To support businesses, the government introduced the Energy Bill Relief Scheme in 2022. The scheme effectively brings the wholesale energy unit prices down to 21.1p and 7.5p per kilowatt hour (kWH) for electricity and gas.
From 1 April 2023 an amended support scheme will provide businesses a discount of up to 1.96p and 0.7p per kWH for electricity and gas on their contracted rates, with higher discounts available for energy intensive industries (predominantly manufacturing).
Energy suppliers are currently committing to forward contracts for Summer 2023 and into Winter 2023/24 which imply wholesale prices of approx. 38p and 12.5p per kWH for electricity and gas.
Even after factoring in the new discounts this suggests those on variable tariffs will be facing 60-70% price increases from 1 April 2023. Those who committed to fixed rate contracts during late 2022 may be facing even larger increases.
The National Living Wage will increase to £10.41 for people 22 years-old and over from 1 April 2023, an increase of 9.7%. Younger workers will also benefit from a similar percentage increase in their hourly rates. This will mainly impact sectors dependent on large numbers of low-paid workers such as hospitality, retail, agriculture and the healthcare sector.
While the statutory increase impacts those currently on minimum wage, many businesses will continue to find themselves under pressure from all workers to deliver wage rises to temper the impact of inflation. Staff who do not benefit from the statutory increase may argue that the governments rise of 9.7% for those on minimum wage establishes a benchmark for their own discussions.
Staff costs are often the largest single expense of any business, no matter what sector you operate in. Any wage increase will result in a substantial impact on profit margin that is unlikely to be easily passed on to customers in the current economic environment.
It was confirmed in both Liz Truss’ mini-budget in September 2022 and then Rishi Sunak’s ‘Autumn Statement’ that Corporation Tax will increase to 25% from 1 April 2023.
The change will impact any corporate making profits of over £50,000. Those making over £250,000 will pay the new 25% rate in full, whilst corporates with profits between £50,000 and £250,000 will benefit from tapered relief. For example, a company making £75,000 profit will pay an effective Corporation Tax rate of 21.5%.
While many headlines are capturing the impact on the individual’s income, there is a significant burden on the horizon for businesses also.
The upcoming legislative changes from 1 April 2023, on top of existing commercial pressures that businesses are struggling to navigate as a result of the cost of living crisis and the aftermath of COVID-19, will undoubtably impact businesses future.
Any forecasts directors prepare (we recommend all businesses have a 13-week cash flow forecast in place at minimum) need to start factoring in these additional headwinds when considering liquidity and profitability of the business going forwards.
We always preach that early consultation by directors maximises options and the chances of recovery or rescue for a business. But in our experience problems can often be swept under the carpet until it is too late to take positive action and it is a self-confident director who can acknowledge they don’t have all the answers to the challenges their business is facing.
There shouldn’t be stigma around directors seeking advice at any time. Current events are beyond the control or influence of any management team and frankly we could all do with some support navigating our way through the current minefield.
Due to COVID-19, many businesses are carrying legacy debts (such as tax deferrals and emergency borrowing) far greater than any they would have taken on given free choice. With energy prices and input goods prices soaring over the last 18 months and consumer wallets being continuously pinched, most businesses are already taking steps to cut costs in an effort to keep the lights on (no pun intended!).
At Crowe, we have an experienced team of restructuring and insolvency professionals who can advise you on the best course of action, depending on your business’s circumstances. Please get in touch with either Vince Green or Steven Edwards who lead the team, or your usual Crowe contact.