TIME IS MONEY : LATE PAYMENTS ‘ STIFLE ’ SMALL BUSINESSES , REPORT SHOWS
The Federation of Small Businesses ( FSB ) has released a report that uncovers the true scale of damage caused by the late payments crisis as entrepreneurs say : ‘ enough is enough .’
FINANCE
Time is Money : The Case for Late Payment Reform , exposes the insufficient measures in place to hold big businesses to account and calls for a level playing field for smaller firms .
This comes alongside a Department for Business and Trade ( DBT ) prompt payment and cash flow review , which ends in Spring , and looks at improving arrangements to support small businesses experiencing difficult payment practices .
Findings include on average through 2022 , quarter-onquarter :
• 52 % experienced late payment .
• 25 % reported increased late payment .
• The most affected sectors include education , construction , administrative , professional , scientific , transportation , IT , arts and human health and social work .
The report highlights the impact of late and delayed payment on small businesses and the public ’ s expectations around prompt payment :
• 37 % of applied for credit to manage their cashflow .
• 62 % of the British public say businesses should be paid within a week .
• 55 % of the British public would support more controls .
Time is Money contains proposals for the Government , including :
• Give audit committees of large firms oversight of payment practices and reporting on progress in their annual report .
• Publicly commit to limit the maximum payment terms to small suppliers in law by 2027 if the situation does not improve .
• Bar late payers from public procurement contracts .
• Impose 30-day payment terms , which should be a maximum throughout supply chains .
• Mandate the Small Business Commissioner to investigate potential instances of poor payment proactively , instead of only when a complaint has been made .
• Make the Prompt Payment Code ( PPC ) mandatory for all local authorities .
• Create a new local authorities Payment Practice League Table with financial incentives for those at the top and bottom for England .
FSB Policy Chair Tina McKenzie said , “ Enough is enough .
Late payments in the UK have continued to spiral out of control , while since 2019 Ministers lost the momentum and enthusiasm to make a difference .
“ We now need to reinvigorate this agenda , and to push for growth and productivity - the best way to do this is to sort out the UK ’ s poor payment culture . Our report highlights the urgent need for change and the importance of fair payment practices and sets out a clear set of reforms .
“ Small firms are already being stretched beyond their limits with rising energy bills , rampant inflation , and a mounting
cost of living crisis . Cash flow is already tight , and that is compounded by being kept waiting months for invoices to be paid , which a serious roadblock to growth and investment . This also hinders productivity due to the excessive time and effort expended on chasing late payments . It ’ s a double whammy that is stifling business success , and in turn holding back the UK ’ s economic recovery – but is something that ’ s entirely avoidable .
“ Big businesses shouldn ’ t be using small firms as a bank . It ’ s time for them , too , to step up and take responsibility for poor payment practices .
“ These reforms will make a clear difference to the bottom lines of small firms right across the economy . Thousands of small firms are unnecessarily going bankrupt every year due to late payment practices . We are determined to eradicate this issue and the current Government could use Time is Money as a catalyst for change .”
For more info : www . fsb . org . uk
ADVERTISING FEATURE
Planning for the new financial year for your business by Michael Blaken , Accounts Director
In what was billed as a steadying Budget , with few attention-grabbing headlines for business owners , one area of taxation that was confirmed was the planned increase in Corporation Tax .
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This , as promised by the Chancellor , went up on 1st April and the impact could be significant for business owners , particularly those controlling more than one company . Here ’ s what the change has entailed . Corporation Tax has risen from 19 per cent to 25 per cent for companies with profits of £ 250,000 and above . Smaller companies , with profits of up to £ 50,000 , continue to pay Corporation Tax at 19 per cent , with marginal relief in between .
However , there is a significant change for businesses owners with more than one company – known as ‘ associated companies ’ – and how these are now dealt with for Corporation Tax purposes . This didn ’ t apply when there was the flat rate of tax across the previous eight years .
Where a business owner controls more than one company , HMRC has reintroduced the rule whereby the tax brackets of £ 50k to £ 250k are divided by the number of
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associated companies . If the owner has two companies , £ 50k and £ 250k brackets will be divided by two . Therefore , instead of paying the top rate of Corporation Tax at £ 250k , the higher rate kicks in at £ 125k – in effect , paying a higher rate on a lower level of profits . Where owners have multiple companies , this could increase their tax liabilities considerably .
Clearly , company owners and directors will need to look at ways to offset any increase in their tax burden , and here the changes the Chancellor announced to pensions may be able to assist .
The current pension lifetime allowance charge has been abolished and the annual allowance has increased from £ 40,000 to £ 60,000 , although it is tapered for those on higher incomes . The annual allowance applies to the combined pension input by the individual and , in the case of employees , their employer .
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Pensions savings can be very tax efficient for company owners , and diverting more money into a pension should help reduce any Corporation Tax burden . However , it ’ s important to seek advice from a financial adviser before making any pensions decisions .
The Chancellor also made an announcement about business investment . The Annual Investment Allowance ( AIA ), giving 100 per cent tax relief to invest in qualifying plant and machinery , is now permanently set at £ 1million . The superdeduction scheme , which gave enhanced 130 per cent relief for new qualifying plant and machinery acquired , ended in March , but has been replaced by a ‘ full expensing ’ scheme ( effectively reducing taxable profits by the full cost of the qualifying additions ). So , there are still incentives to invest profits , again mitigating the Corporation Tax burden .
Freezing fuel duty also provides significant
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help to businesses . Carriage and motoring can account for a hefty outlay for all businesses - even if not a direct cost , they are certainly an indirect cost . Keeping these down , will help keep ever-increasing costs restricted .
If you would like some help or advice on tax planning and business planning for the financial year ahead , please get in touch with Michael Blaken , Accounts Director at Optimum Professional Services .
email : mblaken @ optps . co . uk or call : 01793 538 198
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THE BUSINESS EXCHANGE 2023 27 |