Building business resilience with tax

Last month, the government announced the biggest tax-cutting budget for 50 years. It was a ‘mini-budget’ with big impact and marked itself as a ‘go-for-growth’ statement. On 17 October, new Chancellor Jeremy Hunt reversed almost all the key measures announced in the 'mini-budget'. In particular:

• the previously announced reduction of corporation tax rate to 19% from 1 April 2023 has been reversed
• the increase in the rate of corporation tax to 25% will go ahead
• the repeal of the IR35 reforms have been reversed – the 2017 and 2021 reforms will now remain in place.

Considering all the above, there will inevitably be some sectors – particularly those that are most vulnerable to inflation – that will need support to mitigate rising costs and to managing cash flow.

What practical steps can business leaders take to access cash savings and improve cash flow?

It's important for business leaders to focus on the impact of overall taxes on working capital and the bottom line. In challenging times, there are various early interventions businesses can take that may provide some breathing space.

Many of these relate to good business practice and housekeeping, such as implementing operational efficiencies, managing exposure to risk, reducing costs, and improving working capital. Tax can play a role in all of these.

These four pointers may help you navigate the current economic instability the greater confidence:

1 Agree a payment plan with HMRC

We’ve seen an increase in tax deferral and time to pay arrangements since March 2020. When businesses are in arrears or are forecast to be so, HMRC can often be one of their largest creditors. Agreeing a payment plan with HMRC can provide a degree of certainty moving forward.

2 Manage cashflow

Accelerating the VAT recovery on purchases through input tax accruals and thinking about optimising your VAT return stagger periods is a sensible and relatively straightforward way to manage cashflow and improve working capital.

3 Maximise your tax reliefs

Are you maximising all your tax reliefs, for example those relating to R&D tax relief and capital allowances, to unlock value and if you have losses can you turn these into cash now? This is particularly relevant given the recent confirmation of the headline corporation tax rise to 25%.

Maximising value from losses and corporate tax reliefs is an area where we've seen great success with some of our clients. For example, we've worked with businesses to look at how they’ve historically treated capital expenditure for tax purposes. Where they've had a large pool of ineligible expenditure, we've been able to support a change in treatment to generate substantial tax savings.

4 Optimise your employee benefit packages

While salary sacrifice arrangements can deliver tax savings for employers and employees, for pensions, the bike to work scheme and electric cars, they don't result in more cash in your employees' pockets.

Structuring a comprehensive and well thought through benefits package is a strong practical measure that employers can consider in order to attract and retain employees amid the ongoing battle for talent.

Next steps

There are various practical measures that businesses can take to reduce their tax bills and manage the impact of taxes on their working capital.

However, there's no one-size-fits-all solution, so you need to find a strategy that works for your organisation. 

For more information and guidance, get in touch with Rachel Engwell. 

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