With the a large quantity of businesses being affected by the current economic situation what, if any, impact the reduced VAT rate is having on small and local businesses across the nation.
When the rate of VAT was recently cut from 17.5 per cent, to its present level of 15 per cent, the Government branded around huge figures, stating that the UK economy was going to benefit significantly from the 2.5 per cent decrease. Indeed, a potential savings figure of up to £20 billion has been quoted, as the Government have desperately attempted to boost our flagging economy.
Unfortunately, as with all other attempts on the Government’s part to date, this reduction would not appear to be having the desired impact. Interestingly, the Federation of Small Businesses (FSB) has recently polled many thousands of businesses to try and glean whether or not this VAT rate reduction has had a positive return on their revenue. It would appear that the short answer to this is a resounding NO!
In fact, no less than 97 per cent of the businesses polled reported that this rate cut in VAT has not had a positive impact on their takings. Customers were not swayed by such a small reduction in the amount of tax that they would still be eligible to pay. Let’s be honest though, a reduction of only 2.5 per cent is not going to make a massive difference on the majority of the products that we buy. For every £10 spent, this would only equate to a saving of 25 pence. When people are having to watch their spending so meticulously, this is hardly going to have people pulling out their wallets and purses to make the most of the new rate of VAT and go on any spending rampages.
Whilst this scenario will no doubt be extremely unlikely, it seems that a more respectable cut in the rate of VAT may be called for. But, with the Government keen to emphasise that the current cut is losing them £20 billion from vital tax income, we should not hold our breath for another sharp decrease in the near future.
What other ways may there be to help small and local businesses at this time? One way may well be to revise the threshold turnover level for when VAT should be charged in the first place. This figure currently stands at £67,000, but it may be a good idea for the Government to increase this figure, especially during these current times. If this were the case, the smaller businesses would have more of a completive edge and they would almost certainly be placed in a much stronger position to weather this storm.
1st Contact believes that at the very least business owners will have a fighting chance of keeping their heads above water and coming out of the recession on top. With this in mind, we should be your very first port-of-call to seek professional advice and support through this economic downturn. Here at 1st contact, we will be happy to advise you on all matters that relate to VAT and any other tax systems within the UK. You may wish to watch our website throughout the coming months as we will endeavour to keep you up-to-date with all relevant news information which pertains to this industry.
1st Contact Tax offers specialist tax services to contracting professionals these services include: Contractor Accounting, Contractor Umbrella payroll, Personal Tax for Contractors, Limited Companies for Contractors and Contractor Financial Advice.