VAT rise set to hit families in the pocket

Thursday, September 2, 2010
2:38 PM

Businesses in Bishop’s Stortford have been voicing concerns over the upcoming VAT increase which is due to come into force at the start of next year.

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In his emergency budget in June, Chancellor of the Exchequer, George Osborne announced the increase in the standard rate of VAT from 17.5 per cent to 20 per cent.

The increase will come into force on January 4 2011 and will affect any VAT registered businesses that sells or purchases goods or services that are subject to the standard rate of VAT.

It is expected that the increase will generate an extra 13bn in revenue. However, some have argued this will place yet another burden upon retail businesses and the public at a very sensitive time in the current national economic recovery.

A statement from the Bishop’s Stortford Chamber of Commerce said: “The Bishop’s Stortford Chamber of Commerce committee members, following discussion, agree that business-to-business transactions will not be significantly affected following the increase.

“For consumers and retailers, however, a VAT increase will have a very different effect by placing yet another burden upon retail businesses and the public at a very sensitive time in the current national economic recovery. The retail sector has had a particularly tough past two years and retail prices have been held artificially at a very low level despite the significant increase in material cost and associated overheads to the retail sector.”

A Barclays spokesman said: “The increase in VAT will impact across all business activity to a greater or lesser extent. It is likely that the pattern of change will reflect the extent to which any given business is exposed to VAT and the price elasticity of demand for the range of products that they supply.

“Given this, businesses that are likely to feel the least direct effect from the VAT increase will be those primarily selling products that are either exempt from the tax, zero rated or bear only the lower rate of 5 per cent. Among this group will be food retailers, bookshops, charity shops and suppliers of residential gas and electricity.”

Businesses in Stortford have been talking to the Scene about how the increase is likely to affect them.

Neil Cooper from Coopers of Stortford, a major retailer in the town, said: “It is unfair for the government to impose an increase in VAT at this time.

“However my own view is that I don’t think it will effect public spending or retail prices to the consumer as most retailers will probably absorb these VAT increases in the short term, but long term this will eventually lead to retail price increases.

“I do worry what effect this will have on the governments inflation targets and the knock-on resulting interest rate increases it may cause.”

Maya Currell, of Thremhall Park business centre in Bishop’s Stortford, said: “We have several small companies who pay a monthly fee to use our services so the rise in VAT will affect us because we have to change all our systems again.

“We had to change them when the rate went down, now we’ve got to do it all again.”

Businesses have been encouraged to plan ahead and help is at hand for anyone that requires advice ahead of the changes.

Business Link in the East of England’s Tony Barritt, said: “With the VAT increase due to come into force on January 4, now is the time for Harlow’s businesses to plan ahead. Business owners should make sure that cash flow forecasts take account of the rise, as this is crucial to avoid any shocks when completing quarterly tax returns next year.

“As always, Business Link Advisers are on-hand to provide free, impartial and high-quality advice for those that need guidance on financial planning. Businesses that undertake effective forward planning will be able benefit in the run-up to the rise; for example, there’s certainly marketing potential for businesses to increase pre Christmas sales with a “last-chance for lower VAT prices” promotion.”

For help with making sure your business systems and processes are geared up to be effective after the change, contact Business Link on 08547 17 16 15 or visit the website 
www.businesslink.gov.uk/east