How will you handle the VAT increase in January?

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hmrceBay have surveyed sellers regarding the VAT increase to 20% due in January 2011. The big questions facing sellers are will the VAT rise impact sales and will it be passed on to customers or will sellers absorb the increase themselves.

Based on the feedback from 600 top sellers 63% are intending to absorb some or all of the VAT increase, with almost a quarter of sellers indicating that they’ll absorb the full increase. The bigger issue is that the same number 63% are concerned that the VAT rise will harm the economy by decreasing demand with half of all sellers believing it will directly impact their own business.

28% of sellers are concerned that the VAT increase will not only affect consumer demand but will also directly impact the profitability of their own business although 55% believed it will make no difference to profit margins.

It’s important to realise that for many sellers the VAT impact to their business will not be the full 2.5% headline increase as many VAT registered sellers can reclaim VAT on purchases. However for non-VAT registered sellers or those that can’t reclaim VAT it will make purchasing stock more expensive.

How will you handle the VAT increase? Do you think it will affect sales and will you increase prices or absorb the increase? Are you expecting your overall profit margins to rise or fall and do you think it will impact your sales?

24 Responses

  1. I think you are missing the main issue.

    Postage

    I spend £60k a year with Royal Mail and can’t claim VAT back (yet).

    I will have to pay 2.5% on this which is £1,500 straight off my bottom line.

  2. VAT is a tax on jobs — salaries are the largest significant input cost that you can’t reclaim any VAT back on, but on the fruits of which you have to charge the additional VAT.

    I don’t understand why we’re making it more expensive to employ people.

  3. I do not believe that any business will truly absorb the increase. Retailers are stocking up now so they pay the lower VAT – so their prices will not increase in January making it look like they are absorbing the rise. Look at prices in March / April and see if they are still the same then!!

  4. A tax increase always TEMPORARILY stimulates an economy as everyone does whatever is going to be punished before the sentence. This is happening in the USA with the Bush tax cuts — people are taking income this year before they expire as opposed to next year.

  5. For us, generally we’ll continue to absorb any increase, but on new listings OR when the price of the product itself rises, the VAT will go up too.
    SUBJECT of course to the competition/catagory standing a price hike………….

  6. I can already feel myself cringing at all the beat the vat adverts around christmas

  7. I will keep to the same formulas for all pricing (to lazy to edit things individually) How i view everything is, i want the same profit full stop, regardless if VAT is 1% or 50%, VAT for me is what the customer pays the government, it is nothing to do with me, so unfortunately it means customers will have to pay more, its not my fault, its the governments. The only thing i have to chose is when rounding my prices, either lower of higher. I dont feel it will affect my sales as my items sell at an average 20-30 pounds, but i feel very sorry for the people with higher priced items. What i think was the biggest mistake Britain ever made was dropping VAT to 15%, Britain has been 17.5% for as long as i can remember and it should of been left alone.

  8. I am of an age that I can remember when VAT was first introduced. Before that we had Purchase Tax and if you wanted a truly horrible system then Purchase Tax was it. But when VAT came in it was a straight 8%. Not long after it was introduced I bought an old Austin J4 Van for £1-08(including the 8% VAT). I had that old Van for 3 years and still wish I had kept it. After me it went to the Scrapyard but they rebuilt it as the Scrapyard Van and then a year later sold it on again. Every owner of that old Van had stories about it-usually of it doing things that it should not have been able to do and always reliably. So if you have VXD805G in your possession can I have it back so I can remember the good old days of 8% VAT.

  9. Those trading out of Jersey must be rubbing their hands at this VAT increase – us lowly sellers in mainland UK will have to suffer the extra 2.5% tax whilst the Jersey boys have an extra 2.5% to be able to undercut the rest of us so we end up losing sales as well. simply NOT FAIR. the Government keeps making cuts everywhere so why not close this unjust loophole. Am I missing something here?

  10. What should be worrying ebay is the mixture of their high fees and 20% VAT forcing sellers to price their stock higher than the other jersey based online stores who don’t have either to worry about.
    Maybe ebay could set us all up a base of operations in the channel isands?

    John

  11. “55% believed it will make no difference to profit margins.”

    If anyone thinks that about their own business they are in for a rude awakening.

    If anyone takes the time to calculate figures as a % against turnover and profit you will not see the same profit. Do it with this years figures with vat at 20% and tell me you still get the same profit as with 17.5%.

    Saying it won’t effect profits is rediculous and ignorant.

  12. Can I throw a suggestion into the ring. I have heard a suggestion that we could get rid of Council Tax and replace it with a further 2.5% on VAT. This would mean that All of a Councils income would then come from the Treasury(apart from such as Car Parks income and similar) instead of the majority as at present. But it would mean that the tens of thousands of Bureaucrats in Councils across the Country sending out Council Tax Bills, Collecting it, chasing up non payers, Valueing or re-valueing properties for Council Tax etc could be sacked. But it would mean a 22.5% VAT rate. How would Traders like that Suggestion?

  13. According to the Government the Wealth Creation Sector of the economy is going to expand and employ a large proportion of the Bureaucrats sacked from the Parasitic(Some call it the Public)Sector of the Economy. So what does it matter if another 50,000 across the Country previously employed in Council Tax also lose their jobs. Surely we need more in the Wealth Creation Sector making and selling things and less in the Parasitic Sector just filling in and shuffling paper and holding the rest of the economy back.

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