by Acuaccounts | May 24, 2022 | accounting
The UK economy contracted in March according to the Office for National Statistics, amid rising costs and consumer cuts in spending. Services, accounting for 80% of UK gross domestic product, contracted by 0.2%, with retail sales down by 1.4% and spending on cars falling by more than 15%.
Meanwhile, nearly half of the 3,000 companies recently surveyed by the Bank of England expect the war in Ukraine, spiralling energy costs, supply chain disruption, absences due to sickness and trading difficulties to negatively impact business performance.
How to mitigate the rising cost of doing business
The British Chambers of Commerce have called for an emergency budget addressing rising business costs with a three-point action plan to include a reduction of VAT on energy bills from 20% to 5% for at least one year, postponement of the National Insurance increase and reinstating free Covid tests for companies to ease the strain on persistent high absences.
Furthermore, businesses across the UK are reporting widespread supply chain disruption, with ONS data showing that over a quarter experienced global supply chain disruption in the past month, a figure that increases to 52% among UK manufacturers. In addition, 78% of small businesses experienced their costs rising according to the FSB.
There are a number of steps every business can take to mitigate and manage the rising cost of doing business:
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Review spending
First, reducing the impact of rising costs starts with knowing exactly how much your business is spending and where these costs are allocated. Every outgoing should be evaluated based on its impact on business success. Hopefully, this exercise can help you to identify ways to mitigate rising costs. In addition, your business can identify which costs are essential to your business and monitor them closely. If you need help with your spending review, feel free to get in touch with a member of our team at info@acuaccounts.com.
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Benchmark suppliers
Benchmarking your key business suppliers helps to identify whether your business is getting the best deal. A regular review of all supplier spending can save your business money. Any type of supplier comparison has to be on a like-for-like basis.
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Audit energy use
The rising cost of energy makes a business energy audit vital. A business energy audit will assess everything affecting energy usage and efficiency. Energy audits look at everything from the structure of your building to the equipment in use, providing an in-depth understanding of the current energy usage. The audit will identify ways to reduce energy spending as well as the environmental impact of your business.
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Pass cost increases on
Mitigating the impact of rising business costs can require raising prices to account for these costs. Often considered a last resort, the prospect of passing the rising costs on to customers can be daunting and risky, even when necessary.
How to raise prices without losing customers
More than two-thirds of UK businesses expect to increase their prices, according to the latest quarterly survey by the British Chambers of Commerce. This number is the highest since the survey began in 1989.
If your business is considering a price increase, here are a few steps to do so without alienating loyal customers.
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Research past increases
Knowing how your customers have reacted to past price increases allows your business to set expectations and learn how customers have adjusted to price changes in the past.
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Communicate the price change internally
Everyone in the business should be informed of the pricing changes in advance to allow time to prepare the right messaging for customers.
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Be transparent with your customers
Prepare a communication plan to introduce the new pricing structure to your customers. Be transparent on the reasoning behind the higher price and prepare for any questions your customers might have. Always communicate your value proposition to your customer and tell them what they can expect from your business.
During the current business climate, B2B and B2C clients are likely to expect price changes from your business. You can consider raising your prices gradually or providing different pricing options for your products and services.
Raising prices in a transparent and open manner can be a long-term opportunity to foster customer loyalty.
Do you have questions about what comes next about the business? Any concerns on how to manage your taxes and business in 2022? Want to better understand how to make your tax digital?
Have a look at our services and feel free to get in touch with us. You can book a consultation at info@acuaccounts.com or call us directly on 0203 907 9027.
by Acuaccounts | Mar 29, 2022 | accounting, selfemployed, tax, tax return
Chancellor Rishi Sunak unveiled his Spring Statement on March 23rd, amidst the fastest price increases seen in the past 30 years.
Inflation is expected to peak at 8.7% in the final quarter of 2022, with significant effects on individuals and small businesses. Energy costs alone are estimated to rise on average by 54% from April 2022.
The Spring Statement included announcements on cuts in fuel duty, it raised the threshold at which people start paying National Insurance from July and included a pledge to cut the basic rate of income tax before the next general election.
Summary Points of the Spring Statement 2022
The key points announced in the Chancellor’s spring statement are as follows:
- Fuel duty was reduced by 5p per litre for one year
- The increase in National Insurance Contributions (NIC), called the Health and Social Care Levy, will go ahead as planned from April 2022
- The threshold to start contributing NIC will rise from July for Class 1 employees NIC, Class 2 self-employed NIC and Employers NIC (for smaller employers)
- The basic rate of income tax will be cut by 1% from 20% to 19% from April 2024
- The planned reforms for R&D relief to be implemented from April 2023 will go ahead with some exceptions to the block in deductions for oversees R&D work including clinical trials, regulatory reasons and geographical factors. Furthermore, companies will be able to claim R&D relief on projects supported by pure maths. Further reforms to R&D relief are being considered and expected to be published in the summer
- VAT on energy-saving materials like insulation will be reduced from 5% to 0% from April 2022 to April 2027
- The Apprenticeship Levy will be reviewed to determine whether the scheme is “doing enough”
- A review of the Enterprise Management Incentives has concluded that they do not require reform
- Several tax reliefs will be simplified or removed in the lead-up to 2024
How to prepare for the changes in National Insurance Contributions and Thresholds
Businesses and employers must ensure that their payroll systems are ready to handle the increase in NICs in April 2022 and the new Health and Social Care Levy in April 2023.
In addition, changes to the threshold which will increase when NIC has to be paid will come into effect on July 6th 2022. According to HMRC, the increase in the threshold should save the typical employee over £330 per year.
Changes to National Insurance Contributions for employees and employer
From April 6th 2022, the Class 1 rate of National Insurance Contributions will be increased from 12% to 13.5% on earnings between £9,880 and £50,270 per year. Contributions on earnings of more than £50,270 will increase from 2% to 3.25%.
From July 6th 2022, the threshold to pay the new increased rate of 13.5% for Class 1 NIC will increase from £9,880 as it stands currently to £12,570. No changes will apply to incomes above £50,270.
The changes in NIC will impact take-home pay for employees across the board. For example, an employee making £25,000 per year today has a net income of £20,662. From April, their net income will be reduced to £20,511 and increased again from July to £20,867. This increases take-home pay for an employee earning £25,000 between today and July by £205.
On the other hand, an employee earning £60,000 today takes home £43,489. Their take-home pay will decrease to £42,900 in April and increase again to £43,257 in July. The employee will take home £232 less from July.
The contributions to National Insurance paid by employers will rise from 13.8% to 15.05% in April 2022.
Changes to National Insurance Contributions for the self-employed
The self-employed pay Class 2 and Class 4 NICs depending on their profits.
Class 2 weekly contributions to National Insurance will increase to £3.15 a week in 2022-23. Class 4 rates on the other hand will increase by 1.25%.
However, the lower earnings limit thresholds will be increased to £12,570 reducing the tax burden on profits for most self-employed people in the UK.
Currently the self-employed with profits up to £9,568 pay £3.05 per week (Class 2), and Class 4 contributions of 9% kick in for profits between £9,568 and £50,270 in addition to Class 2. From July 6th 2022, the self-employed making profits under £12,570 will not have to contribute to National Insurance.
Class 3 contributions, usually paid on a voluntary basis to avoid contribution gaps, will increase from £15.40 per week to £15.85 per week from July 2022.
Changes to National Insurance Credits for state pension etc.
Paying National Insurance builds an employee’s entitlement to certain benefits, such as the state pension. The lower earnings limit to receive a National Insurance credit will remain at £6,396 for employees.
For the self-employed, the current weekly flat-rate contribution will be scrapped for profits between £6,515 and £9,568. Anyone exceeding the new increased small-profits threshold of £6,725 will continue to receive National Insurance credits.
The 2022 Spring Statement can be accessed in full at https://www.gov.uk/government/publications/spring-statement-2022-documents
Do you have questions about the Spring Statement? Any concerns about payroll and upcoming changes in National Insurance Contributions? Have a look at our services and feel free to get in touch with us.
You can book a consultation at info@acuaccounts.com or call us directly on 0203 907 9027.
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