the business ladder

According to research by the Federation of Small Businesses (FSB), almost half of UK small businesses have been forced to absorb the costs of the recent VAT increase from 17.5% to 20% in order to remain competitive.

The FSB survey of 1,600 small businesses showed that 48% were planning to absorb the costs of the January VAT rise, instead of passing it on to their customers and clients.

Prue Watson from the FSB explained how SMEs that try to absorb the cost will be put under pressure to cut costs elsewhere.

“For example, they might reduce their marketing or try to do it more
cheaply. However, many small firms don’t have the leeway to do this. More than half are adding the extra VAT to their prices, which could put consumers off buying from them, and ultimately that will hit their cashflow, too."

This has proved a difficult decision for many small businesses at a time when they are already analysing their business model to ensure profitability.

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