Labour leader Ed Miliband reckons that today’s VAT increase will hit small businesses hard. True – if you don’t understand much about business. The increase of 2.5% to a new VAT rate of 20% will not actually cost most businesses anything. If you are VAT registered you can claim it all back anyway. And if you are in the “business to business” sector the VAT increase has no impact whatsoever because your customers claim it back anyway, so the price stays the same to them.
The people really affected are consumers, where the VAT increase will cost an average of an extra 90p a day on household bills. Combined with rising inflation and reduced availability of public services, consumers can expect to be out of pocket in the year ahead, with the VAT rise adding to the trauma. But even those businesses in the consumer marketplace can counter the likely impact of the VAT rise. For instance, last night I heard a taxi driver complain that his prices would rise by 2.5% which would reduce the numbers of people likely to want a taxi. Possibly; it means a £10 taxi fare now becomes £10.21. Hardly dramatic. But let’s assume the taxi driver is right. Let’s assume he loses customers as a result of the increase. What is actually going on?
The taxi driver is allowing external factors to control his business. What if, instead of accepting reduced numbers of customers he did something to reduce his own costs by 2.5%? Net impact – zero. What if he did something to increase his marketing efforts by 2.5%? Net impact – more customers. In other words, even consumer-focused business do not have to accept the impact of the 2.5% increase. They can do something to counter it.
Cutting your costs by 2.5% is relatively easy. Let’s say you spend £1,000 a year on stationery items. All you have to do is spend £975 next year and you have saved 2.5%. That’s about five reams of paper; simply using 7 sheets if paper less each day, or printing double sided is all you would need to do to save the money. Not that difficult since most office printers these days offer duplex printing.
And what if you generated 2.5% more customers as a result of 2.5% more marketing. Let’s imagine you issue 9 – 10 press releases a year. You only need to issue one a month and you are there. Not much extra work, but a 2.5% rise.
In other words, 2.5% is not very much. Going from 1,000 website visitors a day to 1,025 will not take much effort at all – perhaps an extra Tweet or two. Cutting costs by 2.5% is not that difficult. Negotiating 2.5% extra time to complete a project is usually not much either – two days becomes two days and one hour. The media coverage of the 2.5% VAT rise is making people think it is dreadful. Ed Miliband is adding to the confusion by suggesting it will hit businesses hard. It won’t. It will only hit business if companies fail to understand that a 2.5% change in anything they do is relatively small.
What changes can you make in your online activities that will have a 2.5% impact? After all, if you write a blog post twice a week, you only need to squeeze in an extra three posts in the entire year and you have done 2.5% more. A 2.5% change in your online activities will be easy and could well have cumulate effects – 2.5% more blogging. 2.5% more visitors, 2.5% cost reductions – before you know it you are profiting well. If you sit back and say “ho hum, the VAT rise will affect my business” you are giving in. A few, small 2.5% changes to your online business is all you need to do to counteract any impact of this VAT increase.
4 thoughts on “VAT rise shows what you should do to your website”
Thanks for a rational counter to the doom & gloom Graham!
Just one thing … when you say the increase 'will not actually cost most businesses anything', I'm one of the unfortunate (in this instance) small businesses who isn't registered for VAT and therefore will have to find other ways to offset the increased cost of purchases. Those 2.5%s will start adding up ….
Louise, thanks for the comment. I appreciate that non VAT registered businesses will be in the same position as consumers. But remember you can register for VAT even if your turnover is less than the minimum VAT threshold. In the past people were advised not to register for VAT because of the time and effort involved in the paperwork. Nowadays with computerised accounts, it is all automated. In other words, there is no time and effort involved in VAT admin compared with what was the case years ago. I've been registered for VAT for almost 27 years. I remember at the beginning it took a day or two to do the VAT return. Now, it takes about five seconds – press a button on the computer…! The benefit of registering, even if you are below the threshold, is that your business costs automatically go down – now by 20%…..! I'd encourage everyone to be VAT registered – the benefits outweigh the downsides – assuming your customers are also VAT registered….! If not, your prices will go up by 20%….! It's a real conundrum for non-registered businesses.
I like the positive attitude towards 2.5% here, relating it into how much extra you need to accomplish to achieve 2.5% more. It's not difficult to do, it just requires (perhaps) 2.5% more concentration and focus, 2.5% more observation and realisation, 2.5% more concept comprehension and implementation.
When I had my own business, the idea of having to pay 2.5% more on VAT was also daunting, as I was not VAT registered. It was something I could not claw back without putting up my prices, but now I understand all I had to do was to provide 2.5% added value, 2.5% more guarantee, 2.5% better quality, all which would far outweigh a 2.5% increase in what I charged. Keep thinking positively, and the world will change not around you, but with you!
You're absolutely true, he/she will possess the both attribute, Thks Brisbane for the contribution
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