Eye on Accountancy
Will the current headwinds be the straw that broke the camel’s back? R
ewind the clock to St Patrick’s Day, 2020. Many businesses were preparing to shut their doors, not knowing what was around the corner. Fast forward to St Patrick’s Day 2022, many businesses have weathered the storm of uncertainty and various lockdowns to emerge as strong, if not stronger, than the same date two years ago. It is unassailable that government support – the furlough scheme, government guaranteed bank lending and HMRC deferrals, to name but a few - has played a huge part in this for many businesses in Northern Ireland and beyond. However, as if an unprecedented pandemic was not enough for local business leaders to navigate and eventually emerge from, they now face a new economic and political landscape like never before. It is fair to say that certain sectors are feeling the impact of the ever-changing macro-economic environment more than others. The effects of increasing raw material costs as well as disruption to global supply chains arising from the unsettling events in Ukraine have undoubtedly been felt in Northern Ireland. Local food producers reliant on raw materials from the region are finding it increasingly difficult to fulfil orders. Even when raw materials are available, the constantly increasing cost of energy to run production lines is causing a squeeze on margins, and cash reserves, like never before. In the hospitality sector, the recent increase of the VAT rate from 12.5% to 20% is a tremendously unwelcome shift for operators at a time when input costs are rising across the board
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While the local economy has prospered over the last 12 months, the combination of macro factors at play has the potential to be too much for many smaller businesses over the coming months.
Gareth McGonigle, Restructuring and Insolvency Director at ASM Chartered Accountants
and staff shortages are apparent across the industry. National Living Wage increases, as well as higher national insurance contributions, are two of the main drivers. Those increases cannot be absorbed by businesses in their entirety and will invariably be passed onto consumers…but at what cost? In the construction sector, the acute labour shortage combined with increasing material costs and recent ban on red diesel for many industrial uses are causing a slowdown in local private sector output in comparison to Great Britain. This is all set in the context of a landscape where creditors were largely unable, or unwilling, to pursue debt recovery over the last two years. HMRC took an
uncharacteristically passive role in the recovery of outstanding tax debts; however, recent experience shows the tide is on the turn on that front. The recent lifting of temporary provisions around winding up petitions expired on 31 March 2022 with the original debt threshold reverting to £750 from 1 April 2022. Although the High Court continues to deal with a backlog of matters in this field, it is only a matter of time before creditors in Northern Ireland will get the green light to issue winding up petitions again. Across many industries and sectors, businesses and business leaders are feeling the heat. One or two of the above external factors would be manageable for many, but the vast number and pace of
various headwinds are causing great concern to many business leaders and significantly, raising the question as to whether their current enterprises remain viable. And that is without considering the impact of local political instability…
Gareth McGonigle is Restructuring and Insolvency Director at ASM Chartered Accountants and is a Licensed Insolvency Practitioner. If you or your clients could benefit from restructuring or insolvency advice, please do not hesitate to contact Gareth on 02890 249 222 or at gareth.mcgonigle@ asmbelfast.com
