‘Review VAT rise as soon as possible’

The Federation of Small Businesses (FSB) in Beds, Cambs and Herts says a recent Voice of Small Business national survey of firms showed more than 70 per cent of small firms expect the recent VAT rise to have a negative impact.

FSB Beds Cambs & Herts chairman Ian Cording said, “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 for Christmas and before the VAT increase, was hampered by heavy snowfall and severe weather.

“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 - neither of which will help small firms take on more staff.

“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 £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.”

The FSB expects small firms will be hit hard by the rise in VAT as, unlike big businesses, they can’t absorb the increase. This will mean that small firms will have to pass the full cost on to customers, reduce stock levels or find cost savings elsewhere - potentially costing jobs and undermining the government’s private sector-led recovery.

The FSB has been calling on the government to help alleviate the stresses and strains on hard hit firms’ cash-flow by increasing the threshold at which they begin to pay VAT, from the current rate of £70,000 to £90,000. This has the potential to create up to 35,000 jobs and help small businesses when they need it most.