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Small business groups voice VAT fears for 2011

Small business groups concerned over 2011 VAT hike.

With January 2011 just around the corner the impending rise in VAT looks set to impact businesses throughout the UK.

Back in June’s Budget Chancellor George Osborne announced an increase of 2.5% from 17.5 – 20% from January next year.

Small businesses dealing directly with the general public, such as retailers, are likely to find themselves under the most pressure from consumers to keep prices as low as possible.

Senior Manamger of Corporate Services and Tax with Bishop Fleming, Robert Bailey, commented:

“If you look at retailers, they are all fighting for sales and charging as much as they think they can and discounting anywhere possible. People might be prepared to pay a little bit more because of the VAT increase but they are going to find it difficult to put prices up.”

Mr Bailey went on to add that consumers need to be wary when making high-value purchases before the VAT increase early next year. In fact he believes that many businesses will be discounting products to increase sales so is advising many consumers to hold off high value purchases until 2011.

On a more positive note for small businesses the Federation of Small Businesses (FSB) are calling on the Government to put a threshold in place at which companies must be registered for VAT to be increased to save some businesses the hassle of having to complete VAT tax returns.

Amazingly it’s believed that a massive 35,000 further jobs could be created if the threshold at which small businesses start to pay VAT was increased from £70,000 to £90,000. Given the growing rate of unemployment in the UK this could make a huge diference to the UK’s economic health.

This could save British firms around £700 million in VAT payments as well as £162 million each year from red tape cuts.

The FSB believes that large organisations will be able to absorb the increase in VAT but smaller firms won’t, putting them under major pressure to compete at this level.

A spokesman for the FSB commented:

“The smaller the business, the higher the cost of VAT compliance; this is why the FSB is calling for the Government to increase the threshold at which a business must register for VAT.”

He went on to add that if the Government is serious about a private sector led recovery, then they need to put a small business programme in place to help smaller firms to grow and invest.

Image: renjith krishnan / FreeDigitalPhotos.net

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