The economic outlook

While many of our clients are continuing to be profitable and expand their businesses the negative economic outlook should not be ignored.  We have put together this bulletin to explore the issues and the action you may wish to take.  Three major aspects will be examined- recession, inflation/cost of living and tax rises.


“Recession is a drop in Gross Domestic Product (GDP) for two successive quarters.  “

The bank of England predicts we are entering a long recession. This may affect your business as:

  • Disposable income and consumer confidence drops, so customers spend less
  • Cashflow may be affected by customers delaying payment
  • Borrowing may be more difficult

Action you can take

  • It may be necessary to strengthen your cash reserves, this may mean introducing /leaving money in the business personally, deferring/spreading debt, look at loans or invoice factoring , reduce stock.
  • Manage cashflow- act on old debts now, take deposits for orders, ensure you can pay staff, consider obtaining director guarantees if limited companies will owe you money.
  • Consider a cashflow projection- we can help with this if needed
  • Monitor costs- reduce waste, reduce electricity costs, shop around.
  • Automate processes – use bank feeds for bookkeeping, send statements from software.



“The rate at which prices increase over time, resulting in a fall in the purchasing value of money.”

The inflation rate was 10.1% in September according to ONS latest figures. At the same time average 5 year fixed mortgages are at nearly 6%.

 What does this mean for business owners?

  • If you have unused cash sat in business or company accounts it may be earning no interest, so the real worth of that cash may dwindle by almost 10% over the next year at current inflation rates.
  • Consider drawing the money and reducing any mortgage borrowings, but speak to us first about tax planning issues and consider repayment charges.
  • If you benefit from a fixed rate mortgage at low rates before the recent rises it may be that there is no rush to pay off capital, as higher interest rates can be obtained than what you are paying on that borrowing.
  • Consider investing the money in the company in corporate interest accounts, cash management savings, fixed bonds, corporate unit trusts or other income generating assets to offset inflation (speak to an IFA for investment advice)
  • Review your current costs and margins, staff will likely want pay rises to maintain their cost of living, will these costs be passed on, met by efficiency savings or come from the owner's profits?.
  • If you have material costs/inputs these will increase, so how will this impact your gross profit and net profit?  For instance if you sell widgets for £100 that you buy for £50 you have a gross margin of £50 and 50%.  If those widgets now cost you £60 and you increase prices by £10 you are making £50 per widget still, but your % margin is only 45%. 


Tax rises

Interest on government debt reached an all time record this Autumn, and despite the swift removal of Truss/Kwarteng and a reversal of their tax cuts, most economists predict a period of higher taxes /spending cuts will be needed to control debt.

Another budget statement by Jeremy Hunt is due on 17 November 22, the third fiscal statement this Autumn.

The 1.25% national insurance rise for the employed/self employed, the so called Health and Social Care Levy, has now been reversed, in addition the starting threshold for NI has been raised to £12,570 meaning less national insurance will be paid per person that it was in 21/22. 

However, the freezing of the tax bands for several years is a largely unseen tax rise, with high inflation more taxpayers than ever are either paying tax for the first time or going into the high tax brackets as wages and income rise against fixed thresholds.

Corporation tax rises from 1 April 2023 are to go ahead (having been reversed and then reversed again!), so the first £50,000 of company profits will still be at 19%, and then above that a sliding increase until at £250,000 profit a 25% tax rate is paid on all profits.  Between those two points a marginal rate of 26.5% applies.  There are also rules that mean associated companies share those tax bands, so two companies with the same owners will pay increased rate form £25,000.

At the same time dividend rates which were increased by 1.25% in 22/23 are to remain at those higher rates. Any tax saving that companies befitted from has been reduced by these tax rises, so less profitable companies we may advise to disincorporate.

The VAT threshold has been frozen at £85,000 since 2017 and is set to stay until at least 2024, many small businesses will have seen their sales rise in those years and must be aware of possible VAT registration requirements.

 Disclaimer- none of the advice above constitutes investment advice and you should speak to an Independent Financial Advisor before making Investment decisions.