Inflation, energy, and the cost-of-living crisis impacts business in the UK

Glance at the news in recent months and you’ll likely see stories regarding the looming cost-of-living crisis. With everyone tightening their belts thanks to the incoming recession and the Autumn Statement providing a mix of positives and negatives, businesses are feeling the pinch, and some might even find that they can’t afford to pay their business’ energy bills on time.

How is the cost-of-living crisis affecting businesses?

With prices showing little signs of decreasing thanks to high inflation, many people are reconsidering their outgoings, with cutbacks on non-essentials and even essentials.

Demand for energy increased with the worldwide reopening after the coronavirus pandemic, so prices were already on the rise before Russia’s unprovoked invasion of Ukraine exacerbated problems. As Europe reduces its reliance on Russian gas and oil exports following worldwide sanctions against the country, the switch to alternative (and in some cases, more expensive) sources has increased prices again.

The resulting tightening of belts means that businesses may find their takings affected. When coupled with energy prices showing no sign of lowering as winter rears its head, businesses could find themselves struggling to afford to keep the lights and heating on – and, more importantly, the doors open. The price hike is even more likely to have an impact on businesses with a higher level of energy consumption (like factories or larger warehouses).

Is there help available for businesses struggling to pay their energy bills?

While support isn’t available on the same scale as provided during the coronavirus pandemic, businesses struggling to repay their energy bills still have options to help alleviate those liabilities and, in some cases, other types of debt they might have.

What help is available depends on the business’ structure – whether the business is incorporated as a limited company or if you operate as a sole trader.

Both can enter a formal arrangement to repay a portion of the unsecured debt at a rate tailored to what’s affordable. These arrangements allow the business to continue trading while repaying the debts at a rate agreed upon. At the end of the arrangement, the remaining debt is written off.

Company Voluntary Arrangements (CVAs) for companies, and Individual Voluntary Arrangements (IVAs) for sole traders and individuals.

If more substantial debt relief is required, companies can pursue administration. During which, a licensed insolvency practitioner attempts to return the company to a profitable state while deciding on a suitable way forward.

Alternatively, if recovery isn’t feasible, the best way forward may be to close the company through a Creditors Voluntary Liquidation (CVL). Doing so draws a line under the debts and puts a stop to creditor pressure. In the right circumstances, the business can even continue in a new limited company through a pre-pack administration or pre-pack liquidation.

What to do if your business can’t afford to pay its energy bills

Summary

With energy prices and inflation continuing to rise, business owners across the country are worrying that they might not be able to continue trading. While it can be a scary time for businesses, they are not entirely without support. Depending on your business’ circumstances, you could speak to your energy provider to agree to a payment arrangement. Alternatively, you could apply for one of the government’s upgrade schemes (like the Energy Efficiency Grants and Boiler Upgrade Scheme). If more substantial recovery action is required or the company is struggling with additional debts, businesses can explore insolvency recovery arrangements such as a Company Voluntary Arrangement (CVA) or Individual Voluntary Arrangement (IVA), administration, or liquidation if the company has no future.