2:59pm Tuesday 25th November 2008
By Chris Holland
A leading Bradford accountant and business advisor has warned the cost to small firms of adjusting to the lower VAT rate could out-weigh the benefits of increased high street spending.
Chancellor Alistair Darling has announced a 12-month reduction in VAT from 17.5 per cent to 15 per cent, the lowest rate allowed by the European Union, with effect from Monday.
David Warren, a partner at MGI Watson Buckle and past chairman of the Bradford Society of Chartered Accountants, said: “The cut in VAT is a short-term measure designed to help rebuild the lack of confidence in the market.
“Businesses, especially smaller ones, will have to spend precious time changing prices in tills and computer systems. The cost of doing this may outweigh the benefit of increased spending.
“Businesses should look at their accounting software and make sure they know how to change the VAT rate in their system. If necessary, they should consult their manuals, software supplier or their accountants, who may have helped them set up the system in the first place.”
Mr Buckle warned that further tax rises were inevitable if the emergency economic package was to be paid for.
Business advisors at Pricewater-houseCoopers in Yorkshire say small businesses in the region are set to benefit by up to £7 billion in extra funding from the Chancellor’s emergency measures.
They welcomed the commitment to delay the rise in corporation tax from 21p to 22p for small businesses at a time when many were under pressure.
The increase in personal allowances and National Insurance thresholds would give welcome relief in the short-term to both some employers as well as employees.
The decision to allow firms to set losses of up to £50,000 against profits recorded for the last three years were welcome.
Martin Hodgson, head of tax at PwC in Yorkshire, said the cut in VAT should not only affect retailers and consumers but would also be welcomed by financial institutions, which were unable to recover VAT, and would reduce their cost base.
Airports’ leader Ed Anderson welcomed the decision to abandon a new aviation duty and instead reform Air Passenger Duty into four bands.
Bradford-based Mr Anderson, chairman of the Airport Owners’ Association and a former head of Leeds Bradford airport, said: “By continuing to tax passengers rather than the plane, the impact on regional routes will be minimised. While we believe the Government has done the right thing in not introducing Aviation Duty, we remain concerned that the industry is taxed more than its fair share.”
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