Challenging Times Ahead for Small Businesses
September 30, 2022 2:18 pm
With the news full of a looming recession, the cost-of-living crisis, falls in the value of sterling and interest rate increases the next few months and beyond is likely to be a challenging time for businesses of all sizes.
Smaller businesses can often find themselves less able to adapt to a quickly changing economic climate or market because they don’t have management accounting processes in place (as their larger counterparts do), giving them less oversight of the full implications and the ability to plan effectively.
Understanding the numbers
Having robust management accounts, financial budgets and forecasts in place at such a volatile time can make a very real and positive impact on the decisions you need to make as a business owner.
Whether it’s projecting potential dips in sales as consumer confidence falls, forecasting your cashflow given increased costs, or understanding the implication of the fall in Sterling, being able to look forward over the next 3, 6 or 12 months and model the implications enables early intervention and planning to reduce the risks.
In this latest blog post we look at some of the changing external factors that could impact your business when planning for the months ahead.
Interest rates
Interest rates have been rising over the past year as the Bank of England looks to control inflation. With rates currently at the highest they have been for 14 years and predictions of significant rises ahead, the increased cost of borrowing for businesses will have a big impact on their cashflow, particularly when many businesses are still trying to overcome the impact of the pandemic and may are repaying debt taken out at that time.
Value of Pound Sterling
A sustained lower value for Sterling will again have a significant impact on costs, and therefore margins, for businesses that rely on the import of products or raw materials. For many, spiralling costs, and lack of supply because of COVID, has already put them under considerable pressure.
Energy Costs
For many businesses the uncertainty of increasing energy costs has been a major concern, particularly those in the manufacturing or leisure sectors that have high energy consumption.
The Energy Bill Relief Scheme recently announced to support non-domestic customers has brought some welcome relief but with an initial period of support between 1st October and 31st March 2023 uncertainty will continue for what will happen longer term.
The scheme will provide energy discounts during the period for businesses, not for profit and charitable organisations as well as those in the public sector such as hospitals, schools, and care homes.
The discounts will be applied automatically by energy companies and will be eligible for those on existing fixed price contracts agreed on or after 1st April, those signing new fixed price contracts as well as those currently on variable tariffs.
Full details of the scheme can be located here.
Changes to Taxation
On Friday 23rd September, Chancellor Kwasi Kwarteng presented The Growth Plan 2022, outlining changes to the tax system and business support schemes. The plan is intended to boost the UK economy against a backdrop of a looming recession.
This mini budget included a wide range of changes but the key ones for businesses are detailed below.
Corporation Tax
The proposed increase to Corporation Tax due to take place from 1st April 2023 has been scrapped with the rate remaining at 19%. This change means that companies will pay less tax on their profits and ensure that cash remains within the business.
National Insurance
On 6 April 2022 the National Insurance (NI) rates increased by 1.25% – the increase was introduced as the Health and Social Care Levy to support the NHS post pandemic.
This has now been reversed with effect from 6th November 2022 and the additional funding to NHS covered by Government Borrowing.
This will see both Employee and Employers NI reduce back to pre-increase levels as below:
• Employer’s NI 13.8%
• Employee’s NI 12%
Dividend Tax Rates for Company Directors
In April this year, dividend rates for self-employed directors increased by 1.25% to 8.75% for basic rate taxpayers, and to 33.75% for higher rate taxpayers. The increase has now been scrapped meaning that company directors who pay themselves through dividend payments will be better off.
Need help with Forecasting & Budgeting?
At First Call Financials we help many small businesses to understand the numbers so that they can effectively plan and forecast the impact of such changes. If you would like help to understand more about the recent changes to taxation rates, or support with forecasting the impact of the wider economic climate on your business, please get in touch.
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Categorised in: Business, National Insurance, Self-employed
This post was written by Steph Roffey
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