Business cash…there’s a lot around25 January 2023
The cost-of-living crisis is hitting most households, and perhaps is set to get worse before it gets better. There is much news on this personal finance topic; however, businesses, SMEs, partnerships, and companies are also seeing costs rise, particularly with wage increases and energy costs.
Corporation tax increase -tax year 2023/2024
It should also be noted that the main rate of corporation tax is set to be hiked next tax year (April 2023) to 25% from 19%, piling more pressure on businesses to maintain their cash flow. You might want to look at how this will affect your business now to plan any future additional tax costs. More on this topic may be found on the GOV.UK website here:
Maintaining a business cash position
Many businesses correctly maintain a healthy cash position to mitigate the vagaries of day-to-day and month-to-month trading conditions. More detail on the cash reserves of UK businesses may be found in the Office Of National Statistics (ONS) report from October 2022 here:
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You should keep your business cash reserves and liabilities under review regularly, whilst maintaining a healthy cash flow position where possible.
Cash earning some interest
Indeed, many businesses hold significant sums with their banks at low interest rates. In recent years, with the base rate very low, interest was a bit unlikely on a business account. For many, no action was required. However, with UK base rates now running at 3.5% and perhaps going higher (not guaranteed), receiving deposit interest returns on business cash at over 1.75% pa AER gross with instant access is reasonably easy to achieve.
Don't get me wrong, these are not significant returns; however, your money should be working with you, rather than achieving not a lot. Apathy can reign in this regard for business cash.
Deposit Protection Limit - £85,000
For most small to medium enterprises (SMEs), the deposit protection limit of £85,000 is applicable, so please remember this when protecting your overall cash position. Keeping any existing facility within these limits might be worth considering.
It is clear that the pressure on the cash position for most businesses may well increase with internal costs, and also external costs, particularly corporation tax. Business profits might be reduced by making pension contributions where suitable, and this might form part of an overall future strategy for reducing your corporation tax liability. Speak to your adviser or accountant on this topic to see what can be achieved.
Taking action with your business cash position now might not increase returns significantly. However, apathy in not shopping around to see what returns can be achieved for your business cash might well be costly over time.
No individual advice is provided during the course of this blog.
Keith Churchouse FPFS
CFP Chartered FCSI
Chartered Financial Planner
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