Lloyd Powell, head of ACCA Cymru Wales
Who would have guessed at the start of 2020 that the pandemic would still be with us? But here we are at the start of a new year wondering what the impact will be of recent Covid-19 restrictions.
Over Christmas, there was a lot in the news about 2022 being a financial squeeze for many – individuals and businesses alike – due to rising inflation and also fuel and energy costs increasing because of supply costs.
It’s yet to be seen what the real impact will be to businesses and households, but many are bracing for a significant bill.
ACCA’s chief economist, Michael Taylor says inflation and higher taxes will hurt real incomes and spending. The Bank of England and UK government policy makers will be keeping a close watch on inflationary pressures, especially as the base rate was increased by 0.25% in December from 0.1% which was set in March 2020. While this move didn’t come as a shock, there are rumours of other moves this year.
Predictions are notoriously hard to make, but there are some certainties ahead that business large and small need to be prepared for.
The recent announcement that HMRC is waiving late filing and late payment penalties for Self Assessment taxpayers for one month is welcomed, given the current staffing absences many businesses and their accountants, as well as HMRC itself, are experiencing due to the Omicron variant. This announcement gives businesses extra time, if they need it, to complete their 2020/21 tax return and pay any tax due. Interest will be payable from 1 February, as usual, so it is still better to pay on time if possible.
The start of the new tax year will see an increase in National Insurance Contributions (NICs) by 1.25%. This rise was announced last autumn to fund the NHS and from 2023 it will officially be named the ‘health and social care levy’. It will affect employers and employees alike.
Small businesses will also need to ensure they are up to speed with a major piece of tax reform in April 2022 – HMRC’s Making Tax Digital (MTD). Those with a taxable turnover under £85,000 who charge VAT will have to comply with this development where returns to the tax authority will be online.
2023 may seem like a long way off, but a year is short when it comes to tax as the corporation tax rate will increase from 19% to 23% in 2023. Companies with profits over £50,000 will be liable for this rate, while those below £50,000 will continue to pay 19%.
For those businesses looking to invest in new plant and machinery, tax super deduction is available until 1 April 2023 (130%) for companies. We advise asking your accountant about R&D relief and if your business could be eligible for this.
For employers of all sizes, wage inflation will be on the cards for 2022. Alongside the NICS increase, this will be significant for employers who should not be delaying recruitment or cutting back on training or employee wellbeing support at this time.
Back in November last year, Randstad UK, the recruiters, issued research that predicted the ‘the great resignation’ pointing to 1 in 4 people looking to change jobs in the future. With many are looking for new roles, employers with attractive employment perks such as inflation beating salaries, flexibility and staff support – will shine out for new recruits. It’s seemingly a job seeker’s market.
Plan ahead and use your network
This all makes for sobering reading but being prepared for what’s coming down the line, actual or perceived, is part of good planning.
Now’s the time to equip yourself with the information you need to plan ahead, and to look for ways to mitigate the risks that may arise.
For small businesses, it’s important to get finances and lending in shape. The results for our December SME Recovery Tracker with the Corporate Finance Network revealed that businesses in Wales are worryingly reliant on short-term financing like business overdrafts with uncertainty affecting growth plans.
Our Tracker also revealed that Welsh SMEs were reluctant to take a longer-term view. Fewer than 20% of SME clients were seeking finance for growth, suggesting that businesses are delaying growth plans due to the on-going uncertainty.
There are options out there to turn to for advice and solutions, from the British Business Bank, Development Bank of Wales and Capitalise for lending options. The Business Wales website remains a valuable source of information on funding options available. The latest Welsh Government COVID-19 Economic Resilience Fund (ERF) Business Support fund opens for applications on the 17 January. This fund is for businesses in the hospitality, leisure and attraction sectors and their supply chains who may have been impacted by a greater than 60% reduction of turnover between 13 December 2021 and 14 February 2022.
Now’s the time to seek advice if you are confused about such changes, with expert advice available from chartered certified accountants. Doing this means you can manage what’s coming, but also be informed about potential reliefs or support that you may be eligible for.
While there will be challenges ahead, there will also be opportunities. Welsh businesses have shown resilience and innovation in 2020 and 2021 by adapting to the changing circumstances and developing new products and services, in response to pandemic but also in response to technological change and climate change, and so there is hope that this will be sustained over 2022.
But it’s a careful balancing act as economies are interdependent on each other, nationally and globally. This interdependence can be a positive thing, as there is a power in making connections, to reach out and ask for help and advice from your networks old and new. Growing your network is certainly something to consider adding to your ‘to do’ list for 2022.
[A version of this article initially appeared in the Western Mail (print edition) on 10 January 2022]