VAT rate change - no help to SMEs

82% of SMEs feel that the Chancellor's VAT rate cut was not a good idea.

According to a survey released today. The findings of the survey, conducted by mid-market business software house Access Accounting, will make difficult reading for the government as it looks at ways to stimulate the suffering economy.

The Chancellor's 2.5% VAT rate cut has been in effect for almost three months, yet 51% of businesses say that the change is not doing enough to stimulate the economy. 27% believe that it was a good start, but that the Chancellor needs to do more. Overwhelmingly, 98% feel that the rate change will not result in any material increase to their business.

When asked what other steps the Chancellor could take to help SMEs, 21% of respondents suggested that the Chancellor should force banks to pass on rate changes to business overdrafts and loans. 19% want to see a decrease in corporation tax rates and 16% want increases in tax allowances for small and medium businesses. 16% also want to see a reduced legislative burden on employers, while 13% want better protection for small and medium businesses from bad debt situations.

Kevin Misselbrook, Customer Services Director of Access Accounting said, "The Chancellor needs to start listening to UK businesses. Cutting the rate of VAT has clearly done nothing to stimulate business or the economy. The results of this survey show that more could be done to help boost the economy without putting greater time and cost pressures on small businesses."

When asked about the cost of implementing the VAT change, 53% of businesses estimated that it cost less than £100. However the time-costs associated with the change varied; 42% had to spend half a day to make the changes, 25% required less than a day, 15% used 1-2 days, 12% are still addressing the issue to date and 6% took more than 2 days. With 4.7 million businesses in the UK, (according to the Department for Business Enterprise & Regulatory Reform), the base cost to implement the changes, even at a cost of less than £100, cost UK businesses approximately £470 million.

Misselbrook continued, "The government is doing little to help SMEs survive the current economic situation. The VAT rate cut has been more of a burden than a boon to SMEs, forcing them to look internally for ways to save money and operate more efficiently."

In offering a solution for businesses, Misselbrook said, "It's very likely that the government will continue to play with business taxes. Businesses are already faced with a challenge as they look to 2010 when once again they'll need to implement the planned VAT rate increase. SMEs should be looking to update their accounting systems to ensure that they can implement any changes efficiently. They should also look to software vendors that demonstrate agility in responding to government legislation."

When asked how long it will take for the economy to recover, the largest group of respondents (47%) predicted twelve to eighteen months, 24% said eighteen to twenty-four months and 19% felt it would be twenty-four to thirty months or thirty months or more. Just 11% believe the recovery will begin this year.

Generally, 52% of respondents are uncertain about the economy. 25% report they are not confident and 15% are very unconfident about the economy; only 8% believe that they are confident at the moment.

"We are in an uneasy time and the importance of knowing the money you have in your business is crucial as it could mean the difference between surviving or not. Every company should have a transparent accounting system, helping businesses to monitor cash flow and budgets as well as conducting data analysis and importantly, being able to adjust to the governments ever changing demands."

Source: Access Accounts