In an announcement last week The Shadow Chancellor, George Osborne, has declined to rule out increasing the rate of VAT should the Tories be successful in the next general election. Mr Osborne said that while he had "no specific plan" for VAT rates that he could not guarantee that they would remain the same.
But what would an increase in the rate of VAT mean for SMEs? For many it will be an increasing burden in already strained economic conditions.
The decrease in the standard VAT rate late last year helped a lot of SMEs as it decreased their costs. Although the administrative burden that it placed on them was for many a strain on their existing systems. According to the research that we carried out in March this year, an ‘extension of the 15 per cent VAT rate for a further 12 months’ was named in our customers ‘top five wishlist’ for the year.
Beyond the immediate increase in their operating costs, a hike in VAT to 17.5 per cent after December and then a potential further increase to 20 per cent should the Tories come into power will place a huge administrative cost on SMEs. Many SMEs’ systems are still adapting to the original cut, so reversing it all back in line with the original 17.5% and then potentially changing it all again will be a major headache for many.
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