One month on from the 2.5% VAT increase, it seems that SMEs have managed the switch rather comfortably. Well, for the most part at least. According to a poll of 1,400 SMEs by finance management software firm, Intuit, the majority of SMEs are feeling fairly relaxed about the new rate.

It’s still too early to make any major assumptions on the overriding impact of the VAT rise; how it will affect small businesses and the consumer in the longer-term is still open to debate. However, the administrative burden imposed by the change has been handled well and reflects the advantages of making a swift hike rather than a staggered rise.

67% of firms said that the increase had no impact on their business, while 39% said they absorbed the increase instead of passing it onto the customer. The latter figure is a little higher than I would have expected, but perhaps reveals the importance of maintaining a client/customer base ahead of maintaining previous profit levels. Those businesses reporting no impact is a positive sign, but if you flip it around, this leaves 33% who have been affected in some way; that’s still a high number. Let’s hope it doesn’t get any higher.

70% of businesses said the cost of absorbing the VAT rise through loss of revenue and the associated costs of administration (such as adjusting price points, invoices etc) had cost them less than £350. Nearly half said they spent less than five hours managing the increase. For most freelancers, surely this time would be even shorter due to having less administrative duties than some of SMEs who may also have payroll considerations and the need to adjust price systems for a larger customer base.

The Intuit poll even gets all political, by reporting that 44% of respondents acknowledge the rise in VAT as the best way of dealing with the deficit, while only 13% believing that a rise in income tax would be preferable. Perhaps this is reflective of a business community accustomed to adjusting VAT rates. Certainly, Pernille Bruun-Jensen, managing director of Intuit UK seems to think so:

“It’s reassuring to know that many small business owners have been able to cope with the recent VAT increase despite widespread predictions of doom and gloom. As this is the third VAT rate change in less than three years, those business owners who have been around for a while may feel that they have had enough practice to cope with the changes!”

However, the affect it will have on the wider public and the economy will only become more clear over the course of a year. Still, it’s a positive enough start from small businesses…

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Photo by Mark Fowler – CC