Just 15 per cent of Small Businesses to Absorb January VAT Rise

Eight out of ten small firms plan to pass on January’s VAT rise to their customers, as they can’t afford to absorb the costs, new research has found.

A survey of 1,000 tradesmen by manufacturing supplier Screwfix found 82% were planning to raise their prices. However, the research also highlighted that one in four were planning to stockpile supplies (at the current lower VAT rate) before January’s increase to 20%.

George Osborne announced in his June Budget speech that the main rate of VAT would increase from 17.5% to 20% from 4 January 2011. However, the range of VAT–able products has not been extended and essential items such as food, children’s clothing and newspapers will remain free from VAT.

Federation of Small Businesses (FSB) press officer, Prue Watson, said:

“Cashflow is already tight for many small businesses and having to absorb these costs might push them over the edge. By increasing the costs of their products, they’re not losing out on revenue.

“The only concern is that it could put consumers off spending. It’s a lethal cocktail: an increase in costs, a decrease in trade – which can be fatal for small business. We are calling on the Government to raise the registration threshold on VAT to £90,000 to give more small businesses a chance to grow, innovate and get through the economic recovery.”

Small-business owner Michelle Beresford, director of Home Leisure Direct Ltd said:

“We will definitely be increasing our prices. We cannot afford to take a financial hit because the Government decided to hike up VAT. If you keep your prices static, it means you are losing out as a business owner.”

January’s rise will mean that VAT will have increased by 5% in two years, from a low of 15% in December 2008. The new rate will mean UK taxpayers will be paying a similar rate to most other European countries.

For detailed information read the HMRC’s guide: VAT – Change of the Standard Rate to 20%: A Detaikled Guide for VAT-registered Businesses. (PDF)


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