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Thursday, 18 February 2010

VAT v NI Increase

It looks like later this year once the dust has settled after the May? General Election that VAT will be increased to complement the already proposed increase in Employers and Employee National Insurance rates.

I have never understood and probably never will understand the reasoning why businesses should get taxed 12.8% on top of employee wage rates (remembering that employees and business owners already contribute with National Insurance payments from their wages.) In other words this is a "tax on creating jobs".

An increase in National Insurance Contribution is set to kick in within 2011 and later this year many experts believe whoever is in control in Downing Street will increase VAT rates to aid the UK's financial deficit.

This increase will likely see the current 17.5% VAT rate rise to anything up to 20%.

This will obviously have an increase in the end cost of the electrical services we provide and ultimately an increase to our clients. Our client based is a mixture of domestic and commercial/industrial clients. Now the majority of the latter will be able to offset their VAT charges against their expenditure VAT but domestic clients cannot claim VAT back.

This will not just result in our domestic clients paying more which is bad enough in these crucial financial times but it will give our competitors who do not charge VAT an even wider advantage over our rates. Various clients are likely to go with these competitor's who's turnover is under the VAT threshold which puts pressure on our business to compete, which ultimately exposes more of a risk to "have we got enough work to employ someone" which in a roundabout way defeats the purpose of the VAT tax increase because if we cannot employ someone they cannot contribute in NI and Tax to the government who will then have to pay out benefit money.

If I were in charge then regarding VAT - if you are a business then you MUST be registered for VAT - its as simple as that and it creates a level playing field. Plus if all businesses were registered for VAT then more revenue for the Government would be created plus if they were playing fair(haha) they could reduce the VAT rate slightly and still create more revenue due more businesses contributing.

So after all that if it were only one of NI and VAT that was to be increased what would i prefer.

Ultimately I would still like to see the Employers NI Contributions removed or even slashed by at least 50%. It is this which see's us contribute tens of thousands of pounds per year to the government just because we employ people and keep them in employment. This Employers NI Tax is my biggest bugbearer in business.

So it would need to be an increase in VAT for me that I would like to see above an increase in NI.

But no matter what I think an increase to both will go ahead in the very near future - save up now folks, the financial clawback by the Government is just about to begin.

Create a Business, Create Jobs, Create Revenue for Government - That should be the motto for UK parties in the lead up to the General Election.

Contact Details for Stirling Electrical Services Ltd.

Stirling Electrical Services Ltd
12 Queen Street
Stirlingshire, FK7 7JG

Tel: 01786 813916, Fax:01786 811447
Web: www.stirlingelectrical.co.uk
Email: info@stirlingelectrical.co.uk