Like it or not, this month’s VAT increase from 17.5% to 20% has happened and we are all feeling the pinch: none more so than SMEs.
According to a survey by the Federation of Small Businesses (FSB), more than 70% of small businesses expect the VAT rise to have a negative impact on them with 71% of the 1,600 respondents expecting the rise to be unbeneficial to their business. A further 52% expect to increase prices, 45% expect a fall in turnover, and 36% expect a loss of customers as a result.
While large corporates are able to absorb the additional costs, most small companies cannot and will have to pass them on to their customers.
The FSB is therefore urging the chancellor to review the VAT increase when the country’s deficit has been significantly reduced and return it to its original 17.5%.
It is also calling on the government to further help small businesses by increasing the threshold at which they begin to pay VAT – from the current rate of £70,000 to £90,000 – arguing this has the potential to create up to 35,000 jobs.
John Walker, national chairman of the Federation of Small Businesses, says:
“Small businesses have had a tough time in 2010. These figures show that almost half of respondents are going to have to increase prices as a result.”
“If the government truly believes that the private sector is going to strengthen the recovery we need to see action. Increasing the threshold at which companies have to register for VAT will put almost £900 million back in the pockets of small businesses. Without this small firms will struggle to bounce back as the spending cuts start to bite.”
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