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Increase in VAT Tax Rate: SME’s plan to cut expenditure

If the VAT increases to 20 percent, it will have contrary effects on micro firms and limited companies other than any other measure taken in the budget.

As per the research commissioned by storage provider SafeStore, around a fifth of the firms are planning to cut down any salary payments on the company’s pay roll.

According to Forum of Private Business member company, the increase in VAT will make things harder. The Federation of Small Businesses has accepted the government’s decision to postpone the VAT increase until the new year.

The FSBs appealed was ignored by the government that the VAT rate of 20% which will help to cut the deficit by £11bn should not be applicable to sectors like construction.

The smallest firms for whom the cash flow is crucial should pass the increase in VAT on to their clients as the idea of a sector specific VAT rate raise was not considered by the government.

Some of them a re considering relocating and most of them would only meet the costs of the tax increase by downsizing according to the firm’s polled last month.

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