The changes in the Bank of England interest rates are hitting not just households in the UK, but business rates and services are inevitably going up too.  What we once paid suppliers for their services have (unsurprisingly) increased, so have late payments to HMRC. So inevitably the cost of running a business as a whole, is increasing.

Here at Robinsons, we are on hand to help you manage the increase in interest rates, reduce costs and help improve profits.  There are a number of ways to do it, and having a comprehensive understanding of your existing debt, cash flow, and potential future hurdles can help you strategise for future expenses and borrowing.

Below we have highlighted a few other areas to bear in mind that will go up/down according to the Bank of England – and some may not be so obvious…

HMRC & Interest Rates

The interest rates for late and early payments are set in legislation by HMRC and these interest rates are directly linked to the Bank of England’s interest rate changes.

Therefore the interest rate for late payments and repayments, will change.

These alterations will come into play for quarterly instalment payments and non-quarterly instalment payments.

According to gov.uk

The current late payment and repayment interest rates applied to the main taxes and duties that HMRC currently charges and pays interest on are:

• late payment interest rate — 7.75% from 22 August 2023
• repayment interest rate — 4.25% from 22 August 2023

Interest Rates are applied to:

• Income Tax
• National Insurance contributions
• Capital Gains Tax
• Stamp Duty Land Tax
• Stamp Duty
• Stamp Duty Reserve Tax

Interest Rates & Planning Ahead: 

According to a recent study by Bibby Financial Services, average bad debt levels for SMEs rose by 61 per cent in February 2023 when compared to the same time in the year prior.

With the interest rate increase, repayment levels are also bound to rise. So, it is crucial that you use all available tools to manage this risk and ensure your business’s financial stability.  (one being a good accountant!)

There are options available – one such example is shifting your debts to a fixed-rate loan to safeguard your business from further interest rate increases.

Manage & Forecast Your Cash Flow 

Regularly examining your cash flow can help you understand how the rising interest rates might affect your business.

Keeping a close eye on your business’s cash flow can help to forecast and make necessary adjustments as needed.

As part of this, you must review your overheads to identify areas for optimisation.

This could include renegotiating contracts with suppliers, or even changing suppliers.

Don’t just think big though, look at the lower-level financial burdens.  For example, exploring more energy-efficient lighting in your office, to moving more to digital.  When we evaluate our outgoings for our personal mortgages, we end up finding payments for things that you no longer need or realised you even still paid for! Yet you do that every 2 or 5 years so it’s nothing new. The same applies to business.

Every small saving can contribute to your business’s long-term financial health.

Increase prices for products/services

The thought of increasing your product or service prices can feel risky, potentially impacting your customer base.  Especially as we know every client/customer is experiencing cost of living increases, not just business.

However, customers are aware of the rising interest rates and may understand subsequent price increases.  A review may also reveal that some of your prices could possibly highlight they maybe below the market rate.  In simple terms, evaluate and be prepared to increase in line with interest rates – making an increase will likely be less surprising to your customers than you think.

Summary

Maintaining good financial practices on your business finances will not only help you weather these interest rate changes but will also promote sustained business growth.