Small Businesses Hit Hardest by VAT Cut

London, United Kingdom (PressExposure) November 26, 2008 -- In an effort to grab the headlines with the latest VAT cuts, the Chancellor has simply repeated the same mistake made by his predecessor. Only this time the impact will be noticed much faster, will backfire like the 10p tax rate cut, and will hit small businesses hardest, warn specialists at the Tax Advice Network.

With retailers already slashing sales prices to 20-30% lower than before the recession, the impact of a cut in VAT from 17.5% to 15% will only have a marginal impact, and only serve to impact business productivity further as time and effort will have to be diverted to producing new price labels, catalogues, websites and promotional literature, according to Mark Lee, Chairman of The Tax Advice Network, who believes that the move is yet another futile attempt to stimulate spending without realising the knock-on effect on businesses.

“There are two things the Chancellor seems to have forgotten”, says Lee. “Firstly there is no obligation to pass on the VAT cut. Most traders will pocket the difference as the time and effort required to update information is enormous. But most importantly, the real negative impact will be felt by small business owners, who will have to divert their attention from generating additional profits whether they pass on the cut or not. And those who do change prices, even at the tills, will spend much more than the £90 cost included in the official ‘Impact assessment’.

“They will continue to be unpaid tax collectors for HMRC – collecting VAT from customers and paying this over, net of the VAT on their business expenses. They simply don’t have the time to get to grips with the added burden of working through the new obligations and may be unable to afford to pay for the necessary specialist tax help required to get it right”, adds Lee, who believes that the worst is still to come when the tax cuts come to an end next year.

“Get ready for next year’s VAT Nightmare before Christmas when everyone HAS to implement changes to reflect the increase in VAT from 1 January 2010. No one will want to absorb the cost of the increased VAT charge. I'll bet you now that there will be significant relaxations announced next year, when the full impact of the administrative burden on small businesses has been fully appreciated”, says Lee.

The Tax Advice Network is UK’s first independent specialist tax advice network. For more information visit http://www.TaxAdviceNetwork.co.uk

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Press Release Submitted On: November 26, 2008 at 7:11 am
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