Don’t bank on a May bounce

PETER HARRUP of PKF assesses the immediate prospects for business once the uncertainty created by the General Election is over

THE outcome of the General Election is far from certain and it may turn out to be the closest contest since 1992.

Sadly, uncertainty breeds caution in us all and, in the current economic climate, I suspect that some businesses may be suffering temporary “election blight” as customers defer purchasing decisions until after the election. Although understandable, is this approach sensible?

Individuals may not have much to lose by deferring purchasing decisions until May 7 but, if there is to be a summer Budget, it might be best to buy that new TV for the World Cup before a new Chancellor has the opportunity to increase the rate of VAT.

Such decisions are rather more important for businesses. A new Conservative government may follow through on the party’s commitment to abolish business tax reliefs to pay for a cut in Corporation Tax. The current range of capital allowances for investment in plant and machinery may not survive the summer but a change is unlikely to be retrospective. So if you are considering buying machinery, doing so before a summer Budget should ensure you qualify for the 100% annual investment allowance on purchases up to �100,000.

Of course, if everyone is putting off significant purchases, struggling businesses will be forced to offer some attractive deals. So it could now be a buyers market and those that have the cash to buy ought to be able to negotiate good prices and terms.

So, should businesses suffering from election blight be gearing up for a post election boost to business when voters start to focus on happier news such as the World Cup? A new government may enjoy a short honeymoon period, but it would be brave to bank on an immediate economic upturn; all political parties forecast hard times ahead.

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Election uncertainty has already caused the value of sterling to fall, making UK goods cheaper to sell overseas but pushing up the price of imported parts or goods. Importing businesses that have not hedged their currency risks face some tricky decisions. Do you pay for international orders now on the expectation that Sterling’s value will fall further because of a hung parliament or wait for sterling to appreciate as a strong stable Government emerges?

Business owners might be wise to consider options for extracting profits from their business now before the tax goalposts are moved yet again by an incoming government. For example, would a resurgent Labour government feel empowered to reintroduce the much delayed income shifting rules to increase the tax take from family companies?

Hopefully, any election blight will be short-lived but those who take expert advice and are prepared to act quickly might just save some money without having to second guess the election result.