In the Autumn Budget, Chancellor Rishi Sunak unveiled his plans for government taxation and spending over the coming year.
This included points such as business rates reforms, radical changes for alcohol duty, as well as changes to taxation and universal credit.
However, the issue which most interested UK businesses was the rise in the National Minimum Wage and National Living Wage to £9.50 an hour from April 2022, meaning that the average full-time worker will receive an extra £1,074 a year before tax.
So, what does this mean for UK businesses who are already reeling from the coronavirus pandemic? We investigate the impact of the minimum wage increase on businesses below…
How will the increase impact UK businesses?
Although Mr Sunak said that the increase in wages “ensures we’re making work pay and keeps us on track to meet our target to end low pay”, there will of course be a knock-on effect on prices – with smaller businesses facing the heaviest burden and the biggest impact of the minimum wage increase.
In fact, Kate Nicholls, Chief Executive of UK Hospitality, says that the wage increase means that small businesses who are emerging from coronavirus with a “shattered balance sheet” will face particular challenges.
To put it simply, the cost of being an employer is soaring. Not only are businesses already fighting to get back on track thanks to the end of the furlough scheme whilst also repaying any government-backed loans they might have taken out during the pandemic, but now there’s an increase in wages too.
And that’s not all: an increase in wages also means a hike in National Insurance contributions, income tax contributions and pension schemes – which is far from ideal when a number of businesses are already close to breaking point.
What should I do if I can’t afford to pay National Living Wage or National Minimum Wage?
It’s a criminal offence not to pay your employees either the National Minimum Wage or the National Living Wage. Not doing so could result in a hefty fine from HMRC (up to 200% of the amount underpaid), and you will have to repay your staff all the money they are owed too.
In sum, if you can’t afford to pay your staff, you need to take action – and fast. A licensed insolvency practitioner will be able to help and advise you on any concerns, and will suggest practical steps forward to help rectify the situation.
Options to consider if you can’t afford to pay National Living Wage or National Minimum Wage:
1. Review your cash flow
Start things off by taking a good look at your cash flow (these 10 tips are a good place to start!), and be sure to review all of the money coming in and out of your business daily so that you can be aware of what expenses are coming up when, and plan ahead accordingly.
By creating a cash flow forecast, you will be able to figure out how much cash you will need to make it through the next few months, which means you can then progress your plan to take back control.
2. Cut costs
If your business needs more cash, the most obvious thing to do is to try and cut costs so you can save money where possible. Make sure you carefully consider where to cut costs and look at each expense and question it.
Are any of the expenses you currently pay not essential? Could you move offices to a cheaper location? Could you speak to your suppliers to see if you can arrange a better deal? Discover more top cost-cutting advice here.
3. Consider additional finance
If you think that your business is still viable and just needs a bit of extra time to get back on track following the pandemic, it could be worth taking out some form of short-term funding or additional finance.
However, it goes without saying that any additional finance you take out will need to be paid back, so this is only really an option if you are completely confident that your business is viable.
4. Explore government schemes
Although the furlough scheme has now ended and it is too late to take out a Bounce Back or Coronavirus Business Interruption Loan, there are still alternative support options available if you act fast.
One such scheme is the Recovery Loan Scheme which enables businesses to take out loans of up to £10 million, with the government providing 80% backing to the lender. The scheme is open until the 31st of December – so if you think this is something that could work for you, it’s important to act fast.
5. Company voluntary arrangement
A company voluntary arrangement, or CVA, is a popular business rescue option that gives companies some much needed breathing space in time to recover.
It’s a contractual agreement between a company and its creditors whereby you pay back your creditors what you can afford over a set period of time. After the time is up, your debts are written off.
6. Creditors’ voluntary liquidation
Finally, if the mounting pressure is just becoming too much and you can’t see a way out, it might be that the only way forward is to close down your business and start again.
If your business isn’t viable, you need to stop building up debt and act fast – and a creditors’ voluntary liquidation or CVL is the best way to close your business down quickly and legally. Discover more about the CVL process and how it works in this blog.
If you are concerned about the impact of the minimum wage increase on your business, the most sensible thing you can do is to seek help as soon as possible.
Contact McAlister & Co today to discuss the right way forward for your business. With over 20 years of experience, there’s nothing our team doesn’t know about business rescue and recovery, so there’s no one better placed to help.