Budget red book spells danger for small businesses

13 December, 2018

In the last budget before Brexit measures were introduced that potentially puts businesses everywhere in the UK under even more pressure. With locally run and chain businesses seemingly closing their doors or locations every week could Mr Hammond’s measures mean this rate of closure increases year on year?

HMRC has been given greater priority when it comes to recovering taxes in the event of a business’s bankruptcy with the Chancellor suggesting the move is designed to help combat tax avoidance, but industry experts claim it could simply transfer losses from the Treasury to the private sector.

It makes perfect sense that tax payers’ money that businesses are holding on HMRC’s behalf should be collected first. However, we don’t think the HMRC has thoroughly considered the potential impact of this on businesses, given the current challenging financial climate. Although we like, and support the principle we fear it will cause additional difficulties for businesses.

Asset-based lenders and banks will undoubtedly be more cautious when offering loans secured on a fixed or floating charge basis. When calculating the risk, lenders will be considering the VAT and NI liability of the borrowing business to understand what their chances of recovery will be in the event of that business failing to meet its repayments.

This will surely result in higher interest rates because the risk calculation is higher. It could also impact existing financial agreements, where lenders look to re-negotiate based on the change of law.

We support the views of leading accounts UHY Hacker Young, who recently warned that ordinary trade creditors will be pushed further down the pecking order, ordinary suppliers could be left out of pocket and employees could see significantly smaller pots of money available to them when their businesses go bust, because more money will go to HMRC.

While we agree that tax collected by businesses should be paid first, when investigating a little deeper this potentially puts businesses under even more pressure, both in terms of reduced lending opportunity and in the collection of monies in the event that a business they are supplying goes into administration and monies are allocated to HMRC first.

It could be that Mr Hammond had not considered the impact or indeed, if he has, it seems slightly conflicting to the Conservative Party rhetoric, since its members consider themselves to be pro-business and committed to delivering a budget for the ‘strives and the grafters’.

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