Beware of cost increases beyond your control

Whether you are on the side of the cliff edge believers or those who think the UK can glide majestically down the slipway and off into the blue yonder with a tiger in its tank, it’s probably wise to park the Brexit worries for a period and ponder on some other potential threats to your business.

Bankroll the payroll

We’ve heard a lot recently about pay caps and pay freezes and the daily struggle of the “just about managing” in our society. Add to that The Institute for Financial Studies figures suggesting current growth in UK living standards is the worst it’s been in 60 years and it’s clear that most people aren’t getting much of a pay rise these days.

However, whilst the government might be reluctant to consider a pay review for workers it directly employs it has no qualms when it comes to indirectly fattening the pay packets of your employees.

The National Living Wage; introduced on 1 April 2016 for all working people aged 25 and over is currently set at £7.50 per hour. It is due to rise again in April 2018 to £8.05, followed by a £8.50 hourly rate in April 2019. And although The Office for Budget Responsibility has figures that show the government may fail to reach its promised £9 an hour by 2020 it is unlikely to be binned altogether.

These may be small numbers when looked at in isolation however one only has to consider the annual impact for a small business employing 20 people on the living wage. Without the benefit of any staff appraisals the wage bill for a standard 8 hour, five day week will rise by £440 come April 2018. Annualise that and it comes to almost £23,000 and equates to a 7.5% pay rise per employee.

Twelve months later another rise would add close to £19,000 to that.

Not to mention a pension

Just like London buses salary related increases all seem to come along at once. The Workplace Pension Scheme, which makes it a legal duty for employers to enrol eligible staff into a pension and make contributions to it, will also cost more from April 2018.

Employers minimum contributions are currently 1% of salary however this is set to rise to 2% next year and then 3% in 2019.

There are also administrative costs to consider when running a pension scheme as there are continuing responsibilities and ongoing duties to carry out after the initial staging date.

For example new starters must be assessed and if eligible put into a pension scheme. Furthermore, every three years any eligible employees who previously opted out, or stopped saving into the scheme, must be put back into it.

Obviously the admin work can be outsourced to specialist organisations or can be done in-house. Either way compliance is essential; a quick glance at the regulators list of penalty options reveals a range between a simple £400 fixed penalty notice to a Civil Penalty Notice which may cost £50,000 for non payment of contributions. Failure to pay that, or continuing non-compliance, could lead to a two year spell at Her Majesty’s Pleasure.

Making Tax Digital is coming, not yet, but it’s coming

Rather like the dreaded “B” subject the government’s plans to make businesses report their tax affairs electronically on a quarterly basis attracts doomsayers and champions in equal measure. It also resembles our cross-channel negotiations in that there are a lot of differences of opinion about the implementation costs to firms.

Unlike the dreaded “B” subject however this particular hot potato has been delayed due to those very concerns over costs. From 2019 only businesses with a turnover above the VAT threshold (currently £85,000) will have to keep digital records (and only for VAT purposes). The jury is still out on when other taxes will be included but 2020 is being mooted.

It’s an interesting one this. What with the popularity of online banking, online shopping, cloud based accounting packages, taxi apps and the ability to control your central heating on your mobile phone from miles away, it’s a surprise it’s taken this long to get tax online. Surely even the most dyed in the wool business owner who enjoys nothing more than the annual scramble through the shoebox of receipts can see the benefits?

As for the costs to business, there are differing views drawn along not unexpected lines. Those who stand to benefit from MTD say it will be cheap whilst those who will have to pay (and those who lobby for those who have to pay) say it won’t.

The government’s sums come up with an average figure per business of £280. The Federation of Small Businesses thinks it will be closer to £3,000 when extra time and additional staff costs are taken into account.

Clearly those businesses already au fait with other digital platforms and with the technology in place to cope with them will have a slightly easier and cheaper time of it.

For those yet to embrace the workplace computer your time in the dark ages might be coming to an end. Let’s face it - it might be difficult to justify why your business accounting is done from a shoebox whilst your turf accounting is done via your iPhone!

The alternative would be to outsource the problem to a specialist company or an accountant – for a fee of course.

No mate’s rates here

Business rates continue to cause concern for many qualifying businesses still reeling from the property revaluation implemented earlier this year. The revaluation, originally planned for 2015, was delayed for two years to the annoyance of many forced to continue paying rates based on “top of the market 2008 rents”.

The subsequent delay to 2017 saw the revaluations based on higher 2015 values rather than those of 2013. This meant that in a lot of cases extremely sharp increases resulted with some London based firms having to find another 60%.

It is true that the chancellor also introduced a number of relief measures for those most affected however the Federation of Small Businesses has warned of “chronic delays” in the delivery of these measures.

If all that wasn’t enough businesses now need to prepare for the scheduled rise in rates due in April 2018. Unfortunately the rise will be based on September’s Retail Prices Index and this particular measure of inflation hit 3.9% just at the wrong time.

To add to the misery the UK’s key inflation rate also rose to 3% in September prompting many to predict an interest rate rise anytime soon. For the retail sector in particular, any drop in footfall due to customers tightening their belts coinciding with a rise in business rates could spread the gap-toothed look of our high streets even further.

Gigging all over the world

The shift from permanent employees to freelancers on short-term contracts, fashionably known as “the gig economy”, has many advantages for workers and employers alike. For example a remote freelancer working online has the flexibility to work at times and places of his or her choosing. Online platforms also offer employers a much wider scope when choosing a freelancer for a particular job as they are no longer restricted to a local area or even just to the UK.

However, one does have to be aware of the contrasts between short-term contracts and zero hours arrangements and between white collar remote freelancers and blue collar workers on-site. One only has to look at the flack fired at Uber, Sports Direct and Deliveroo to see the minefield that is the definition of a self-employed contractor or an employee with rights. Getting it wrong can be costly.

Whether full time or “gig”, businesses have a legal obligation to provide all individuals with a safe working environment and/or employment rights. From a financial standpoint it is essential to classify employees correctly to comply with compulsory employer’s liability insurance. Businesses who fail to have appropriate cover can be fined up to £2,500 for each day it’s not in place.

There are of course other potential intangible costs to a business using gig economy workers. Some businesses are concerned that this very lack of permanence could lead to a less dedicated and motivated workforce.

Perhaps more worrying is the possibility of employing someone on a short-term contract involving sensitive company data who then moves on to a competitor a few months later.

All in all, making sure you get it right in the first place is going to at least cost something. If you get it wrong then putting it right is likely to cost a lot more.

And then….

With the run up to the festive season fast approaching it is hoped that this article won’t put a dampener on the celebrations but forewarned is forearmed and planning for likely cost increases is essential.

And who knows, Mr Hammond may have some welcome presents in his Autumn Budget box to smooth the way forward for businesses.

Steeve Leeves