VAT rise cost businesses as much as decrease

19th October 2010

The cost to business of the increase in VAT to 17.5 per cent in January was as high as the earlier drop to 15 per cent, a new survey has found.

The study, which was carried out on behalf of HM Revenue and Customs (HMRC), revealed that the return to the old standard 17.5 per cent rate in January 2010 imposed as many costs as dealing with the drop to 15 per cent in December 2008.

It had been hoped that businesses would have been able to use the experience of the earlier decrease to dampen the administrative effects of the reversion to the old rate of VAT.

But it seems that the changeover incurred similar levels of cost.

Some three quarters of those firms involved in the survey said that the increase to 17.5 per cent had the same cost effect as the drop to 15 per cent.

In the case of larger companies, almost a half believed that the increase, far from being less expensive than the decrease, actually added to costs.

With VAT due to climb to 20 per cent in January 2011, it seems that the majority of businesses will be faced with roughly the same costs as in previous rate changes.