There’s less than a week left until the VAT hike to 20 on the 4th January, and if you’ve not already decided how to handle it then it’s time to do so.
eBay’s research has found that found that nearly a quarter (24%) of online businesses will absorb the whole cost of the VAT hike to avoid stunting consumer demand, while a further 39% will avoid passing on the whole cost. Only a quarter (23%) intend to pass on the full cost of the rise to their customers.
As well as deciding your own strategy and bulk repricing your items on eBay if you’re going to pass on some or all of the increase, you also need to check on the situation with your suppliers. Your supplier price list is probably ex-VAT so they’ll simply add on 20% to your invoices passing along the full 2.5% increase. This is especially important if you’re not VAT registered as you won’t be able to reclaim the VAT back.
Don’t forget to factor in that couriers, packaging suppliers and all of the other services that you pay VAT on will also be going up, so simply absorbing the cost of a VAT increase will have a greater impact than passing it on.
Martin Dane, Tax Principal at BDO said “The reality is that for a cash-strapped Government, the VAT hike is an easy win and for most consumers the additional VAT charge is actually very small, but from the point of view of SMEs it will lead to a significantly larger monthly or quarterly VAT bill and a potentially damaging loss of profit. It is essential that they act now and determine a strategy to protect their business”. He offers three tips to consider when repricing your goods:
* Watch your competitors closely – track your direct competitors activity and adapt your strategy according to the market..
* Take into careful consideration that the cost of the goods you source may also fluctuate due to the increase and this needs to be built into your pricing strategy.
* Be realistic – make a calculated decision on whether taking a profit hit would mean maintaining sales and therefore securing longevity, or whether passing the rise onto consumers would mean you sell less volume but maintain profits.