Reading Time | 3 mins

Today’s five letter word = Rises

Share this article
Business valuations

Like many of us, you might fill your time sipping your morning coffee by attempting to work out Wordle’s five letter word, but the five-letter word on everyone’s lips at the moment is “Rises”.

In the Pandemic bitten world we have been living in, it would have been hard not to expect rises to take place in certain areas, but the concern for most is how a multitude of rises covering the cost of employment, business and living are all taking place at the same time.

Whether you’re an individual or business, the recent news about the uplift in the energy price cap is one that nobody wanted to hear. I recently wrote a blog which discusses the actions the Government are taking in order to try to combat this, but whether this will be enough remains to be seen.

Social and Healthcare Levy

Announced at last year’s Budget to take effect from April, the next rise on the list is the new Social and Healthcare Levy.

Announced as a 1.25% increase (I’ll come back to that…), this Levy adds 1.25 percentage points(!) to National Insurance contributions for employees, employers and self-employed individuals alike. To even this up with company owners, the 1.25% increase is also being added to dividend tax rates.

Why am I coming back to the ‘1.25% increase’? Well, its all in the wording… Take an average employee who currently pays their Class 1 National Insurance at a rate of 12% before the Levy. After the Levy, they will now pay at a rate of 13.25%. If my maths is correct (I’ve also been playing Nerdle quite a lot so I’ve had practice), that is actually an increase of just over 10.4%. In pounds and pence, that means for every £100 earned, that employee will pay an extra £1.25 in National Insurance.

Can we make it a Quordle of rises? Honestly, if Wordle becomes too easy, give that one a go, but don’t blame me if you have a migraine by the end of it! It might even make you Sweardle!

National Minimum Wage increase

Third on the list of rises is the National Minimum/Living Wage (NMW/NLW) increase, also rising this April. On one hand this clearly helps off-set some of the rises for those employees earning this level of salary, but on the other hand this is another cost for the employer, also coupled with the extra 1.25% (or 10.4%?) National Insurance increase noted above.

The current NMW/NLW is set at £8.91, but this is set to rise to £9.50 – another 6.6% increase before taking into account the NI increase.

More information on the rates can be found on HMRC’s website.

Soaring Inflation

And finally, we have our Quordle of rises! Our final rise on the list is one that affects everyone and that is inflation. UK inflation rose by 5.4% in December, which is the highest rate in 30 years. Of course, when inflation rises, businesses experience increased raw material, manufacturing and overhead costs. According to Economists via the Financial Times, this has been driven by a broad range of factors including decisions by central bank to keep rates low and pump cash into economies to help mitigate the effects of the pandemic.

But the reasons don’t help a business deal with the rise, especially when added to the other areas discussed above.

How is this dealt with? Are the extra costs passed onto the customer who is also struggling with the costs of heating their home?

What steps can be taken in the short term? Well, planning and forecasting have to be at the top of the priority list.

By having robust forecasts in place, both from a profit and loss and sometimes more crucially, cash forecasts in place, this will help you make the right decisions in how you trade moving forward, where the pinch points will arise first, followed by choices on whether you reduce or recoup some of those rises.

Not one answer fits the bill, but we have people here at BHP who can help, so if you have any questions on any of the rises highlighted here, please contact your BHP representative to discuss.