Inflation is seen as the scourge of modern economies and has attracted plenty of barbed comments about its effect.
Former US president Ronald Reagan took a pretty apocalyptic view by saying: “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.”
Describing it on a more personal level, legendary US comic and lover of the odd tipple, W C Fields, added: “How is the human race going to survive now that the cost of living has gone up by two dollars a quart(of liquor)?”
Comical, but it puts it in very human terms as he sees the cost of living, the cost of his liquor rising steeply.
Tax comes in under the radar
With everything that’s affecting the economy, inflation is a real concern for small businesses. It is now at a 30-year high, having hit 6.2 per cent in the 12 months to February.
There are many reasons, not least supply chain shortages pushing up prices, the imminent increase in domestic fuel prices, the Ukraine war pushing up oil prices, rising interest rates, an increase in the minimum wage and a series of tax rises.
- Some taxes have been obvious like the National Insurance increase, which the Chancellor this week mitigated by raising the threshold by £3,000. This means people must earn £12,570 per year before paying income tax or NI, but others have been more under the radar, like the Plastic Packaging Tax, due to be introduced in April.
It comes into force on 1 April as it seeks to tackle the problems of litter and waste from single-use plastics.
SMEs urged to be prepared
Accountants can help businesses to be ready for the tax and to sign up for the PPT if they produce or import 10 or more tonnes of plastic packaging within a 12-month period.
The tax will apply to plastic packaging manufactured in or imported into the UK containing less than 30 per cent recycled content. The tax will be charged at a rate of £200 per tonne.
Many SMEs will feel the pain of this indirectly as the cost of raw materials is pushed up as a result of this extra tax burden.
All of these rises cause hardship for both SMEs and their consumers and makes it critical that their accountants not only help them cope with increased paperwork and compliance, but can advise them on ways to mitigate the worst effects of spiralling inflation.
Accountants can help businesses by advising on:
Keeping borrowing costs down
Counter rising interest rates by seeking to fix borrowing costs.
Looking for customers ready to spend now
Businesses with surplus cash might invest in capital investment projects previously put on hold. There may be tax breaks and customers might now decide to invest in a project before prices rise.
Increasing your sales
A tough one, but increasing sales volume could allow you to keep your prices on hold, which again could attract new customers.
Areas could be in insurance and energy costs, admittedly difficult at the moment, while investment in technology could result in big savings.
Accountants are there to advise on strategy and potential tax savings and how technology can help.
To facilitate that, they can call in a partner like GI Outsourcing who offer a number of services.
These include undertaking many compliance tasks and advising on the purchase, implementation and training on the latest cloud-based accounting technology.
Rising inflation hurts, but accountants and outsourcing partners can help mitigate that pain.
Contact our UK-based team of account managers today to find out how we can help your firm.