Understanding the upcoming changes
A hefty £40 billion of tax rises was announced in the Autumn Budget 2024 presented by Chancellor Rachel Reeves. This includes National Living Wage and Employer National Insurance Contributions are set to increase significantly from April 2025 as well as other changes such as:
- increases to capital gains tax rates with further uplifts in relation to some business disposals from both April 2025 and April 2026
- change in approach for businesses utilising double-cab pick up vehicles, coming into effect in April 2025
- plans to restrict inheritance tax agricultural and business property reliefs from April 2026.
We have detailed these increases and the tax changes breakdown on our website resources page - Autumn Budget Summary.
Strategic considerations for business owners
The above changes and adjustments are expected to elevate operational costs, meaning businesses will need to reassess their financial strategies. Many businesses have already taken drastic measures such as making redundancies and closing branches due to the potential impact of rising costs. However, with cashflow forecasting and considering the strategies below, you may be able to ride through the upcoming economic storm.
Cashflow management tools
Accurate cash flow management becomes even more crucial when costs are rising. It’s important to have a clear understanding of how the upcoming tax changes and increase in wages and National Insurance Contributions will affect your financial obligations. By creating a robust cash flow forecast, businesses can ensure they have enough liquidity to meet short-term commitments while continuing to invest in long-term growth. This also enables business owners to spot potential cash flow gaps before they become a problem, allowing them to make adjustments early.
Your accountant will have access to tools that can help you input all the relevant factors that will impact your business specifically as well as help project different outcomes based on different strategies. An example of such a business planning tool is Futrli, which is a platform we use regularly at LWA to help clients with regular management accounts and forecasting.
Review your pricing strategy
Raising prices is a common response to rising costs, but this decision should be made with careful consideration. While it may seem like an easy way to offset increasing wage expenses, businesses must balance the need to protect profit margins with the desire to retain customers. A well-thought-out pricing strategy should account for the competitive landscape, customer expectations, and perceived value.
Consider implementing small, incremental price increases across certain product lines rather than a blanket hike across all offerings. This approach can help ease the burden of rising costs while still maintaining customer loyalty.
Retailers like Next have adopted strategic pricing to manage increased wage costs. Next announced a 1% price increase on certain clothing items to offset an anticipated £73 million rise in staff wages and taxes. This approach allows businesses to address financial pressures without significantly alienating customers.
Improving efficiency in your business processes
In addition to price increases, businesses should explore ways to increase operational efficiency. Technology can play a key role in reducing administrative overhead and improving productivity. For example, investing in automation tools or streamlining operational processes can lead to significant cost savings. At LWA, we have utilised Cloud Accounting software and Artificial Intelligence to both improve our processes which has massively helped clients, but also by introducing these tools to clients, we have helped them implement efficiencies to help grow their businesses.
Efficiency improvements not only help mitigate rising costs but can also improve overall business performance, making your organisation more resilient in the face of financial pressures. Take a close look at internal processes to identify any inefficiencies that can be improved without compromising the quality of your products or services.
Workforce planning
With the upcoming wage increases and higher employer NICs, it’s important to evaluate the financial impact on your workforce. Be prepared for the added expense of paying higher wages, but also consider reviewing staffing levels and assessing where efficiencies can be made. By examining your team’s productivity and the changing demand for specific roles, you may find opportunities to optimise staffing costs. This could involve restructuring shifts, offering more flexible work arrangements, or cross-training employees to ensure you’re operating as efficiently as possible without compromising customer service or staff morale.
LWA’s business advisory service is here to help
Since 30th October 2024 when the Autumn Budget was announced, our tax and accounting teams have been helping clients prepare for increased business costs set to come into place this April, through personalised advice as well as monthly newsletters and blogs.
If you are worried about how the upcoming changes might impact your business, and would like bespoke advice, please get in touch with us and we’d be happy to help. You can contact our Manchester office on 0161 905 1801 or our Warrington team on 01925 830 830, or email us to mail@lwaltd.com.