) 2.00 Does the insolvency framework require approval by the creditors for Yes 1.0 selection or appointment of the insolvency representative? Does the insolvency framework require approval by the creditors for sale No 0.0 of substantial assets of the debtor? Does the insolvency framework provide that a creditor has the right to No 0.0 request information from the insolvency representative? Does the insolvency framework provide that a creditor has the right to Yes 1.0 object to decisions accepting or rejecting creditors' claims? Source: Doing Business database. Doing Business 2016 United Kingdom 97 LABOR MARKET REGULATION Doing Business has historically studied the flexibility of regulations as well as secondary sources are reviewed to regulation of employment, specifically as it relates to the ensure accuracy. areas of hiring, working hours and redundancy. This year Doing Business has expanded the scope of the labor To make the data comparable across economies, several market regulation indicators by adding 16 new assumptions about the worker and the business are questions, most of which focus on measuring job quality. used. Over the period from 2007 to 2011 improvements were The worker: made to align the methodology for the labor market  Is a cashier in a supermarket or grocery store, regulation indicators (formerly the employing workers age 19, with one year of work experience. indicators) with the letter and spirit of the International  Is a full-time employee. Labour Organization (ILO) conventions. Ten of the 189  Is not a member of the labor union, unless ILO conventions cover areas now measured by Doing membership is mandatory. Business (up from four previously): employee The business: termination, weekend work, holiday with pay, night work,  Is a limited liability company (or the equivalent protection against unemployment, sickness benefits, in the economy). maternity protection, working hours, equal remuneration  Operates a supermarket or grocery store in the and labor inspections. economy’s largest business city. For 11 economies the data are also collected for the Between 2009 and 2011 the World Bank Group worked second largest business city. with a consultative group—including labor lawyers,  Has 60 employees. employer and employee representatives, and experts  Is subject to collective bargaining agreements if from the ILO, the Organisation for Economic Co- such agreements cover more than 50% of the operation and Development (OECD), civil society and the food retail sector and they apply even to firms private sector—to review the methodology for the labor that are not party to them. market regulation indicators and explore future areas of  Abides by every law and regulation but does not research. grant workers more benefits than those mandated by law, regulation or (if applicable) A full report with the conclusions of the consultative collective bargaining agreements. group, along with the methodology it proposed, is available on the Doing Business website at: http://www.doingbusiness.org/methodology/labor- market-regulation. Doing Business 2016 presents the data for the labor market regulation indicators in an annex. The report does not present rankings of economies on these indicators or include the topic in the aggregate distance to frontier score or ranking on the ease of doing business. Detailed data collected on labor market regulation are available on the Doing Business website (http://www.doingbusiness.org). The data on labor market regulation are based on a detailed questionnaire on employment regulations that is completed by local lawyers and public officials. Employment laws and Doing Business 2016 United Kingdom 98 LABOR MARKET REGULATION Employment laws are needed to protect workers from the past 5 years did so in ways that increased labor arbitrary or unfair treatment and to ensure efficient market flexibility. What changes did United Kingdom contracting between employers and workers. Many adopt that affected the Doing Business indicators on economies that changed their labor market regulation in labor market regulation (table 12.1)? Table 12.1 What changes did United Kingdom make in terms of labor market regulation? DB year Reform United Kingdom increased the severance payment obligation DB2012 applicable in cases of redundancy dismissals. The United Kingdom increased redundancy costs of the DB2013 severance pay applicable in cases of redundancy dismissals. United Kingdom increased the cap on weekly wage provided DB2014 to employees on the severance payment and the minimum wage. Source: Doing Business database. Doing Business 2016 United Kingdom 99 LABOR MARKET REGULATION What are the details? The data reported here for United Kingdom are based on Employment laws and regulations as well as secondary a detailed survey of labor market regulation that is sources are reviewed to ensure accuracy. completed by local lawyers and public officials. Hiring Data on hiring cover five areas: (i) whether fixed-term wage to the average value added per worker (the ratio of contracts are prohibited for permanent tasks; (ii) the an economy’s GNI per capita to the working-age maximum cumulative duration of fixed-term contracts; population as a percentage of the total population), and (iii) the minimum wage for a cashier, age 19, with one (v) the availability of incentives for employers to hire year of work experience; (iv) the ratio of the minimum employees under the age of 25*. Hiring Data Fixed-term contracts prohibited for permanent tasks? No No limit, but employees who have worked successive fixed term contracts for a period of four years or more will Maximum length of a single fixed-term contract (months) become permament employees unless the employer can objectively justify the continued use of a fixed term arrangements. Maximum length of fixed-term contracts, including renewals (months) No limit Minimum wage applicable to the worker assumed in the case study 1397.2 (US$/month) Ratio of minimum wage to value added per worker 0.3 Incentives for employing workers under age 25? Yes Source: Doing Business database. *A new question introduced in the Doing Business 2016 report for the first time. Doing Business 2016 United Kingdom 100 LABOR MARKET REGULATION Working hours Data on working hours cover nine areas: i) the maximum and nonnursing women can work the same night hours number of working days allowed per week; (ii) the as men*; (vii) whether there are restrictions on weekly premium for night work (as a percentage of hourly pay); holiday work; (viii) whether there are restrictions on (iii) the premium for work on a weekly rest day (as a overtime work*; and (ix) the average paid annual leave percentage of hourly pay); (iv) the premium for overtime for workers with 1 year of tenure, 5 years of tenure, and work (as a percentage of hourly pay)*; (v) whether there 10 years of tenure. are restrictions on night work; (vi) whether nonpregnant Working Hours Data Maximum number of working days per week 6.0 Premium for night work (% of hourly pay) 0.0 Premium for work on weekly rest day (% of hourly pay) 0.0 Premium for overtime work (% of hourly pay) 0.0 Restrictions on night work? 0.0 Whether nonpregnant and nonnursing women can work the same night Yes hours as men Restrictions on weekly holiday? 0.0 Restrictions on overtime work? No Paid annual leave for a worker with 1 year of tenure (working days) 28.0 Paid annual leave for a worker with 5 years of tenure (working days) 28.0 Paid annual leave for a worker with 10 years of tenure (working days) 28.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in 28.0 working days) Source: Doing Business database. *A new question introduced in the Doing Business 2016 report for the first time. Doing Business 2016 United Kingdom 101 LABOR MARKET REGULATION Redundancy rules Data on redundancy cover nine areas: (i) the length of whether the employer needs approval from a third party the maximum probationary period (in months) for to terminate one redundant worker; (vi) whether the permanent employees; (ii) whether redundancy is employer needs approval from a third party to terminate allowed as a basis for terminating workers; (iii) whether a group of nine redundant workers; (vii) whether the law the employer needs to notify a third party (such as a requires the employer to reassign or retrain a worker government agency) to terminate one redundant worker; before making the worker redundant; (viii) whether (iv) whether the employer needs to notify a third party to priority rules apply for redundancies; and (ix) whether terminate a group of nine redundant workers; (v) priority rules apply for reemployment. Redundancy rules Data Maximum length of probationary period (months) 6.0 Dismissal due to redundancy allowed by law? Yes Third-party notification if one worker is dismissed? No Third-party approval if one worker is dismissed? No Third-party notification if nine workers are dismissed? No Third-party approval if nine workers are dismissed? No Retraining or reassignment obligation before redundancy? No Priority rules for redundancies? No Priority rules for reemployment? No Source: Doing Business database. Doing Business 2016 United Kingdom 102 LABOR MARKET REGULATION Redundancy cost Redundancy cost measures the cost of advance notice severance payments applicable to a worker with 1 year of requirements and severance payments due when tenure, a worker with 5 years and a worker with 10 years terminating a redundant worker, expressed in weeks of is considered. One month is recorded as 4 and 1/3 salary. The average value of notice requirements and weeks. Redundancy cost indicator (in salary weeks) Data Notice period for redundancy dismissal for a worker with 1 year of tenure 1.0 Notice period for redundancy dismissal for a worker with 5 years of tenure 5.0 Notice period for redundancy dismissal for a worker with 10 years of tenure 10.0 Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years 5.3 of tenure) Severance pay for redundancy dismissal for a worker with 1 year of tenure 0.0 Severance pay for redundancy dismissal for a worker with 5 years of tenure 3.5 Severance pay for redundancy dismissal for a worker with 10 years of tenure 8.5 Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years 4.0 of tenure) Source: Doing Business database. Doing Business 2016 United Kingdom 103 LABOR MARKET REGULATION Job quality Doing Business 2016 report presents, for the first time, on-the-job training at no cost to the employee; (viii) data on 12 job quality areas: (i) whether the law whether a worker is eligible for an unemployment mandates equal remuneration for work of equal value; protection scheme after one year of service; (ix) the (ii) whether the law mandates nondiscrimination based minimum duration of the contribution period (in months) on gender in hiring, (iii) whether the law mandates paid required for unemployment protection; (x) whether an or unpaid maternity leave; (iv) the minimum length of employee can create or join a union; (xi) the availability maternity leave in calendar days (minimum number of of administrative or judicial relief in case of infringement days that legally have to be paid by the government, the of employees’ rights; and (xii) the availability of a labor employer or both); (v) whether employees on maternity inspection system. If no maternity leave is mandated by leave receive 100 % of wages; (vi) the availability of five law, parental leave is measured if applicable. fully paid days of sick leave a year; (vii) the availability of Job Quality Data Equal remuneration for work of equal value? Yes Gender nondiscrimination in hiring? Yes Paid or unpaid maternity leave mandated by law? Yes Minimum length of maternity leave (calendar days)? 14.0 Receive 100% of wages on maternity leave? No Five fully paid days of sick leave a year? No On-the-job training? No Unemployment protection after one year of employment? Yes Minimum contribution period for unemployment protection (months)? 0.0 Can employee create or join union? Yes Administrative or judicial relief for infringement of employees' rights? Yes Labor inspection system? Yes Source: Doing Business database. Doing Business 2016 United Kingdom 104 DISTANCE TO FRONTIER AND EASE OF DOING BUSINESS RANKING Doing Business presents results for two aggregate even though it is no longer at the frontier in a measures: the distance to frontier score and the ease of subsequent year. doing business ranking, which is based on the distance For scores such as those on the strength of legal rights to frontier score. The ease of doing business ranking index or the quality of land administration index, the compares economies with one another; the distance to frontier is set at the highest possible value. For the total frontier score benchmarks economies with respect to tax rate, consistent with the use of a threshold in regulatory best practice, showing the absolute distance calculating the rankings on this indicator, the frontier is to the best performance on each Doing Business defined as the total tax rate at the 15th percentile of the indicator. When compared across years, the distance to overall distribution for all years included in the analysis frontier score shows how much the regulatory up to and including Doing Business 2015. For the time to environment for local entrepreneurs in an economy has pay taxes the frontier is defined as the lowest time changed over time in absolute terms, while the ease of recorded among all economies that levy the three major doing business ranking can show only how much the taxes: profit tax, labor taxes and mandatory regulatory environment has changed relative to that in contributions, and value added tax (VAT) or sales tax. For other economies. the different times to trade across borders, the frontier is Distance to Frontier defined as 1 hour even though in many economies the time is less than that. The distance to frontier score captures the gap between an economy’s performance and a measure of best In the same formulation, to mitigate the effects of practice across the entire sample of 36 indicators for 10 extreme outliers in the distributions of the rescaled data Doing Business topics (the labor market regulation for most component indicators (very few economies indicators are excluded). For starting a business, for need 700 days to complete the procedures to start a example, the former Yugoslav Republic of Macedonia business, but many need 9 days), the worst performance and New Zealand have the smallest number of is calculated after the removal of outliers. The definition procedures required (1), and New Zealand the shortest of outliers is based on the distribution for each time to fulfill them (0.5 days). Slovenia has the lowest component indicator. To simplify the process two rules cost (0.0), and Australia, Colombia and 103 other were defined: the 95th percentile is used for the economies have no paid-in minimum capital indicators with the most dispersed distributions requirement (table 14.1 in the Doing Business 2016 (including minimum capital, number of payments to pay report). taxes, and the time and cost indicators), and the 99th percentile is used for number of procedures. No outlier is Calculation of the distance to frontier score removed for component indicators bound by definition Calculating the distance to frontier score for each or construction, including legal index scores (such as the economy involves two main steps. In the first step depth of credit information index, extent of conflict of individual component indicators are normalized to a interest regulation index and strength of insolvency common unit where each of the 36 component framework index) and the recovery rate (figure 14.1). indicators y (except for the total tax rate) is rescaled In the second step for calculating the distance to frontier using the linear transformation (worst − y)/(worst − score, the scores obtained for individual indicators for frontier). In this formulation the frontier represents the each economy are aggregated through simple averaging best performance on the indicator across all economies into one distance to frontier score, first for each topic since 2005 or the third year in which data for the and then across all 10 topics: starting a business, dealing indicator were collected. Both the best performance and with construction permits, getting electricity, registering the worst performance are established every five years property, getting credit, protecting minority investors, based on the Doing Business data for the year in which paying taxes, trading across borders, enforcing contracts they are established, and remain at that level for the five and resolving insolvency. More complex aggregation years regardless of any changes in data in interim years. methods—such as principal components and Thus an economy may set the frontier for an indicator unobserved components—yield a ranking nearly Doing Business 2016 United Kingdom 105 identical to the simple average used by Doing Business . The nonlinear transformation is not based on any 4 Thus Doing Business uses the simplest method: economic theory of an “optimal tax rate” that minimizes weighting all topics equally and, within each topic, giving distortions or maximizes efficiency in an economy’s equal weight to each of the topic components . overall tax system. Instead, it is mainly empirical in 5 nature. The nonlinear transformation along with the An economy’s distance to frontier score is indicated on a threshold reduces the bias in the indicator toward scale from 0 to 100, where 0 represents the worst economies that do not need to levy significant taxes on performance and 100 the frontier. All distance to frontier companies like the Doing Business standardized case calculations are based on a maximum of five decimals. study company because they raise public revenue in However, indicator ranking calculations and the ease of other ways—for example, through taxes on foreign doing business ranking calculations are based on two companies, through taxes on sectors other than decimals. manufacturing or from natural resources (all of which are The difference between an economy’s distance to outside the scope of the methodology). In addition, it frontier score in any previous year and its score in 2015 acknowledges the need of economies to collect taxes illustrates the extent to which the economy has closed from firms. the gap to the regulatory frontier over time. And in any Calculation of scores for economies with 2 cities given year the score measures how far an economy is covered from the best performance at that time. For each of the 11 economies in which Doing Business Treatment of the total tax rate collects data for the second largest business city as well The total tax rate component of the paying taxes as the largest one, the distance to frontier score is indicator set enters the distance to frontier calculation in calculated as the population-weighted average of the a different way than any other indicator. The distance to distance to frontier scores for these two cities (table frontier score obtained for the total tax rate is 13.1). This is done for the aggregate score, the scores for transformed in a nonlinear fashion before it enters the each topic and the scores for all the component distance to frontier score for paying taxes. As a result of indicators for each topic. the nonlinear transformation, an increase in the total tax rate has a smaller impact on the distance to frontier score for the total tax rate—and therefore on the distance to frontier score for paying taxes—for economies with a below-average total tax rate than it would have had before this approach was adopted in Doing Business 2015 (line B is smaller than line A in figure 14.2 of the Doing Business 2016 report). And for economies with an extreme total tax rate (a rate that is very high relative to the average), an increase has a greater impact on both these distance to frontier scores than it would have had before (line D is bigger than line C in figure 14.2 of the Doing Business 2016 report). 4 See Djankov, Manraj and others (2005). Principal components and unobserved components methods yield a ranking nearly identical to that from the simple average method because both these methods assign roughly equal weights to the topics, since the pairwise correlations among indicators do not differ much. An alternative to the simple average method is to give different weights to the topics, depending on which are considered of more or less importance in the context of a specific economy. 5 For getting credit, indicators are weighted proportionally, according to their contribution to the total score, with a weight of 60% assigned to the strength of legal rights index and 40% to the depth of credit information index. Indicators for all other topics are assigned equal weights Doing Business 2016 United Kingdom 106 Table 13.1 Weights used in calculating the distance to implemented regulatory reforms making it easier to do frontier scores for economies with 2 cities covered business in 3 or more of the 10 topics included in this year’s aggregate distance to frontier score. Changes Economy City Weight (%) making it more difficult to do business are subtracted Dhaka 78 Bangladesh from the total number of those making it easier to do Chittagong 22 São Paulo 61 business. Twenty-four economies meet this criterion: Brazil Armenia; Azerbaijan; Benin; Costa Rica; Côte d’Ivoire; Rio de Janeiro 39 Shanghai 55 Cyprus; Hong Kong SAR, China; Indonesia; Jamaica; China Beijing 45 Kazakhstan; Kenya; Lithuania; Madagascar; Mauritania; Mumbai 47 Morocco; Romania; the Russian Federation; Rwanda; India Delhi 53 Senegal; Togo; Uganda; the United Arab Emirates; Jakarta 78 Uzbekistan; and Vietnam. Second, Doing Business sorts Indonesia Surabaya 22 these economies on the increase in their distance to Tokyo 65 Japan frontier score from the previous year using comparable Osaka 35 data. Mexico City 83 Mexico Monterrey 17 Selecting the economies that implemented regulatory Lagos 77 reforms in at least three topics and had the biggest Nigeria Kano 23 improvements in their distance to frontier scores is Karachi 65 intended to highlight economies with ongoing, broad- Pakistan Lahore 35 based reform programs. The improvement in the Moscow 70 Russian Federation distance to frontier score is used to identify the top St. Petersburg 30 New York 60 improvers because this allows a focus on the absolute United States improvement—in contrast with the relative improvement Los Angeles 40 Source: United Nations, Department of Economic and Social shown by a change in rankings—that economies have Affairs, Population Division, World Urbanization Prospects, made in their regulatory environment for business. 2014 Revision. http://esa.un.org/unpd/wup/CD- ROM/Default.aspx. Ease of Doing Business ranking Economies that improved the most across 3 or more Doing Business topics in 2014/15 The ease of doing business ranking ranges from 1 to 189. The ranking of economies is determined by sorting the Doing Business 2016 uses a simple method to calculate aggregate distance to frontier scores, rounded to 2 which economies improved the ease of doing business decimals. the most. First, it selects the economies that in 2014/15 Doing Business 2016 United Kingdom 107 Doing Business 2016 United Kingdom 108 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Law library News on the Doing Business project Online collection of business laws and regulations http://www.doingbusiness.org relating to business http://www.doingbusiness.org/law-library Rankings How economies rank—from 1 to 189 Contributors http://www.doingbusiness.org/rankings More than 11,400 specialists in 189 economies who participate in Doing Business Data http://www.doingbusiness.org/contributors/doing- All the data for 189 economies—topic rankings, business indicator values, lists of regulatory procedures and details underlying indicators Entrepreneurship data http://www.doingbusiness.org/data Data on business density (number of newly registered companies per 1,000 working-age Reports people) for 136 economies Access to Doing Business reports as well as http://www.doingbusiness.org/data/exploretopics/ent subnational and regional reports, case studies and repreneurship customized economy and regional profiles http://www.doingbusiness.org/reports Distance to frontier Data benchmarking 189 economies to the frontier Methodology in regulatory practice and a distance to frontier The methodologies and research papers underlying calculator Doing Business http://www.doingbusiness.org/data/distance-to- http://www.doingbusiness.org/methodology frontier Research Information on good practices Abstracts of papers on Doing Business topics and Showing where the many good practices identified related policy issues by Doing Business have been adopted http://www.doingbusiness.org/research http://www.doingbusiness.org/data/good-practice Doing Business reforms Short summaries of DB2016 business regulation reforms and lists of reforms since DB2008 http://www.doingbusiness.org/reforms Historical data Customized data sets since DB2004 http://www.doingbusiness.org/custom-query Doing Business 2016 United Kingdom 109