The upcoming tax year may prove challenging for many businesses as it starts off on the back of the highest rise in inflation in decades (predicted to reach 8.7% in the final quarter of the year), a recent rise in interest rates (the third in a few months) with possibly more to come and an energy crisis currently developing threatening to affect the day to day running of many operations.
With the cost of living already dominating the headlines, the upcoming rise in taxes announced back in the 2021 Autumn Budget will see not only employees face higher tax bills but could also threaten businesses by affecting cashflow and recruitment. With the start of British Summer Time now behind us and the end of the tax year mere days away, it is a great time for businesses to reassess their finances. Today we look at what the important changes for your business are and how asset-based lending can support businesses through the turbulent economic climate ahead.
Upcoming changes – the 2022/2023 tax year
After two years of deep uncertainty as the pandemic developed, this new tax year was originally expected to see the looming shadow of the virus finally eclipsed by plans to get the country back on its feet. However, with only days before the new tax year begins, there were still calls for the Government to rethink a planned increase to National Insurance to protect taxpayers from an existing energy crisis exacerbated by the war in Ukraine and the resulting sanctions on Russia and its oil distribution.
In response to current events, Chancellor Rishi Sunak unveiled the contents of his Spring Statement on the 23rd of March and announced some modification to some of the plans unveiled during his Autumn Budget.
For businesses, some of the most important changes are:
- National Insurance: the tax will increase by 1.25 percentage points for employers and employees across the UK to help fund health and social care costs in England. However, the income threshold at which point people start paying the tax will also rise to £12,570 in July, a move which Mr Sunak says will be tax cut for employees worth over £330 a year.
- Dividend tax: Also set to increase by 1.25 percentage points with the basic rate now at 8.75%, a higher rate at 33.75% and the additional rate at 39.35%. Investors that earn money from company shares may be liable to pay the tax, but only on the amount earned above the dividend which remains unchanged from the current £2,000 allowance.
- The Employment Allowance, which gives relief on National Insurance payments for smaller businesses will increase from £4,000 to £5,000.
With plans already drawn to increase Corporation tax in April 2023, the rises could create new challenges for the business community. Earlier this year the Federation of Small Businesses already warned that more than 50,000 jobs at UK SMEs are at risk from the National Insurance hike, estimated to cost them alone about £5.7bn.
When asked about how he expects businesses will cope with the announced changes Ultimate Finance’s Chief Financial Officer, Neil McMyn, says, “The resilience of UK businesses has been tested relentlessly for the past two years. We have seen them navigate through many crises, from periods of high inflation to a global pandemic, and many have come out stronger on the other end.”
“But the harsh reality is that there were some that could not see it through unfortunately or perhaps would not have seen it through if it weren’t for benefiting from the support offered at the time. The Government helped keep businesses afloat during the worst of the pandemic with schemes such as Furlough and Business Interruption Loans preventing a flurry of insolvencies, but these have now all ended. However, funding remains accessible through business lenders such as Ultimate Finance, and asset-based lending has been proven to be a great tool to support businesses in meeting their ambitions.”
“Business owners must prepare themselves today for more challenges for the period ahead as resilience alone may no longer suffice. With some of the challenges of the last few years yet to be officially behind us and the impact of new hurdles already being felt, it is vital they understand what funding options are available to them to help them keep moving”.
So, what should businesses do today to prepare for the potential challenges ahead?
Helping keep businesses moving in times of economic uncertainty
The end of the tax year is a good time for businesses to review their finances and plan for the period ahead, especially in times of economic uncertainties.
Businesses should now set aside the time to look at their current operating costs and gain a robust understanding of their current financial position and what it may look like over the next 12 months.
Introducers such as brokers, accountants, and financial advisers also play a pivotal role in this preparation phase. With their expertise and understanding of financial options currently on the market they can work alongside lenders to ensure their clients benefit from the right funding option for them.
Although traditional bank loans and overdrafts may help plug the gap for some businesses, tailored facilities accessible via asset-based lending could help support ambitions further by targeting an area of growth or challenges to overcome.
Ultimate Finance’s asset-based lending proposition
At Ultimate Finance we have been supporting the ambitions of UK businesses for 20 years now, and we have finessed our proposition to provide flexible and tailored funding solutions that help keep businesses moving.
For most businesses, perseverance will be determined by a constant and solid access to cashflow to prevent unnecessary additional disruptions to trade. Where businesses sell to other businesses, Working Capital Finance solutions can help access the cash tied up in invoices yet to be paid to help service new customers, order more stock, or even pay staff wages. Facilities can be tailored with solutions designed to meet the needs of the construction and recruitment sectors, the ability to receive additional support with credit control and collection of payments, and extra piece of mind via debtor protection to prevent non-payments from harming a business.
If cashflow is at the top of priorities for most businesses, for many hard assets such as vehicles, plant and machinery is not far behind. Asset Finance helps with the acquisition of assets necessary to accelerate or sustain growth or to just keep moving. Cashflow remains protected with the absence of hefty deposits and the ability to plan ahead with monthly instalments, and businesses can opt to keep the asset once the facility expires. And with Refinancing solutions, companies can access the valuable cash behind existing assets to reinvest it as per their needs.
Finally, Bridging Finance can help with a host of business needs where property is concerned. Bridging Loans let businesses borrow the funds they need quickly so they never need to miss a great opportunity because of cashflow constraints.
And because we’re solution-led, we understand that when it comes to the right solution it can sometimes come from more than just the one asset. With our approach to Structured Finance, we can provide funding against a mix of receivables, plant and machinery and/or property to maximise the release of capital into a business.
How can capital allowances help with tax relief?
Alongside funding, capital allowances can help support businesses with tax savings and cashflow benefits. Allowances let taxpaying companies write off the cost of certain capital assets against taxable income in the place of accounting depreciation which is not normally tax deductible.
Businesses planning on acquiring eligible plant and machinery before March 2023 could benefit from the super-deduction on capital allowance to help them save on tax, and if they use a Hire Purchase facility via Asset Finance there are additional cashflow advantages as the benefit from the super-deduction applies in the first year of the facility and the tax benefits become accessible before the acquisition costs are fully paid back.
For more information on capital allowances, you can read our Head of Finance’s article on everything businesses should know about super-deduction.
Your funding partner of choice
As an independent company ourselves we understand what businesses need, and we are proud to have provided the right funding solutions to help thousands of businesses meet their ambitions and we remain committed to working with Introducers to help UK SMEs keep moving.