The Shorthand – what's Nadhim thinking about tax?

Welcome to this week’s edition of The Shorthand, your weekly digest of the top news stories that affect small businesses in the UK! Here, we break down the stories you may have missed during the week, detailing what they’re all about and, more importantly, why you should care.

And all that in under 5 minutes.

Go on, put the kettle on and we’ll have you caught up with the most pressing business news stories of the week by the time you’ve finished a cup of tea.

1. New Chancellor, new corporation tax?

What’s happening here?

You may have missed it, as it was oh, so subtle and largely flew under the radar, but there has been something of a rearrangement of the political order in the UK this week. That’s right, Prime Minister Boris Johnson is resigning, just days after his long-term Chancellor of the Exchequer, Rishi Sunak, stood down.?

So, the UK will have a new leader by the Autumn, but in the meantime, there is a new figure occupying the second most powerful position in government, that of Chancellor. Nadhim Zahawi, an Iraqi-born businessman and co-founder of the market research and polling giant YouGov, is the new man at the Treasury.

One of Zahawi’s first orders of business on Wednesday (bear in mind this was hours before joining a delegation of cabinet ministers calling for the PM to step down) was to say he would be reviewing the proposed rise in corporation tax from 19% to 25%, scheduled for 2023.

Why should you care?

One of Zahawi’s concerns about the proposed rise in corporation tax is what effect it might have on UK businesses’ competitiveness globally. “I want to make sure”, he said, “that we are as competitive as we can be whilst maintaining fiscal discipline.”?

The concept of global competitiveness is often associated with larger, more international corporations. What about the UK small businesses? Under the current plans for raising corporation tax, businesses with small profit margins (under ￡50,000 per year) will only pay the existing 19% corporation tax rate. Businesses with profits of between ￡50,000 and ￡250,000 will pay the higher rate but will be able to offset against marginal relief, reducing their tax bill.

We will have to wait until Nadhim Zahawi makes further announcements regarding corporation tax to see whether he may amend the tax hikes and how this will truly affect small businesses. However, the small business community can hold out hope that they will be well served by a Chancellor who, unlike his predecessor, used to actually run a small enterprise , distributing teletubbies merchandise to Marks and Spencer.?

2. Businesses could save ￡29,000 with AI

What’s happening here?

New research by Yell shows that the use of artificial intelligence (AI) can save businesses significant amounts of time and money , as well as boosting revenue.?

By utilising AI technology such as automated chatbots for customer service and automated financial reporting, the research estimates that businesses can save on average nearly 40 hours of work time each week, or 2,075 hours per year. This time saving has a monetary value for businesses, with each company, on average, able to save ￡29,000 each year

Yell’s research even identified the business sectors that stand to save, on average, the most money through the adoption of AI:

The report estimates that there is a potential for huge economic benefit to businesses from the adoption of, for example, voice assistant purchases. There are, according to Yell’s report, ￡1.8bn of potential voice assistant purchases per year.

Small businesses can reap the rewards of adopting artificial intelligence.

Why should you care?

Clearly, the opportunity to save time and money will be of interest to many small businesses struggling in the current tough economic climate. However, there are certain barriers to the adoption of AI that small businesses will come up against in particular.

The cost of initially adopting this technology can also be significant, even if the potential returns far outweigh the initial spend. At a time of economic volatility, investment in AI is seen as a risk by small businesses. Also, the adoption of AI brings with it the spectre of job losses and human redundancies, as well as risking a degree of mistrust and rejection by older generations of consumers.?

The Chief Executive Officer of Yell, Claire Miles, commented:

“The responsibility is now on business leaders of the world to ensure that any form of artificial intelligence is implemented properly, with the right security measures to alleviate trust and privacy concerns, as well as using it effectively and sensitively to create more specialised jobs.”

3. Two-thirds of firms will put prices up

What’s happening here?

A major survey by the British Chamber of Commerce of 5,700 companies has revealed that a record high of two-thirds of businesses plan on increasing their prices in the next three months. The majority of businesses plan to pass on the rising cost of energy and raw materials onto consumers as the external pressures of war, Brexit and record inflation continue to bite.

Just as worryingly, the number of businesses predicting that their turnover will increase in the next year has slumped to just 54% , with firms facing what the BBC’s head of research, David Bharier, called “an unprecedented convergence of cost pressures” that pointed to a weakening economic outlook overall.

Why should you care?

One of the most worrying takeaways from the survey was the hesitancy of businesses to invest in new machinery or equipment, with three quarters of businesses saying they had no plans for new investment because of the pressures of inflation.

For small businesses in this position, the intervention of the Institute of Directors will be particularly welcome, as they called on the government to make permanent the current temporary ‘super deduction’ tax break for businesses investing in equipment. Under the temporary rules, firms can enjoy an effective reduction in tax of 24.7p for every ￡1 spent on capital investment.

Fears over who will shoulder the burden of rising operating costs – businesses or consumers – and worries over investment in machinery and equipment affect almost all small businesses in the UK. For now, promises made by (soon to be ex-) Prime Minister Boris Johnson and (now ex-) Chancellor Rishi Sunak at the weekend, to cut business tax and encourage investment, seem as far away as ever.