The VAT Factor ΓÇô A Blow to SMEs
Over 70% of small businesses in the UK expect the governmentΓÇÖs decision to raise VAT to 20% to have a negative, hard-hitting impact upon their business.
Published today by the Federation of Small Businesses (FSB), who exist to promote and protect the interests of the self-employed and those who run their own business, the Voice of Small Business survey revealed that 71% of respondents expect the rise in VAT to be unbeneficial to their business ΓÇô with 45% expecting to see a fall in turnover and 36% predicting a loss of customers as a result.
While the Chancellor George Osborne has outlined why the VAT needs to take place and that the rise is here to stay, the FSB points out that the impact on SMEs could be significant and stifle the GovernmentΓÇÖs much publicised hopes of a private sector led recover.
“Small businesses have had a tough time in 2010, especially towards the end of the year, when what should have been a very busy time as people make purchases before the VAT increase, but the busy Christmas period was hampered by heavy snowfall and severe weather.ΓÇ¥ explained John Walker, National Chairman of the FSB.
“These figures show that almost half of respondents are going to have to increase prices as a result and 45 per cent think it’s going to decrease their turnover ΓÇô neither of which will help small firms take on more staff.ΓÇ¥
Unlike big businesses, who it is believed will be able to absorb the increase, the FSB believes that small businesses will find themselves having to pass the cost of the rise back on to customers, reduce stock levels or find ways of cutting costs in other areas of their day-to-day business.
As a company which helps thousands of businesses locate office space each year, officebroker.com has already seen an increase in the number of businesses opting to locate their operations in serviced office space ΓÇô a cost effective solution that allows businesses to secure office space without the long-term, capital heavy commitment attached to leasing conventional / traditional office space.
In Central London alone a 21% increase in serviced office based businesses has been recorded during 2010 ΓÇô activity which could support the FSBΓÇÖs belief that businesses are actively changing their structural operations in order to cope with the tough financial climate which was first ushered in during the 2008 recession and continues with the 4th January VAT increase.
One suggestion being championed by the FSB to help soften the impact of the rise is to increase the threshold at which SMEs begin to pay VAT, rising from the current level of ┬ú70,000 to ┬ú90,000 ΓÇô a move which the FSB states will not only help support SMEs but also has the potential to create up to 35,000 jobs.
“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 ┬ú900 million back in the pockets of small businesses. Without this small firms will struggle to bounce back as the spending cuts start to bite.” concluded Mr Walker.