Accountants predict the main challenges they’ll face and the tools they’ll need to survive in 2023

Prepare to deliver value and advisory services.

The past year has brought many challenges for UK businesses, thanks to inflationary pressures and increased costs from suppliers and energy providers. Many have struggled with whether to pass on these increases to clients, while others have been more agile in their approach in response to economic volatility.

Now we face more questions like, what might 2023 bring to the mix? Will inflation be brought under control? What impact is the increased rate of corporation tax rise likely to have on businesses?

Some of the official predictions for 2023 include:

• The UK economy will shrink 1.4% in 2023 (The Office of Budget Responsibility, OBR)
• ‘Significant pressure’ likely on households and businesses due to higher inflation and borrowing costs along with falling real incomes and high unemployment rates (The Bank of England)
• Businesses investment likely to be 9% below pre-pandemic levels (CBI)
• Year-long fall in consumer spending due to financial pressures on households (CBI).

Yet there is some cause for optimism: KPMG research found the IPO market is expected to experience a bounce back. Many experts are advising that you can increase the chance of business survival by taking a more strategic, digitally focused approach.

To find out more, we spoke to accountants working in industry and in practice, across public and private sectors about their expectations and predictions for the coming year.

2023 will be challenging for NHS services, with the need to reduce spend yet continue to meet patient demand

Guy Dakin MAAT, Management Accountant, Berkshire NHS Trust

Next year is going to be very challenging for us, especially with high demand for our services.

We’re expecting a real reduction in spend to meet efficiency targets. The Procurement Bill is expected to come into force late 2023, and will introduce significant changes to the way public sector organisations buy goods and services. Like every other public sector organisation, we’ll be getting ready for it.

One of the biggest concerns for us and across the NHS in general is recruitment and retention of staff. But Berkshire Healthcare is a great place to work and we’re rated by the CQC as Outstanding, so we’re hopeful we will continue to attract and retain top talent.

Verdict: 2023 will be challenging for NHS services, with the need to reduce spend while continuing to meet patient demand.

The increased rate of corporation tax in 2023 will eat into SME profits

Sarah Gardner, Founder, Allegro Tax

A lengthy recession continues to be a huge risk. Inflation is not yet under control and may increase further in 2023. Getting this under control will be a key priority for the government, but in the meantime businesses will be reviewing their budgets to manage rising costs, particularly wages and energy prices.

Challenges are varied: the construction and manufacturing sectors face increasing costs of materials, while high street retailers are playing catch-up to Covid-propelled uptake of online shopping.

I am concerned about the impact of the increasing rate of corporation tax on smaller businesses. The increase in the main rate to 25% means that profits between £50,001 and £250,000 suffer an effective rate of tax of 26.5%.

Building up cash reserves and developing comprehensive business resilience plans will be key to business survival. Businesses will need to focus on both growing revenue and controlling costs to thrive.

Verdict: The increased rate of corporation tax in 2023 will eat into SME profits.

Accountants need to make informed decisions to manage interest rates and capital gains

Nadeem Raziq, Head of Tax, Provestor

A variety of different concerns will shape our plans this coming year. The biggest task will be helping clients manage uncertainty. Most accountants will have clients managing property, so the economic conditions of high inflation will make people think about profitability and tax liabilities associated with holding onto stock, selling it or transferring it. They’ll want to make informed decisions to manage interest rates and capital gains, for example. I believe this is where accountants can really deliver value this coming year.

Delivering value is going to be crucial for all clients – it’s where the market is heading. Accountants can no longer trade solely on being able to do the numbers. They must also be able to deliver an empathetic service and provide advisory services people didn’t expect to need.

It will be the firms that can give well-timed and well-founded advice that will grow. So too will the practices that are keeping pace with HMRC’s digital agenda. Take making tax digital for landlords: HMRC expects all landlords will be able to file quarterly updates themselves but very few even know if they are in scope. The industry will have to be proactive on this but also demonstrate full value for money. Those that automate the service and anticipate HMRC’s next move will win hands down.

Verdict: Accountants can deliver value through informed decisions to manage interest rates and capital gains in 2023.

The deposit return scheme (DRS) is likely to have a massive impact on retail businesses

Andy Walker, chartered accountant and partner, Oliver Wight

We’re likely to see a two-tier economy in 2023. High street retailers will particularly suffer. The sector was already in decline well before Covid but they’re now under even more pressure.

Although it’s been a great year for pubs, restaurants and cafes with the sector bouncing back stronger than expected, 2023 is going to be a different story. Rising energy costs, inflation and people having less disposable income will have an impact.

At the same time, I believe the luxury end of retail will continue to thrive, while the middle economy will really struggle. The healthcare and pharmaceutical sector meanwhile are booming and are likely to continue to – people will always spend money on health.

The biggest concern for many of our retail clients is the introduction of the DRS, soon to be introduced across the four UK nations, which will have a massive impact. Under the scheme, consumers pay a 20p deposit for a single-use plastic container (can, glass, plastic), which is then returned when they return the empty bottle for recycling. The responsibility is on retailers to provide a recycling service.

Ultimately, our approach when supporting clients is helping them plan for uncertainty so they’re not caught on the back foot. Businesses need to have an integrated plan where all their different functions work together over the long term. That’s the key differentiator between organisations that thrive despite uncertainty and those that barely survive.

Verdict: The DRS is likely to have a massive impact on retail businesses.

There will be a heavy emphasis on cost in 2023

Andy Murray MAAT, Finance Manager & Company Secretary, Galson Sciences Ltd – Egis UK

The main concern for us is cost. There’s going to be a heavy emphasis on cost going forwards, including the cost-of-living crisis, supplier increases and staff expenses.

We’ve already noticed a significant increase in travel and hotel accommodation expenses from staff travelling away and these will only continue to increase into the new year.

To mitigate this, we’re looking at building greater provision into our budgets while looking at how we can help staff through the cost-of-living crisis. We are also looking at the rate of uplift with existing client contracts and it’s one area we’ll be spending a lot of time on before April.

IR35 and Corporation Tax increases are both on our radar and although Corporation Tax won’t come in until 2023, it has to be built into our five-year plans as corporation tax increases are likely to have quite a significant impact.

Finally, the main concern for us as a newly-acquired company (we were acquired by French-based Egis Group a year ago), is moving from an SME mentality to that of a corporate entity. It’s still early days in the acquisition and I’m getting involved in the wider strategic plan.

Verdict: Cost will be a major factor when setting budgets and planning.

Annie Makoff is a freelance journalist and editor.