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How the Government should handle a VAT increase to help businesses

May 05, 2010 by Adam Ewart

The Liberal Democrats have come under some fire for a negative campaign tactic of claiming that the Conservatives will not commit to saying they will not raise VAT. The reason for the criticism is that the Liberals will themselves not commit to saying they won’t raise VAT either.

I believe the decision taken to lower VAT to 15 per cent was a good one, but was marketed wrongly. It as presented to the general public as a saving across the board. But, as a member of the public who buys different things in his shopping every week, a saving of a couple of per cent was not noticeable on my Tesco receipt.

However, as a director of a company with VAT returns running into thousands of pounds, the VAT decrease was genuinely helpful. To my customers, saving £1 on a violin was irrelevant. Our products are priced to sell, so I decided not to pass on the VAT saving but instead to raise all of our prices.

To the customer, the prices remained exactly the same. But the few thousand pounds I saved by doing this probably saved a job.

If VAT is raised, I would like to see the Government promote it as a rise on the price of all products, just as last year they promoted it as a reduction on all products. But this is not likely. And, without a strong message that this is a universal price rise, many small companies scared of lifting their prices will try to absorb the extra tax themselves. This will be severely to their detriment.

Moving across the VAT threshold is one of the most difficult barriers for the emerging small business and a higher rate of VAT will only add to the burden. I would hope that on the day that VAT is raised, so, too, is the turnover threshold at which a business must register for VAT – and by a considerable amount.

I could write further on many more issues from mortgages for the self-employed to my belief that the Conservative’s recent deluge of signatures from business leaders is a boring stunt with no real message for the struggling small business.

Clearly, business leaders will sign up against any tax that would befall them, so it’s a shame the Tories didn’t use this platform to announce other more relevant, more helpful, business- centric manifesto pledges… but I said I wasn’t going to write about that, so I must stop.

Whoever you vote for at this election, I encourage you to actually use them. More than once, my company has written to elected representatives and you know what? Some of them are actually out to help us – it’s not all house swapping and duck houses!

Adam Ewart, Karacha

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