What has 2023 taught us and what will 2024 deliver?

As we approach four years since the disruption of Covid coupled with ongoing challenges to the world order, it seems sensible to take a deep breath before determining where we are now and where we might go in 2024.

The shadow of Covid is still with us.  Bounce back Loans and the time and space provided to the Small Business Community had a very positive effect. Many have little understanding at just how close to the edge small businesses operate and just how much the quite limited support measures helped.

For some the space afforded them the opportunity to plan for the future with minimised ongoing capital costs, whereas for others the “free money” was that opportunity to buy that car they had always wanted or to invest in those high-risk areas “guaranteed” to make life changing differences to their financial position.  For both, little thought given to repaying it. With HMRC ceasing to issue Winding Up and Bankruptcy Petitions there was little to halt the most egregious abuses of the support.

As Covid ended there was a lot of money sitting in the small business community. Some have now kicked on to an era of business growth and additional profitability. Some have seen their business fundamentally changed to an extent that a profitable future is no longer possible. And then there is the third group who’s business was in a state of failure prior to Covid and all that Covid did was postpone the inevitable. And with no pressure to clear up the mess, the mush expanded exponentially.

Accompanying the lack of pressure to remove failing Companies from the register has been an increase in registrations (over and above those enacted for nefarious purposes). Indeed, it has only been in the last month that the number of Companies leaving the register has exceeded those joining.

Whether we have quite reached the gates of doom purported by some in the media I am not quite so sure.  We are seeing a wave of failed businesses both pre-covid and as a result of covid, but historically most of these Companies would simply have fallen off the register. They have not simply as a result of the existence of Covid loans with most having an Overdrawn Loan Account equal to the level of unpaid CT, VAT and the Covid support. Quite how many of those that are now entering liquidation has been a shock. We have taken the view that at least providing Directors with an explanation of the predicament they are in, facing the prospect of a lengthy Disqualification Order and a row with the Liquidator or repay the Overdrawn Directors Loan  (“DLA”)?  I have been surprised at how many Outstanding DLA’s are only established the day after the Liquidation as opposed to the day before.

There are still a large number of these Companies out there and I foresee 2024 seeing a continuation of their demise as HMRC petition levels are returning to pre-covid levels.  

In addition, some in the Smaller Business Community are now beginning to see the end of their resources as the economy stagnates and prices rise. This is by no means universal; it will be a very different readjustment to previous as the number of the profligate appear balanced by those who have kept a secret rainy-day stash.

As a corollary I, and indeed the Official Receiver and also anticipate a rise in the level of Bankruptcies where HMRC petition for unpaid Income Tax. Why?; Well, we are starting to see HMRC issuing assessments relating to outstanding DLA’s. These numbers will increase as the various dots start being joined where Owner Managers either tried to hide what they have taken or hadn’t realised that them taking “wages” as advised by their Accountant included a payment in respect of Dividends which can only be drawn from profit.

Please do get in touch if you want to discuss how any of this impacts you going forward. My contact details are listed below.

Jeremy Frost

JeremyF@frostbr.co.uk

Jeremy Frost, Director of Frost Group
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