Stay Small, Earn a Wage but Nothing More

So we’re a couple of weeks away from the latest change to the VAT rate. For businesses like mine that sell mainly to other VAT registered businesses it’s not too big a deal.

The companies I feel sorry for are those selling to consumers. They have to either put up their prices (and make themselves uncompetitive) or they need to take a hit on their already-squeezed margins. Not nice.

I’m hearing that quite a few businesses are de-registering for VAT to avoid – or delay- dealing with this problem. They must be firms that have sales of less than £70k in the past 12 months (as that’s the threshold at which you must be VAT registered) .

So why did they register for VAT in the first place? Because they have aspirations, because they want to grow their businesses and eventually employ others. All great aspirations and exactly what the government would have us believe they want from small businesses.

But as @maxinemaxxy put it on a blog post yesterday:

My personal belief is that this change puts micro businesses firmly in their place. Stay small, earn a wage and no more. They will find it a surmountable barrier to go from non VAT to VAT reg and many won’t bother to aspire to that, nor take on staff, or have longer term visions of growing their business beyond the VAT threshold.

There’s something perverse about the whole VAT set-up. I don’t pretend to know what the solution is, but the current set-up really doesn’t encourage people to grow their businesses much beyond making a decent living just for themselves.

Image Credit: renjith krishnan / FreeDigitalPhotos.net