Azets: ‘Invisible tax’ pressuring Scottish businesses

Nicola Campbell
The profits of thousands of Scottish businesses are being squeezed by stealth due to inflation – or the ‘invisible tax’ as it is sometimes known – and should raise their prices, cut costs and invest in efficiency, a business advisor has warned.
Inflation, currently around 3.5%, peaked at 11.1% in October 2022 when the pandemic and Ukraine war triggered major shortages, supply chain problems and soaring prices. In addition to inflationary pressures, business profits are being squeezed by higher Employers’ NIC and a 6.7% increase in the minimum wage.
“A ‘cost of business crisis’ is enveloping the business community, and SMEs in particular,” said Nicola Campbell, head of accounting and business advisory services in Glasgow with Azets. “Margins and profitability are being impacted by increased taxes and the stealth effect of inflation. It is important that businesses factor the ‘invisible tax’ into their planning and increase their prices.”
Ms Campbell added: “Cash flow problems are a major factor in the failure of a business, and failing to improve margins in line with inflation contributes to these issues.
“”Increasing prices is a quick and effective way of boosting cash flow together with cutting costs, removing process waste and improving efficiency.”
To illustrate the importance of keeping pace with inflation Ms Campbell explained: “If an employer with 49 staff broke even with turnover of £3.5 million in 2019 the firm would need to increase turnover by 28% to £4.5m this year just to keep pace with inflation.
“We are most concerned about those companies with excellent services or goods which have already absorbed input prices and cost inflation, including pay rises for staff, over the past few years but have not improved efficiency, removed waste or increased prices.
“Due to the everyday pressures of operating a business, some company owners can neglect changes to improve and maintain profitability levels and easily find themselves walking into the red and then potentially into insolvency. Fortunately, there are some positive signs with the British Chambers of Commerce recently stating that three out of four firms are now raising their prices.
“Our business health checks, and access to more than 20 diagnostics, including growth and profit solutions, along with workshops covering topics such as change success, profit improvement and customer service, can help businesses detect weak spots, like the attritional impact of inflation on the bottom line, and areas needing urgent improvement.”
Ms Campbell concluded: “We would encourage any Business owners worried about the impact of the ‘Invisible Tax’ and how to increase prices and control costs to seek professional advice.”