Small businesses are divided on the best path to take in order to deal with January's VAT rise.
The Institute of Chartered Accountants in England and Wales (ICAEW) has advised SMEs to start preparing as soon as possible for the rise, which will take VAT from 17.5 per cent to 20 per cent come 4 January 2011.
Six out of ten small businesses have reported that they are concerned that the VAT rise will have some sort of impact on their organisation’s cashflow. Nine per cent of firms fear it will have a 'significant' impact.
Whilst 36 per cent of SMEs plan to 'absorb the costs within the business,' 30 per cent plan to bring in price rises, and 34 per cent plan to absorb costs and rise prices.
Head of Tax at ICAEW, Frank Haskew, said, “Businesses have faced a number of admin burdens over the past two years as the VAT rate was first reduced to 15 per cent, then restored to 17.5 per cent and now to be increased to 20 per cent.
“At a time when companies are facing a tough 2011, having to change the VAT rate is not a good way to start the new year. Many will be worried about the effect it will have on sales in the first quarter but preparation is the key to help ensure the transition is smooth,” he added.
