Impact of inflation on corporate profits and tax risk

With inflation reaching levels not seen since the 1970s the low-tax low-inflation world to which many business owners have become accustomed is being rapidly swept aside. Businesses will need to learn to operate in a world where the cost base could change quickly supply chains are stretched and tax may not be highest priority for otherwise stretched businesses. 

Fiscal drag

Plenty has been said already about the impact of inflation on the taxation of individuals. Recently the Centre for Economics and Business Research (CEBR) calculated that nine million people will be dragged into higher tax bands through tax allowances not increasing as fast as inflation. Fiscal drag always works to the Treasury’s advantage.

The impact on companies has had markedly little attention. Small and medium sized entities (SMEs) nevertheless need to be prepared to deal with this changing economic environment.

According to the Bank of England...