Will you pass on the VAT increase to your customers?

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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.

30 Responses

  1. I’m not going to put my prices up on the 4th though I will probably have to in April with the Royal Mail price increases in order to leave my flat rate postage the same.

  2. Remember that some items such as Books, Magazines and Newspapers are Zero rated so are directly not affected by VAT going up. But there are some areas such as Calendars where some are Zero Rated and others are fully VATable. There are some other categories where some are VATable and others are not. If you trade in any of those categories life gets more complicated. I sell some Calendars and I have always advised looking at the Publishers Invoices on the basis that they have held negotiations with the HMRC to determine if their items are VATable or not. The Calendars I sell are all VATable so its easy but years ago I used to carry some that were not VATable as well and it did get complicated. On the 5th I will probably phone the publisher just to determine what price he is now quoting just to confirm the situation.

  3. The VAT increase is a big concern for everyone, but I am sure we will bounce back and still earn some decent money.

  4. taking a profit hit might not maintain sales if you have no business due to going bankrupt,
    dont matter if its the vat increase you absorb or any other cost , you need to make a profit or its just not worth running the business

  5. As one of our IDs sell mainly ‘free P&P’, will will have to in April, but will leave alone till Feb-March then start the upward price adjustment.

    We just about held our own dueing the awful December (snow etc).

    With a near 10% postal increase in April, don’t see we have a choice, as many item are around £2-3 inc P&P…!!

  6. The smarter businesses will have put their prices up in October / November.

    They will then announce that they haven’t increased their prices on Jan 4th.

    I’m sure one of the big supermarkets did this when it went from 15% to 17.5% last year.

  7. The media seem to over state everything, I think thats why we’ve all had lower sales this Christmas. A few years ago we were all going to die from SARS, then Bird Flu, then Swine Flu, 3 million people were going to lose their jobs in the resession, Swine Flu II (the return) is at a box office near you, the whole public sector is to be terminated, child benefit being stopped for those who earn X amount of money (people who don’t really need it) and V.A.T going up to 20% (which really means that every ones is going to have to pay an extra 2.5p on every pound that they spent on most of the things they buy).

    Not really the end of the world, but then again the media do like to talk out of their arse don’t you know!
    Happy New Year.

  8. You know we all complain about the VAT increase, but regretfully with all the Benefits being chucked about by the last Goverment it means we now have to pay the price.

    Someone I know, just got £1200 cheque for ‘appliances’ & promply bought a bundle of 2nd hand stuff for £350, then pocketed the difference.
    A significant # of ‘poor’ people (and particularly new immigrants can get this & do the same).

    So anyone that buys anything now has to pay the price.

  9. There’s plenty of work out there, just not the “sort” of jobs people would choose to do, given the choice.

    Maybe that choice should be removed, if you’re hungry, you’ll work. If your kids need clothes, you’ll work.

    I think it’s about time we think about removing the welfare system completely, say over the next 15 years.

  10. Warren.

    “the work ethic has been replaced with a benefits culture”

    The fact that a statistically small section of the population abuse the benefit system does not mean we have a benefit culture, unless what you mean by that is we have a benefit system.
    But I take it that is exactly what you mean and that use of the phrase ‘benefit culture’ simply indicates that your philosophy is to look after no 1 and sod the rest, unless of course it happens to be you who finds yourself in need of some care.

  11. A couple of posts back you were talking about removing the welfare system completely. Are you sure you have thought your position through?

    How about this for a radical idea – If there wasn’t such a gaping gap between the top and the bottom of our society and if there really was social mobility those at the bottom would become incentivized.

    Yes we all have different ideas of what is good use of our tax money. I would rather my taxes were spent on the NHS (welfare system) than on bombing far off lands, supporting exorbitant pay outs to failed bankers or to building duck ponds for MP’s.

    Those on benefit are a nice easy target for our indignation and feelings of moral superiority.

  12. I’m not any better than the people on benefits, bit I choose to work for a living. Most people on benefits have a better standard of living than what I currently have as they have everything paid for by the state. I choose to pay my own way in life. I just think its an injustice for people who are lazy to have such a high standard of living.

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