FSB: Budget should strike the right balance on VAT, say small businesses

As the Chancellor prepares to give his first Budget speech on Tuesday, the Federation of Small Businesses (FSB) is urging him to strike the right balance with any tax increases.

It has been well documented that the Coalition Government has not ruled out a rise in the VAT rate in the Emergency Budget on 22 June. With business confidence on a knife-edge the FSB is urging the Government to be mindful of how the tax will affect real businesses.

If the Government does decide to increase VAT, the FSB urges that it must ensure that small businesses are given time to prepare, as moves by the previous Government to reduce the VAT rate for a limited period cost small firms £1,500 in administration alone.

In order to prove that the Government is a low tax administration, the FSB calls for a sunset clause to be introduced. This would put a time limit on the increase, providing certainty for the small business community and allowing them time to plan for the eventual reduction and how to financially manage the changes.

If the level does increase to 20 per cent it will help to reduce the deficit by £11 billion, however this should be tempered by lower rates in some sectors. This would serve as a stimulus to growth in some crucial sectors. Therefore, the FSB would welcome moves by the Government to follow in the path of other EU countries and reduce the VAT on construction to five per cent.

Evidence from parts of the EU that have done this suggests that this cut in VAT can result in greater revenue from the tax, due to increased trade. The construction industry accounts for 10 per cent of Britain’s GDP and so it is essential to the economy that this vital sector is supported through the recovery.

The FSB would also like to see the Government look at the registration threshold for VAT. The rate currently stands at £70,000, but a co-ordinated increase to £90,000 would help small firms reduce the bureaucracy around completing VAT returns while allowing them to increase turnover without losing competition to larger firms.

John Walker, National Chairman, Federation of Small Businesses, said:

“Small businesses do not have the financial buffers to absorb increases in VAT as big business does, so it is imperative they are given time to plan. If the Government truly is a low-tax administration, it must include a sunset clause which would put a time limit of the length of time VAT is increased.

“Small firms have lived with the realities of the financial crisis for long enough to know that painful decisions are necessary in order to strengthen the recovery. However, small firms must not bear the brunt of tax rises and the Emergency Budget must provide hope for the future, not more gloom.”

ENDS

Notes to Editors

1. The FSB is the UK’s leading business organisation with over 213,000 members. It exists to protect and promote the interests of the self-employed, and all those who run their own business. More information is available at www.fsb.org.uk

2. Other items the FSB has asked the Coalition Government to consider in its Emergency Budge are:
. Zero rate National Insurance for companies with less than four staff on the next three staff it employs for one financial year
. To introduce a generous taper relief if Capital Gains Tax is increased
. Renewal of the Enterprise Finance Guarantee
. Provide access to finance
. Provision of a banking mediation service, similar to the small business credit adjudicator
. Removal of IR35 legislation to clear the route to entrepreneurship
. The introduction of a Fair Fuel Stabiliser as announced in the Conservative Party manifesto
. Cutting VAT in the construction industry to five per cent
. Ensuring there is a shift in late payments making it unacceptable behaviour
The full Budget submission is available at www.fsb.org.uk

3. This is a national release; additional information may be available on a regional basis. For regional FSB contacts please go to www.fsb.org.uk/regions

Contacts

Stephen Alambritis: 020 7592 8112/ 07788 422155
Eric Beech: 020 7592 8128/ 07917 628998 eric.beech@fsb.org.uk
Prue Watson: 020 7592 8121/ 07825 125695 prue.watson@fsb.org.uk
Sara Lee: 020 7592 8113/ 07595 067068 sara.lee@fsb.org.uk