By Pauline Green, below, Head of Product Compliance & Program, Intuit QuickBooks
As the Autumn Budget approaches, small businesses are facing growing uncertainty, with speculation swirling around possible changes to dividend tax thresholds, corporation tax relief, and employment allowances. These potential changes could significantly impact financial planning and business operations, making it essential for owners to stay informed and be prepared.
Despite these challenges, there is optimism across the landscape. According to the latest QuickBooks Small Business Insights report, many businesses have reported revenue growth, particularly driven by e-commerce and easing cost pressures. In the three months leading up to July 2024, 28% of small businesses saw revenue growth, nearly double the rate from January. This positive trend signals that businesses are adapting and finding stability even amidst economic pressures.
A key driver of this growth is the rise in e-commerce, with 45% of small businesses now generating over half their sales online—a marked increase from April 2023. While this shift presents strong growth opportunities, it also demands flexibility, especially in light of potential tax changes. Here are three essential steps you can take now to ensure your business is ready for any potential changes announced in the upcoming Autumn Budget.
1. Take Dividends Now to Avoid Potential Tax Increases
For many small business owners, dividends are a common way to withdraw profits from their companies. These payments are often more tax-efficient than salaries or bonuses, but they are still subject to dividend tax rates.
With the Autumn Budget fast approaching, there is growing speculation that the government may increase dividend tax rates or reduce the tax-free allowance as part of an effort to balance the books. For SMBs and sole traders who rely on dividends for additional income, delaying until after the budget could result in higher taxes and reduced take-home pay.
Taking dividends before the budget could allow you to lock in current tax rates and avoid any potential increases. Now is the time to review your business’s financial position and consider declaring and taking dividends before the budget announcement. However, it’s crucial to consult with your accountant or financial advisor before making any decisions. They can help assess whether taking dividends early aligns with your overall financial goals and ensure that you aren’t putting your business at risk.
While taking dividends now may offer tax savings, every business is different, and professional advice can help you avoid unintended consequences.
2. Maximising Tax Reliefs Through Reinvestment in Business Assets
Reinvesting discretionary funds into business assets is a smart way to fuel growth and take advantage of tax reliefs ahead of the upcoming budget announcement. The UK offers various schemes to incentivise business investment, including R&D tax credits and full expensing, which allows companies to deduct the full cost of qualifying assets, like machinery and technology, from their taxable profits.
Now is a good time to review what tax reliefs your business may be eligible for and how to take advantage of them before the budget announcement. Sit down with your accountant to explore which tax reliefs apply to your business and whether reinvesting your spare cash into assets could provide immediate tax savings.
The paperwork involved in claiming EU tax credits for R&D can be a drawn out process but they seem to be quite generous towards SMEs, including super deductions of 230% of qualifying R&D expenses, so it’s certainly worth investigating. Qualifying project expenses can include salaries, contractors, subcontractors, software, consumables, water, fuel and power.
3. Recovering Owed Cash by Enforcing Payment Terms and Implementing Dynamic Pricing
With inflation and supply chain disruptions driving up costs, businesses must ensure they are not leaving money on the table. Delayed payments can disrupt cash flow, making it harder to cover expenses and plan for the future. Similarly, static pricing in a volatile economy may mean that businesses aren’t fully passing on rising costs to customers, leading to shrinking profit margins.
Now is the time for SMBs and sole traders to examine their invoicing processes and pricing strategies more closely. Ensure that payment terms are clear and enforced consistently, and consider offering incentives for early payments to improve cash flow. In addition, explore the benefits of dynamic pricing to reflect fluctuating costs. For example, adjusting prices in response to rising supply costs could increase revenue without reducing demand, helping your business maintain healthy profit margins.
Preparing for the Autumn Budget is essential for small business owners looking to safeguard their financial stability. By taking proactive steps, you can better navigate the uncertainties of the budget and set your business up for success in the months ahead. Implementing these changes ahead of the Autumn Budget could strengthen your business’s ability to navigate future economic or regulatory challenges.
