Business news 23 November 2023
James Salmon, Operations Director.
Autumn Statement nods to late payments culture. Record number of businesses close across the UK . OBR slashes growth forecasts. And more business news that we thought would interest our members.
Autumn Statement nods to late payments culture
In his Autumn Statement the Chancellor announced that businesses would be excluded from bidding for large government contracts (Those larger than £5m) if they have payment times of over 55 days by April 2024, reducing to 45 days by April 2025.
Legislation passed this year already means that companies securing public sector contracts have to pay 30-day payment terms within their supply chains for that specific work. The rule will now be extended to all suppliers used by companies bidding for large public contracts.
This was part of a range of measures published today in the Prompt Payment and Cashflow Review. The review found that while payment times have come down over the last decade, SMEs were, on average, owed £22,000 in late payments in 2022.
Key changes in the Prompt Payment and cashflow review include:
- Renaming and strengthening the Small Business Commissioner role, to include investigatory powers and closer links to the Department for Business and Trade to enable stronger enforcement, including more naming and shaming!
- Extending the payment reporting requirements and increasing the transparency of this data
- Improved signposting via Enterprise Hubs, trade bodies, professional bodies, HMRC and Companies House
- Improved guidance for small firms on negotiating good payment terms and further research on the impact of late payment on small businesses
- Working with the FCA to embed payment practices into ESG reporting
- Reviewing the Prompt Payment Code every two years.
The Chancellor is right to have condemned from the despatch box the scourge of late payment practices. Blocking the worst payers from Large Government contracts and increasing the reputational risk faced by those companies who think they can use their small business suppliers as a form of free credit will be an incentive for many to improve their terms. Hopefully it can reduce the stress and strain on Small business owners and also boost the credit cycle of the country and bolster the working capital of those small businesses, enabling them to grow and invest in their future.
It is certainly a step in the right direction, although CPA continues to advocate for increasing the compensation due to business who suffer late payments from their business and institutional customers, as well as reducing the maximum credit terms from 60 to 30 days.
Record number of businesses close across the UK
A record number of businesses closed across the UK last year, surpassing the “birth rate” of new businesses. The Office for National Statistics (ONS) reported that 345,000 businesses shut their doors in 2022, the highest figure since records began in 2002. Meanwhile, 337,000 new businesses started trading, down from the previous year.
The Institute of Directors (IoD) attributed the increase in closures to the cost-of-living crisis, economic fallout from Russia’s invasion of Ukraine, and the aftermath of the pandemic. The business “death rate” rose to 11.8%, while the “birth rate” fell to 11.5%, marking the first year since 2010 that more businesses closed than were created.
Transport and storage businesses were the hardest hit, with a death rate of 23.8%. London had the highest birth rate, while the East Midlands had the highest death rate. Northern Ireland had the lowest closure rate and the highest five-year survival rate.
The Autumn statement key headlines
Chancellor Jeremy Hunt unveiled yesterday the government’s tax and spending plans in the House of Commons. The Chancellor has announced a series of targeted measures to boost UK productivity primarily via private sector incentives alongside policies to lift GDP growth without triggering higher borrowing or higher inflation.
From 6th January, National Insurance paid by employees has been cut from 12% to 10%. But the gain of £10 billion will be offset by the £45 billion in extra taxes by 2029 of freezing most income tax thresholds.
The state pension will increase by 8.5% from April 2024 to £221.20 a week, as the government confirmed it will honour the triple lock
Universal Credit and disability benefits will increase by 6.7%, in line with September’s inflation rate. But welfare recipients will be made to undertake a mandatory work placement if they are still looking for a job after 18 months.
Tobacco duty has been put up by 10%, while alcohol taxes have been frozen until 1 August.
Hunt also made permanent the tax break for businesses that allows them to save on corporation tax by investing, enabling them to claim back the cost of investment against taxable profits.
The government is also extending business rate relief for many small firms, including pubs and other hospitality businesses
But the economy is forecast to grow slower than expected – 0.7% next year instead of the 1.8% previously forecast by the independent watchdog
UK indices where mixed yesterday following Jeremy Hunts Autumn statement. Midcap shares responded well to the Government’s targeted measures for UK businesses with gains approaching 0.75%, however, the FTSE 100 had modest declines.
The Autumn Budget – a slow start to cutting taxes
The most eye-catching measures announced in the Chancellor’s Autumn statement were a 2% cut in National Insurance, from 12% to 10%, and making the “full expensing” capital allowance regime permanent. The National Insurance cuts will benefit 27m working people and cost £10bn a year by 2028-29, while the full expensing of capital investment will increase business investment in the economy by about £20bn a year within a decade, according to the Chancellor.
However, the broad impression remains that the tax burden is soaring leaving people worse off. The freezing of tax thresholds will mean that by 2028, 4m more people will be paying 20% income tax, 3m more will be in the 40% band and 400,000 more will be paying 45% – that’s according to the OBR. Those threshold freezes are expected to bring in almost £44.6bn a year by 2028 – dwarfing the £9bn cut to NICs.
The Chancellor also confirmed that the state pension would rise by 8.5% in April and that universal credit and other benefits would increase by 6.7%, in line with September inflation.
Mr Hunt went on to announce steps to speed up planning approvals, subsidies for manufacturing and new investment zones. There would also be a crackdown on the long-term unemployed who failed to look for work. Responding to Mr Hunt’s statement, the shadow chancellor Rachel Reeves said it merely reinforces “the full scale of the damage to the economy” done by the Conservatives over their past 13 years.
Hunt freezes rates for small businesses
The Chancellor announced on Wednesday that the Government will freeze the small business multiplier, used to calculate business rates, for a further year. Jeremy Hunt also extended the 75% discount on business rates for retail, hospitality and leisure for another year, at a cost of £4.3bn. These measures will save the average independent shop more than £20,000 and the average independent pub more than £12,800 next year, he said. “It is a large tax cut which recognises the role of pubs and high street shops in our communities.”
OBR slashes growth forecasts
The Office for Budget Responsibility has said the UK economy will grow much more slowly than expected in the next two years with living standards not expected to return to pre-pandemic levels until 2027-28. According to the watchdog, the UK will grow by 0.6% this year. This is an improvement on previous expectations of 0.2% growth, but the OBR slashed its outlook for the longer term. It expects the economy to grow by 0.7% in 2024 and 1.4% in 2025 – down from a previous forecast of 1.8% and 2.5%. GDP will rise 2% and 1.7% in 2027 and 2028 respectively, the OBR believes. The OBR also raised its forecasts for inflation, estimating a fall to 2.8% next year from its current level of 4.6%.
Self-employed to save £350 a year in national insurance cuts
The self-employed will save an average of £350 a year from cuts to the national insurance contributions (NICs) they pay “in recognition of the contribution” they make to the country, the Chancellor has said. Plumbers, delivery drivers, and farmers will benefit from the cuts, which will take effect from April 6. The Government is scrapping the “outdated and needlessly complex” system of class 2 NICs and reducing the class 4 NICs due on earnings between £12,570 and £50,270 by one percentage point to 8%. The cuts will simplify the taxation of the self-employed and save them money.
However, the savings may be offset for many by the freezing of the income tax personal allowance and basic rate allowance. The Government will also expand the “cash basis” system of accounting for sole traders and partners in partnerships, making tax calculations simpler. Christine Cairns, a tax partner at PwC, said that this change would make a “considerable” difference. “Up to now this simpler basis had been restricted to only the smallest businesses. By making this change more businesses will benefit from the administrative relaxation. Worry about accrual accounting will no longer act as a disincentive to growth.”
Big firms welcome permanent tax breaks for investment
Jeremy Hunt’s announcement of permanent tax breaks for investment has been welcomed by Stephen Phipson, the chief executive of the manufacturing lobby group MakeUK, who said it was a “pretty historic move” and “a real vote of confidence in the manufacturing sector”.
However, the tax break is only relevant to the 1% of UK businesses that have capital expenditure in excess of £1m. “This will benefit only the largest businesses in capital intensive sectors,” said Blick Rothenberg director Simon Rothenberg. “The vast majority of owner-managed businesses will see no benefit at all.” The Government also announced measures to speed up planning approvals and grid connections to further encourage investments. Overall, the announcement aims to bolster business confidence and stimulate growth in sectors like green technologies, renewable energy, and advanced manufacturing.
Decision on expensing will be welcomed by business
The business community will welcome the decision to make full expensing permanent, says Sascha O Sullivan in City AM, with corporates desperate for a reason to be swayed back into support the Conservatives. PwC, for example, said the decision on expensing will be “massively welcomed” but reminded us of the increase in corporation tax, and the end to the super-deduction relief which came into effect in March 2023. “This certainty and long-term vision on investment policy… is a welcome signal that the UK is open for business,” the accounting firm said.
Mixed views on Hunt’s R&D tax relief
The UK tech industry has welcomed the Chancellor’s plans to create a new simplified research and development (R&D) tax relief scheme in his Autumn Statement. Jeremy Hunt will combine the existing R&D expenditure credit and SME schemes and reduce the rate at which loss-making tech companies are taxed, from 25% down to 19%. Hunt has also lowered the threshold for extra support for R&D-intensive loss-making SMEs to 30%. Chief executive of Founders Forum Group, Carolyn Dawson, said the simplified R&D relief will cheer UK business founders.
However, Hunt did not announce an increased tax relief for expenditure on digital services. Ian West, head of technology at KPMG, said this was disappointing and could result in “digital inequality” between businesses. Rachel Moore, innovation incentives partner at PwC, said: “Confirmation that the SME and large-company R&D schemes are to be merged will be met with mixed views by business.” Jay Bhatti, R&D senior tax manager at MHA, an accountancy group, said unifying the schemes was a “bad idea” and did nothing to fix critical flaws in the UK’s R&D system. “SMEs are put off claiming R&D because of HMRC’s aggressive and bureaucratic treatment of claims.”
Many high earners will no longer have to file a return
As part of plans to simplify tax administration, the Government has scrapped the requirement for high earners paying tax through PAYE to file a tax return as well. More than a third of a million people earning more than £150,000 a year will benefit from the move. The threshold was recently lifted from £100,000 to £150,000 but the entire requirement will be abolished, according to Christine Cairns, a tax partner at PwC, who said that up to 338,000 taxpayers would benefit.
Families face £2bn inheritance tax increase
Families face paying an extra £2bn in inheritance tax over the next five years as plans for cuts have been shelved. The Office for Budget Responsibility now predicts inheritance tax will rake in £47bn between 2022-23 and 2027-28, compared with the £45bn figure it gave at the Spring Budget. The main £325,000 allowance remains frozen and has not risen since 2009.
Factory Orders
UK Factory Orders have fallen to their lowest level since January 2021, the latest industrial trends survey from the CBI shows. The CBI’s monthly poll of the manufacturing sector found that total order books “deteriorated sharply” this month, to well below the long-run average.
Sage shares surge on strong profit and revenue growth
Sage shares climbed over 10% after the software accountancy company reported strong operating profit and double-digit revenue growth in its full-year trading update. The company’s underlying operating profit increased by 18%, with margins growing by 20.9%. Sage also announced a share buyback program of up to £350m. The company’s underlying recurring revenue rose by 12% to £2.1bn, driven by growth in its business cloud unit. Sage CEO Steve Hare stated that small and mid-sized businesses are continuing to digitalise, and the company is well positioned to take advantage of the market opportunity in 2024 and beyond. “Sage remains one of the more straightforward investment cases in the sector,” said Jefferies analysts.
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Why should you become a CPA member!
The Credit Protection Association (CPA) has been assisting thousands of UK businesses to get paid, since 1914. We have seen many financial crises, this one will be particularly deadly for suppliers for some time to come.
CPA eases cash from tardy debtors – Efficiently, Effectively, Economically and Ethically. And we provide credit information so you can monitor and assess your key customers.
Unlike other credit management companies, we offer our members a fixed annual subscription regardless of how high the debt value maybe!
Just call Peter Uwins, CPA’s National Sales Manager, on 020 8846 0000 (business hours) or email nsm@cpa.co.uk today.
When you see your money come in, you will be so glad you used CPA.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections
Do you have a commercial late payer that is causing you grief? Use CPA’s no-win, no-fee, commercial debt recovery service!
If you have a particular business customer who is late paying and causing you sleepless nights, why not offer it to CPA for purchase on recourse?
CPA’s collection department will then pursue the debt. We will be liable for any costs incurred and then when we have recovered the debt, we will pay you the net principle debt recovered less our percentage.
Once you have enjoyed that success then you can consider the more cost effective membership which includes our Overdue Account Recovery service and Status/Credit reports as well as a range of other complimentary services.
Just call 020 8846 0000 and ask for Godfrey Nelson or Cris Shirley (business hours) or email debtpurchase@cpa.co.uk today.
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.
Get compensated for previous late payments
Have you been paid late by business customers in the last six years?
Maybe you no longer work with them. Under legislation, you are entitled to compensation you for those late payments you have suffered.
You put up with the PAIN – now claim the GAIN!
Claim late payment compensation (LPC) from former business customers who paid you late in the last six years!
CPA (LPC) Recoveries is using our bespoke software and decades of experience to do just that for our clients
Check our compensation calculator to see how much your business could be owed!
Discover NOW the potential value of late payment compensation hidden in your sales ledger!
The Credit Protection Association – Prompting Punctual Payments – Ethical, Effective, Efficient, Economical collections.