The new VAT increase – A Cheltenham trader’s view
Published on 11th January 2011
Pam Thomas of Joyce Brooks, a specialist lingerie shop in Cheltenham, provides a personal insight as to how a local independent trader will cope with the new VAT increase.
"Originally conceived for the UK in 1974 as a tax on certain food items, it has doubled from 10% in the past 37 years.
If you are in retail, you must use the new 20 per cent rate for all standard-rated takings that you receive on or after 4 January. If your business issues VAT invoices, you must use the new 20% rate for all VAT invoices you issue for the goods or services that you have provided.
Well, that's the law. Personally, I find that any change in VAT complicates my basic accounting system and gives me a lot of extra work to do, so it rather annoys me at times!
I try to keep to a Recommended Retail Price (RRP) if required to do so by a supplier - some suppliers eased their prices up in late 2010 and new price lists were sent in December in readiness for the rise. However, while the sale is on, I have decided to charge the extra 2.5% on non-sale stock only. This, I think, is an incentive to buy, but there is no doubt that consumer confidence is low at the moment, and not just because of VAT.
"Many suppliers are raising their minimum order levels or slapping on a charge for delivery"
As a customer if I wanted one of those items, 50p, £1.00 or an extra £5 wouldn't bother me and I think many of our customers will accept the increases if the rise is fair, if they believe they are still getting value for money and most importantly if they really want or need the item. However, if you add VAT to costly things such as a subcontractor who is working for a regeneration project for a city, that costs say, £20m, then the cost of VAT is suddenly a lot more than it is for an independent trader like myself - we would now be talking £4m.
Far more of a worry is that the rise in petrol costs will impact on me and my suppliers. It will cost me more for home visits, collecting and delivering stock, going to talks, and so forth.
Many suppliers are raising their minimum order £ levels or slapping on a charge for delivery, anywhere between £5 and £10 if the order does not reach their requirements. The implication of this is that special orders take longer, or the customer has to contribute to the cost if the item is wanted urgently. So, if there are fewer sales, it takes much longer to restock or special order - and that is not good for the small trader who prides themselves on giving a personal and effective service.
"I strongly believe that customer's perception of this rise has been moulded by the press and TV news
One worry is that I cannot claim VAT back on some expenditure and if those costs rise, as I fear they might, then the profit levels are eroded again.
I recently spoke to Pia Cato at the Vanilla Pod Bakery and she said that "on a day-to-day situation, it may not be that noticeable - but it all mounts up, and come the end of the year it will be a large sum, therefore having an impact on my profits".
This is one of the key issues for small traders - if they don't look carefully at their accounts and keep an eye on the smaller 'nice to haves', then they may be facing a mini-crisis come April.
I also strongly believe that customer's perception of this rise has been moulded by the press and TV news. I felt there was encouragement to go out and spend to avoid the extra VAT. Not only was this irresponsible advice when the average Briton is now already in debt, but the increase will impact on prices.
Of course, I'd rather see the spending spread out over the year. I think customers know that retailers will always give offers and discounts; they always have done and will do, what ever the rate of VAT. The real danger will be if consumers hang out for 'exclusive' sales such as the "blue cross days". I have been trying to encourage a younger age group to the shop and increased prices may well push them back to the cheaper end of the market, for which they then come accustomed to.
Due to the weather, extra heating bills, low interest rates on savings, threats to jobs and now this VAT rise, initially our customers will tighten their purse strings. My worry is that we will see another mini-recession on the High Street, and we now need people to spend their money and support local independent traders like never before, if we are to survive. But equally, people need to be responsible about this spending and be prudent, so it is a catch-22.
We've just got to deal with it by being as cost-effective as possible knowing that gradually 20% VAT will be the norm, and plan into our budget for extra costs such as fuel rises. If traders aren't sensible now, they may find it very difficult within the next 12 months."To me, there's the added problem that the cost of materials, especially cotton because of the weather problems at source, will be more expensive anyway. So the VAT increase puts the price up again. That will impact late spring. However, now, on a £32.00 item, the price will go up by £1.00. On a £20 item an extra 50p will be added, so realistically those are not massive increases. On a Pyrenean dressing gown in the region of £200 + at least £5.00 will be added.