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Protect Your Business from Going Insolvent Due to Rising Costs?

Posted by Todd Davison on Dec 7, 2022 11:57:38 AM

Are the latest changes to the mini-budget enough to support struggling businesses? Read this article to find out more.

business man holding a briefcase in a fast moving corporate environment

With the cost of living at its highest since 1982, UK business owners from every industry are experiencing financial struggles due to escalating energy and consumer goods costs. 

This pressure also comes at a time when the economy is still experiencing the effects of the COVID-19 pandemic. 

The government attempted to counter these issues with financial changes such as tax cuts and energy bill relief in the September ‘mini-budget’. However, the mini-budget has been through various revisions, with the latest changes being made in November by the current Chancellor of the Exchequer, Jeremy Hunt.

Without significant levels of support, SMEs are at risk of forced closure, and the latest data shows that insolvency rates have increased by 27% since before the pandemic

Not only does insolvency affect your career, your income and your ambitions, but you could also find yourself liable to pay for your business debt if a personal guarantee has been used to secure a loan.  

At this time of economic uncertainty, it makes sense to ensure that you have done the utmost to protect not just your business, but also your personal assets. 

In this article, our experts discuss the latest alterations to the mini-budget and how it could impact high corporate insolvency rates, as well as what happens to debt once a company is dissolved, and why this is such an important time to secure personal guarantee insurance (PGI). 

Business support from the Autumn mini-budget 

While the changes introduced in the mini-budget are considered by some to be too insubstantial to make a difference against the rising costs, they may still provide some financial relief to businesses. 

Here are the key features of the mini-budget that may affect your business: 

Business energy bills

Perhaps the most significant feature of the mini-budget is the Energy Bill Relief Scheme (EBRS), put into place to support businesses through rising energy costs. 

It came into effect on the 1st of October to ensure that businesses (on non-domestic contracts) will receive discounted prices for gas and electricity. 

The current government-backed costs stand at:

  • 1p/kWh (gas)
  • 5p/kWh (electricity).

This discount is automatically applied, and businesses should have already started to see a difference in their energy bills. 

Corporation tax 

Another important feature of the reversed mini-budget is its tax cuts. Former Chancellor Rishi Sunak originally planned to raise corporation tax to 25% as part of the Autumn 2021 budget. This scheduled tax increase was abandoned and is now frozen at the current rate of 19%. 

The flat rate of 19% applies to profits of all sizes, meaning that businesses will save a significant amount on future profits. However, while the current Chancellor Jeremy Hunt has not made any immediate changes to this figure, corporation tax is set to rise to 25% in April 2023.

Don’t forget the Recovery Loan Scheme 

Separate to the Autumn budget, it is worth noting another branch of support that is still available to businesses. In 2022 the government also extended the Recovery Loan Scheme, which was first introduced in April 2021 to help businesses recover from the impact of the pandemic.

The extension also includes a revision of the original restrictions, allowing for personal guarantees to be established at the lender’s discretion. 

The scheme is available to businesses in a variety of sectors, enabling those struggling to manage difficulties with cash flow to invest in growth opportunities. 

Closing a limited company with debts

When combined, the mini-budget and the Recovery Loan Scheme might offer just enough relief to prevent some businesses from becoming insolvent. However, it’s possible that these measures may not be enough to provide adequate support for some businesses, especially in light of recent months where the grounds of the economy are constantly shifting. 

No one wants to think about insolvency, but it never hurts to be aware of how your business debts will be handled should the worst occur. 

In the event of insolvency, any outstanding debts belonging to your company must be repaid. This means that, if you have used a personal guarantee to support a loan, then you are personally liable to use your assets as payment. 

Purbeck Personal Guarantee Insurance 

With the state of the economy and the many twists and turns of the mini-budget, we never know exactly what is waiting for us around the corner or how it may affect our business, so why leave it up to chance? 

Purbeck are the UK’s original provider of personal guarantee insurance, covering up to 80% of your personal guarantee and significantly reducing your personal risk. If you have any questions, or want to speak to a member of our team about your personal guarantee, contact us today.

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