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There may be trouble ahead for smaller high street retailers

There may be trouble ahead for smaller high street retailers

Contractor accountants who have small business clients in the retail sector could be concerned to hear that the British Retail Consortium’s belief that the increase in VAT could cause problems within the sector.

As from January 4th, the VAT rate will rise from the current 17.5% to 20% and the BRC thinks that online retailers will find it easier to absorb the rise than the high street stores will.

A spokesman for the BRC pointed out that online businesses have a distinct advantage over their high street counterparts; they spend a lot less on overheads. Potentially, their margins are slightly broader so they have the opportunity to absorb the increase.

This suggestion is in some ways backed up by a recent survey from eBay. It’s latest Online Business Index shows that 63% of online retailers hope to be able to absorb at least some of the increase. 24% say they are confident in their ability to absorb the full VAT rise so that prices will not have to increase, but 23% of internet traders will be passing on the full increase to their customers.

Around 50% of the survey’s respondents think the increase will have a detrimental effect on their business and lead to a reduction in sales.

Dale Atkinson, from the BRC, said that there will be increased competition between retailers over the coming months as companies look for ways to minimise the impact of the VAT rise on their customers.

Contractor accountants could be in a good position to advise retailers on the best ways to cope with the increase and still maintain profitability.

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Image: Busy deserted street by Stephen Jefferson

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