V4B Business Finance

How will changes to VAT affect businesses

Changes to VAT

Amidst concern over the soaring cost of living increases, UK businesses are facing additional pressure in the form of changes to VAT. With the Spring Statement recently made by Chancellor Rishi Sunak, the combination of economic factors including energy price caps, business rates, and insurance rates is threatening the stability of an only recently resurgent business landscape.


VAT on the rise

Many products and services will be forced to increase costs in order to respond to increases in VAT. The hospitality sector, long a vital and renowned element of wider UK business and tourism, is expected to see a VAT increase back to 20% – a sharp increase from the previously lowered levels of 5% imposed to provide assistance during the pandemic lockdown. This follows the more recent increase from 5% to 12.5% in October of 2021 following the easing of social restrictions.

Despite the reductions in VAT, the hospitality sector in the UK found itself continuing to struggle. Many businesses found it challenging to effectively pass on the benefit of the lowered VAT rate to their customers, largely due to the significant economic pressure experienced due to the pandemic directly. In most cases, businesses found it necessary to use the reduced tax costs to help absorb the negative impact of the pandemic, with difficulties such as rising inflation costs and sharp uptakes in business debt requiring the use of all available government aid to absorb costs.

This trend may continue in industries across the country, with government relief efforts finishing with unfortunate timing amidst sharp increases in operational costs.


Price hikes for consumers

Key industry figures in industries such as the hospitality sector are warning of a similar situation as the VAT prices return to higher levels. Wetherspoon founder Tim Martin and others expect significant increases in the prices of food, drink, and services in the hospitality sector due to the reduction in emergency VAT support.

This increase goes hand-in-hand with other government changes expected to increase prices and costs for businesses, such as wage and business rate alterations. According to the Chief Executive of the British Beer and Pub Association (BBPA), Emma McClarkin, just the changes to the VAT rate are forecasted to cost pubs across the UK over half a billion Pounds.


Energy price increases

While the cost-of-living increases are challenging families and households across the UK, businesses – particularly small to medium enterprises (SMEs) – are facing crisis.

With price caps affecting consumers differently from businesses, reports released by analysts at Cornwall Insight have found an average 250% increase [TW1] in the gas bills of UK companies in the last year. This staggering increase is threatening the stability of a demographic of businesses already challenged by a common lack of financial security and funding.

And with domestic customers in the UK being supported to a degree by government price caps on the cost of energy, similar limits and government support have yet to be comprehensively extended to businesses now facing spectacular increases in their operational costs.


Business rates

Businesses in sectors including leisure, business, and retail were propped up during the peak of the lockdown and pandemic in part due to breaks on property tax. This has been incrementally reversed as the pandemic has progressed and economic recovery has begun, with most businesses within the last year benefitting from a 66% reduction to rates up to two million Pounds.

As of April 1, this has changed – and the impact is being keenly felt. With new rates being a 50% reduction capped at one hundred and ten thousand Pounds, SMEs across the country are facing the likelihood of increasing their prices for goods and services to combat what is expected to amount to billions of Pounds in increased rates.


Here to support UK businesses

Uncertainty and challenge may be the order of the day for UK businesses, but that doesn’t mean your company should go without the funding it needs to thrive and succeed.

Founded in 2014, the V4B Business Finance team has proudly supported the UK business community with hassle-free funding. To learn more about our business loans service and to check your eligibility, be sure to stop by our front page today.

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