We predicted a gloomy economic outlook, but we expected worse news. That also seems to be the rhetoric from many people after yesterday’s Autumn Statement announcements.
‘Eye watering’ tax increases were expected, as well as potential percentage points added to dividend and income tax rates which never materialised.
The main driver for the announced tax rises is the ‘fiscal drag’, essentially a slowing in the economy’s growth. Tax bands and allowances were frozen, meaning more people would pay taxes for the first time or higher rates.
It seems business owners are in a rock and a hard place. After all, when one eye is fixed upon your destination, only one eye is left to find the Way. The Autumn Statement and prior reversal of tax reversals have not made it easy, and now business owners face more obstacles to navigate.
We are on course for the highest tax burden since WW2.
The dividend allowance has been halved and is to reduce further in 2024. The additional rate at which individuals pay 45% is also now reduced. Add to the mix the increase in the corporation tax rate to 25%; many businesses will be reviewing how they can manage the new tax burden.
Businesses may find it challenging to grow and expand in this environment. And with R&D relief also being struck with the incentives reduced, it looks like an anti-growth set of policies.
A lack of staff, inflation hitting the cost base, and increased living wage will further burden businesses, especially those in the hospitality sector.
Energy support for business will likely reduce significantly in 2023; a consultation on this support is due in December 2022. One good change for those businesses was the increase in support for business rates in the hospitality and retail sectors, with this increasing from 50%-75%
Glenn Collins, Head of technical and Strategic Engagement at ACCA, commented on tax policies: “While a route map for tax changes ahead is useful, wage inflation has raised the spectre of fiscal drag. Scrutiny and transparency about the implications of these tax changes will be key, especially where taxpayers find themselves subject to additional administrative requirements. Many more businesses (and individuals) will find themselves caught in the VAT and CGT regimes at a time when HMRC is already under severe pressure.
“The aim of the statement, it appears, was to provide stability and show how we are fiscally more responsible. The picture painted was gloomy, and with the war in Ukrainian driving the cost of energy up and impacting inflation, the growth forecast for the UK is still below pre-pandemic levels, which is slower than other countries. Should there have been more incentives and impetus for growth? Taxing and reducing spending too far can not quickly drag us out of this recession. We shall wait and see; businesses need more help now than ever to navigate these changes and plan a way through.”
Small businesses must now take stock and plan ahead in 2023. Looking at costs, cash flow, and overall business strategy to remain profitable will be critical to survival and growth.
At Grenfell James, we work with ambitious companies across Warwickshire and London, using technology to simplify processes and accelerate business growth. If you need help or advice with your business growth plans, tax efficiency or profitability, don’t hesitate to contact the Grenfell James team at 01789 294 484.
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Chancellor Jeremy Hunt will deliver the Autumn Statement to MPs on Thursday, 17 November, delayed from 31 October. Currently, no exact timing is confirmed, but Thursday’s announcement in the House of Commons may start around 12.30 pm.
The Government could announce billions of pounds worth of spending cuts and tax rises, which has left the nation on tenterhooks.
Owner-managed businesses have had it tough over the past couple of years. COVID impacted income levels and created resource issues, supply chain and staffing issues.
Now, homeowners, workers and business owners are facing a tricky winter with a sharp increase in the cost of living. It is becoming harder to maintain a certain standard of living. The cost of food, fuel and energy prices continues to rise.
Atop of this, keeping up with unprecedented changes and U-turns in government budgets is unsettling.
Here we share our Autumn Statement predictions and what they could mean for business.
It is hard to stay positive when Mr Hunt warns, “we will be asking everyone for sacrifices”.
“Many owner-managed businesses may struggle as we enter 2023,” says David Murphy, Tax Director at Grenfell James. “The current pressures of interest rates, energy prices and living costs are all additional for many who still need to pay back COVID loans,” he explains.
David adds, “It looked like there would be some respite for a fleeting moment, with a reversal of the planned increase in corporation tax to 25% and dividend tax increase to 1.25%, now effective from April 2023, reducing retained profits for business owners.”
Yes, according to David.
“Worryingly, we have heard murmurings that even more tax hits could be on the way by reducing the meagre dividend allowance even further, or perhaps, more radically, aligning dividend tax rates with income tax rates,” he suggests. How could further tax hits affect businesses?
Reducing the dividend allowance or aligning dividend rates with income rates means big decisions for businesses.
David explains, “If we see more tax hits, this will affect all decision-making for small businesses. For example, do they cut down on investment or staff? More tax cuts mean business owners will need to review all expenditures and potentially raise prices to keep the business going.”
He adds, “Those Businesses who are currently eligible to receive business rates relief are also shortly going to be subject to even more increases as this support is likely to be withdrawn.”
Business growth is likely to be high on the agenda for a recovering economy.
“It would be great if we could see some positivity from the government, deploying measures that point to growth and keep the economy going,” offers David.
“However, all of the talk about filling the ‘£50 billion black hole’ suggests this would be difficult,” he explains.
David adds, “Many sectors are crying out for further help with energy costs, business rates and VAT – none more so than the hospitality sector. Reducing VAT to 15% or lower could help to stimulate growth.
Whatever the Autumn Statement unveils, it is already clear that small businesses will have to take a step back in 2023 and look at their costs, cash flow and overall business strategy to remain profitable.
We remain cautiously optimistic. Britain is a nation of many successful entrepreneurs and forward-thinking businesses.
At Grenfell James, we work with ambitious companies across Warwickshire and London, using technology to simplify processes and accelerate business growth.
If you need help or advice with your business growth plans, tax efficiency or profitability, don’t hesitate to contact the Grenfell James team at 01789 294 484.
Grenfell James Technology Adoption Index
How does your business perform against others adopting financial tech? Find out with our interactive diagnostic:
How does your business receive invoices?
Invoices are mainly received in paper form
Invoices are mainly received by email
Invoices are emailed then automatically forwarded to a designated mailbox
How are purchase invoices processed?
Invoices are entered manually
Invoices are attached to manually raised invoices
Automated software (e.g. ReceiptBank, 1Tap, HubDoc etc) collates invoices
How are accounts processed?
Using Computer-based, offline software
Using cloud-based accountancy software
How often is business data revised?
Data is updated annually
Data is updated quarterly
Data is updated monthly or more often
How is banking updated for your business?
Banking is updated manually
Banking is updated by imports
Banking is updated via a live feed
How are bank payments made?
Bank payments are manual
Bank payments are made using bulk imports
Bank payments are made directly via accounting software
How are bank receipts reconciled?
Receipts are chased and reconciled manually
Receipts are chased and reconciled automatically
A third-party platform is used to chase debts and collect fees
How often are management reports produced?
No reports are provided
Reports are provided but often too late to be valuable
Reports are automated with real-time information
Your financial technology phase is Curious Exploration
% of respondent businesses are in this phase too.
Switching accountancy systems may seem like an upheaval, but can be much more straightforward than most businesses imagine. From talking to our clients, they have found moving from paper invoicing and desktop-based accounting software to the cloud and apps quickly makes the transition process a worthwhile investment of time. Digital accounting solutions bring in streamlined processes, up-to-date business data and greater confidence in the accuracy of information when making financial decisions.
Grenfell James works with your team to fully assess the needs of your business and minimise the impact of any transitions for solutions we recommend.
Your financial technology phase is Measured Discovery
% of respondent businesses are in this phase too.
Once cloud accountancy software is in place, there’s still plenty of scope to improve your accountancy processes and make sure your business is maximising the benefits of adopting a digital accounting solution. Grenfell James assesses each business to understand how any implemented solutions are being used, identify areas for improvement and the needs of the business overall to support your business goals and achieve success.
Our team of experts can discuss a range of time-saving automation and get different apps and cloud-based solutions talking to create and manage a digital accountancy eco-system to help your business grow.
Your financial technology phase is Bold Innovation
% of respondent businesses are in this phase too.
You know the benefits of accounting technology and the impact it can have on your business goals. If you want to take it a step further, our team can conduct a systematic review of your processes, apps and business goals to ensure your digital accountancy ecosystem is keeping pace with the changing needs of a growing business.