As all eyes watch the rate of inflation for the impact that it will have on a tumultuous economy, there is another reason to be concerned by the steady increase.<\/p>\n
<\/p>\n
Fiscal drag, the occurrence where a financial threshold is crossed due to inflation rather than any real-world growth, is on the rise for businesses and individuals alike.<\/p>\n
With many important tax thresholds frozen, there is an increasing incentive to get smarter with financial forecasting to fight fiscal drag.<\/p>\n
One of the main contributors to fiscal drag is Corporation Tax.<\/p>\n
The Corporation Tax thresholds have been frozen since 2023, with a relief window on profits between \u00a350,000 and \u00a3250,000 remaining unchanged.<\/p>\n
Earnings within this window are still subject to the full rate of 25 per cent Corporation Tax, but this is reduced by a marginal relief.<\/p>\n
While the relief has been welcomed by growing businesses, the fact that it has not increased alongside inflation is a cause of concern for many.<\/p>\n
Small businesses are being pushed past the \u00a350,000 threshold, meaning that they have to contend with the relief window where previously they paid the 19 per cent reduced rate.<\/p>\n
On the other end of the spectrum, growing businesses may find that they are pushed out of the relief window if their profits are above \u00a3250,000.<\/p>\n
In essence, a company could be making the same real-world money as they were last year, but would now be subject to higher rates of tax.<\/p>\n
This is also true regarding the VAT threshold.<\/p>\n
While the VAT threshold did change from \u00a385,000 to \u00a390,000 in 2024, inflation has still seen many sole traders and small retailers pushed above the line.<\/p>\n
This has caused additional tax considerations and administrative duties to befall businesses that do not benefit from a real-world boost in profitability.<\/p>\n
Being aware of fiscal drag is the first step in handling it.<\/p>\n
This awareness can form part of financial forecasting as businesses factor in the increased tax burdens that may come their way as fiscal drag pulls them across thresholds.<\/p>\n
Seeking professional accounting advice is essential to mitigate the impact of fiscal drag.<\/p>\n
Five-year cash flow forecasting and tax efficient investments are key tools that can be leveraged by businesses to sustain better financial health going forward.<\/p>\n
The closer businesses monitor their financial performance, the better they will be able to adapt to challenges as they arise.<\/p>\n
This needs to be coupled with transparent, dynamic communication so that everyone involved in decision-making within a business is aware of what could leave a business vulnerable to fiscal drag.<\/p>\n
Our team are on hand to help you navigate this current time of economic turbulence and keep your business growing.<\/p>\n
Don\u2019t get dragged down by financial woes. Speak to our team today!<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":" As all eyes watch the rate of inflation for the impact that it will have on a tumultuous economy, there is another reason to be concerned by the steady increase.<\/p>\n","protected":false},"author":2,"featured_media":6448,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[24,125],"tags":[],"_links":{"self":[{"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/posts\/6445"}],"collection":[{"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/comments?post=6445"}],"version-history":[{"count":1,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/posts\/6445\/revisions"}],"predecessor-version":[{"id":6446,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/posts\/6445\/revisions\/6446"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/media\/6448"}],"wp:attachment":[{"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/media?parent=6445"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/categories?post=6445"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/tags?post=6445"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}