The Government’s first budget since March 2020 brought few surprises for companies across the country as Chancellor Rishi Sunak sought to further support the economy so heavily damaged by the COVID-19 pandemic. There were fears in the business community that the chancellor would introduce significant tax hikes and taper business support to pay for the enormous impact of the virus, but those fears have been quelled for the time being at least. Despite that, business leaders have expressed concern over the long-term implication of the pandemic and the speed at which the UK economy will recover.
Of most significance to the UK business community is the Corporation Tax Increase. The rate for corporation tax is currently 19% but will rise to 25% in April 2023. For small businesses with profits of less that £50,000 the rate will stay the same through the small profits rate. For companies with profits of more than £50,000, corporation tax will be tapered with only those earning profits of £250k plus paying the top rate. It means that 70% will be unaffected while only 10% will pay the top rate.
Elsewhere the current 5% VAT cut for tourism and hospitality businesses is extend until 30 September, with a 12.5% interim rate for a further six months. The standard 20% rate returns in April 2022. Meanwhile, business rate relief continues for retail, hospitality and leisure continues; the business rates holiday continues to the end of June, with a discount of up to two-thirds to a value of £2m for closed businesses.
The Chancellor also called for an investment-led recovery, and announced plans to support that through super tax deductions for companies making significant infrastructure investments. From April 2021, the deduction will cut companies tax bills by 25p for every £1 spent on new equipment – meaning they could reduce their taxable profits by 130%.
The importance of budgeting
While the current budget hasn’t squeezed companies to the extent first feared, it does hint at the future. We are by no means out of the woods with the pandemic yet, and the budget is a fair reflection of that. There is also a gradual transition toward normal life and toward normal trading for businesses. That means inevitably that Government support will taper and end, and that’s something business must be prepared for.
One of the simplest ways for organisations to do that is to keep an eye on their spending by setting a budget for procurement categories. By doing so, you are able to build cash reserves that will keep the organisation liquid, and more importantly operational during an economic downturn. In fact, it’s just plain good business practise, but very few companies actually do it.
“We often find that companies don’t know what they are spending, or with whom,” says I-Tel’s Melvin Gauci. “Indirect procurement categories – the things that keep the business running – are really important, but costs can spiral quickly if they’re not managed and monitored. Setting a quarterly or yearly budget for those categories gives much needed clarity and control. Moreover, it gives you the flexibility to plan for future investment or to be prepared for unforeseen difficulty.”
How I-Tel can help
One of the things I-Tel specialises in helping businesses to gain control of their operational purchasing (indirect procurement). By analysing what you’ve spent, when and with whom, they’re able to show you where cash is being leaked and where savings are being made. Clients typically make around 10% cash savings in the first month after working with I-Tel, and continue to save money in the months that follow – but the real value lies beyond that.
By showing companies where they’re losing money, those organisations are able to plan and budget for specific areas of spend. This naturally leads to reduced costs and improved efficiency – both of which improve cash flow and support long-term economic and environmental sustainability. It also brings with it the ability to safeguard jobs, jobs which in the long-term can support the growth of the business. It’s a clear demonstration of how a small step can have significant long-term impact on an organisation.
“People think that budgeting and cash saving mean compromising on quality or service,” Mel says. “But that simply isn’t true. For example, if you move your office equipment supplies to a single source, you can leverage economies of scale to make cash savings. The benefits go beyond money of course. When we consolidate supply chains for our clients, we build-in efficiency too. Their storage and deliveries are consolidated, and their invoicing and paperwork is reduced dramatically – that has a significant environmental impact.”
“And because we continually monitor and benchmark their spend categories, we mitigate a lot of the risk and a lot of the disruption that causes, so there’s peace of mind baked in too. It really provides a stable footing for companies to build and grow.
“But, it inevitably comes full circle to simply being aware of where your money is going and making a plan to use it well – that’s something that a lot of companies could be doing better and will need in the coming years. It’s the foundation on which businesses thrive.”
To find out how I-Tel can save you time and money, call us on 029 2049 2111