Knowledge Centre
7th January 2011
Seven out of ten small firms say the VAT rise is set to have a negative impact on their business.
The member survey by the Federation of Small Businesses (FSB) found that 71% of the 1,600 businesses polled believed the rise in VAT to 20% - brought in to deal with the UK's budget deficit - would be "unbeneficial" to their operations.
Just over half said they expected to increase their prices, while 45% anticipated a drop in their turnover - with 36% saying these factors would result in a loss of customers.
The FSB is calling on the Government to reverse the 4 January rise once the deficit has been "significantly reduced", returning VAT to its former 17.5% level. It says that small businesses - unlike larger ones - will be unable to absorb the increases, potentially leading to job losses.
It is also renewing the call to increase the threshold at which small firms must register for VAT on taxable goods and services supplied in the UK, from £70,000, to £90,000.
FSB national chairman John Walker said that a tough 2010 had been compounded by weather at the end of the year hampering potential sales prior to VAT rising.
"If the Government truly believes that the private sector is going to strengthen the recovery [then] we need to see action," he added.
"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."
'Best' alternative
However, the policy was supported by the British Chambers of Commerce (BCC), which said the VAT rise was "tough", but preferable to the alternatives.
Director-general David Frost said: "The Government is right to raise taxes on consumption, rather than on employment or profits.
"Job creation and business growth would have been damaged at precisely the time that they are needed most, had the Government chosen to place the burden on National Insurance or on Corporation Tax.
"Yet many businesses - especially retailers - will be hit hard by the VAT rise.
"Only by making recruitment easier, supporting exporters, helping businesses to invest, and improving planning to allow them to expand, will the private sector be able to deliver a year for growth in 2011."
Meanwhile, calling the VAT rise "a broken promise", shadow chancellor Alan Johnson told BBC Radio Four's Today programme that it "does nothing for jobs and growth".
"This year has to be all about continuing the growth momentum from last year…[but the VAT rise] will dampen consumer demand," he added.
"This is the wrong tax at the wrong time."
IMAGE Rui Vieira/PA Wire
However you are coping with the VAT rise, let More Th>n insurance protect your business. Ask us for a cheap shop insurance quote today, or find out about our great value van insurance.
FSB call 'to reverse VAT rise'
The member survey by the Federation of Small Businesses (FSB) found that 71% of the 1,600 businesses polled believed the rise in VAT to 20% - brought in to deal with the UK's budget deficit - would be "unbeneficial" to their operations.
Just over half said they expected to increase their prices, while 45% anticipated a drop in their turnover - with 36% saying these factors would result in a loss of customers.
The FSB is calling on the Government to reverse the 4 January rise once the deficit has been "significantly reduced", returning VAT to its former 17.5% level. It says that small businesses - unlike larger ones - will be unable to absorb the increases, potentially leading to job losses.
It is also renewing the call to increase the threshold at which small firms must register for VAT on taxable goods and services supplied in the UK, from £70,000, to £90,000.
FSB national chairman John Walker said that a tough 2010 had been compounded by weather at the end of the year hampering potential sales prior to VAT rising.
"If the Government truly believes that the private sector is going to strengthen the recovery [then] we need to see action," he added.
"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."
'Best' alternative
However, the policy was supported by the British Chambers of Commerce (BCC), which said the VAT rise was "tough", but preferable to the alternatives.
Director-general David Frost said: "The Government is right to raise taxes on consumption, rather than on employment or profits.
"Job creation and business growth would have been damaged at precisely the time that they are needed most, had the Government chosen to place the burden on National Insurance or on Corporation Tax.
"Yet many businesses - especially retailers - will be hit hard by the VAT rise.
"Only by making recruitment easier, supporting exporters, helping businesses to invest, and improving planning to allow them to expand, will the private sector be able to deliver a year for growth in 2011."
Meanwhile, calling the VAT rise "a broken promise", shadow chancellor Alan Johnson told BBC Radio Four's Today programme that it "does nothing for jobs and growth".
"This year has to be all about continuing the growth momentum from last year…[but the VAT rise] will dampen consumer demand," he added.
"This is the wrong tax at the wrong time."
IMAGE Rui Vieira/PA Wire
However you are coping with the VAT rise, let More Th>n insurance protect your business. Ask us for a cheap shop insurance quote today, or find out about our great value van insurance.
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