January 5, 2022
There’s no denying 2021 was another turbulent year for business owners.
The fallout from Brexit, labour shortages, increased costs and the ongoing impact of the pandemic were just some of the challenges they faced. That said, there were a lot of positives to take from the year too – especially in our region – with the Teesside freeport opening in November, the number of registered businesses in the region increasing and the level of business confidence in the North East remaining steady.
With fresh uncertainty afoot, though, it’s more important than ever to take a proactive approach and stay agile to flex with changes. As such, we’ve outlined some of the business-critical considerations to have front of mind when forward planning.
More than half of businesses in our region have been looking to recruit new full-time members of staff. However, many have been stinted by a severe skills shortage.
We’ve also seen growing pressure to pay higher salaries to retain key members of staff, which isn’t always feasible. If you don’t have the capacity to match higher salaries paid elsewhere, enterprise management options could be a route worth exploring. Rewarding employees with shares in the company, for example, can be a tax-efficient way of attracting and retaining talented teams. Another option is to adopt an employee ownership model of business, which is becoming increasingly popular with SMEs. By giving your team a say in how the company operates and allowing them to benefit from growth in the share value of the business, employee ownerships help reduce staff turnover and increase engagement But it’s worth keeping in mind that restructuring your business is a complex process, so it’s vital to have the right advisor by your side.
Tax on dividends, NIC and corporation tax rates are all set to rise. So, it’s no surprise that business owners are becoming more worried about how these tax rises will impact their organisations and future profitability. As the Government looks to claw back the huge amount of money spent during the pandemic supporting individuals and businesses, there is the potential of other tax rates to rise moving forward. With this in mind, now is the perfect time to undertake a comprehensive review of your tax position. This will give you a clear understanding of any situations where you could be exposed to changes in the future, allowing you to forward plan and manage your finances in the most efficient way possible.
As ever, cashflow remains high on the agenda for business owners. With COVID-19 support measures, such as the Job Retention Scheme, having drawn to a close, businesses are operating in a completely different landscape now than they were last year. On top of this, we’ve seen businesses facing larger customers using their buying power to extend payment terms, which is having a significant impact on cashflow for SMEs.
Creating a clear and robust cashflow forecast can go a long way when it comes to strategic planning. In an ideal world, your forecast will take the best and worst case scenarios into account, so you’re ready to adapt and adjust your plans. Cloud accounting systems can also assist. Cloud software can provide you with real-time information, allowing you to make accurate forecasts and projections. And, although the Government’s rollout of Making Tax Digital has been delayed, don’t let this discourage you from moving your systems online now. The benefits of automation and better business data will put your business in a much stronger position.
There is a whole array of tax incentives and reliefs available to businesses in the UK. By reducing your corporation tax bill, or in some cases generating a cash refund, the reliefs can act as a real cashflow buoyancy aid. One of the most valuable reliefs is research and development (R&D) tax credits. It’s seen a massive uptake over the past few years, with more than 82,000 companies having been supported by the relief in 2019/2020 alone, but the North East remains a laggard in comparison to other regions.
For those who dare to innovate, push the boundaries of science and technology, and find solutions to technical challenges, R&D tax credits present a critical opportunity to claw back money spent on qualifying activity. And with the scope of relief expanding to include cloud computing and data costs as of April 2023, the relief is set to open up to even more businesses. If you’re looking to invest in machinery for your business, whether it’s manufacturing equipment or apparatus to help drive sustainability, the capital allowance super deduction is definitely a route worth exploring. The relief provides a 130 per cent deduction on qualifying investments, allowing businesses to cut their tax bill by up to 25p for every £1 they invest from now until March 31, 2023. The temporary £1 million cap on the annual investment allowance has also been extended until 2023, so now is the time to take advantage of the relief if you are considering investing.
For many business owners, the pandemic was an opportunity to embrace change. We’ve seen businesses adapt, pivot and thrive in the last year and now a lot of owner managers are setting their sights on growth. A key question to ask yourself is, ‘what, why, and how do I want to grow?’
For those looking to grow organically, setting goals from the outset is the key to measurable growth. If organic growth is your aim, you should be conscious about taking on good clients, profitable projects and making sure everything fits in with your ethos of what you’re doing as a business going forward. You should be looking to work on the business, not in the business, freeing up time to look at strategy, business development and growth plans. On the other hand, a buy-and-build acquisition strategy could be more suited to your objectives. If your business operates in a congested and competitive market sector, it could be the most effective way for you to grow and achieve critical mass quickly. There are lots of important considerations to bear in mind with acquisitions, including strategy, value proposition, funding, due diligence and ultimately the business case. Buy-and-build is a proven concept, but there are lots of potential pitfalls, so make sure you have a suitable expert on hand to advise where necessary.
With uncertainty ahead, navigating your way through 2022 might seem like a daunting task. But you don’t have to struggle on your own. The value of having the right advisor by your side cannot be underestimated. They will be able to act as a sounding board for advice and will provide an expert eye to spot opportunities that might have otherwise been overlooked. They will look beyond your numbers, answer your questions and help you gain greater insight into your business, to help it thrive in the year ahead.