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Affect Of Vat Increase On Small Businesses

1711 words - 7 pages

Affect of VAT Increase on Small Businesses in the North East of Scotland

John Elrick

Submission Date 08/12/10

Report Requested By: The North East Representative of the Federation of Small Businesses in Scotland (FSB)

Executive Summary
The purpose of this report is to provide first hand information and second hand information on what VAT is, the function of VAT, the government’s decision to increase the VAT by 2.5% and the history of VAT. Also an interview and questionnaire will be carried out to help provide this information. This report was required for the North Representative of the Federation of Small Businesses (FSB) on how this VAT increase will affect small businesses in ...view middle of the document...

Contents Page
Page Number
1. Title Page
2. Executive Summary
3. Contents
4. Introduction
5. Findings
6. Findings
7. Findings
8. Conclusions
9. Recommendations
10. Appendix
11. Bibliography

1.0 Introduction
A report has been requested by The North East Representative of the Federation of Small Businesses in Scotland (FSB) on how Affect of VAT Increase on Small Businesses in the North East of Scotland. The report compromises of three main parts:
1.1 Internet research on what is VAT and what is its function, also the history of VAT and the government’s decisions to increase the rate by 2.5%
1.2 An interview conducted with the owner of a small business.
1.3 A questionnaire given to small businesses.

Conclusions will then be drawn and recommendations offered on actions to be taken to alleviate the affect of the VAT increase and how it will affect small businesses in the North East of Scotland.

2.0 Findings
2.1 VAT is value added tax and it is a form of consumption tax, it is charged on most goods and services that VAT registered businesses provide in the UK. It is also charged on goods and some services imported from outside the EU, the VAT collected goes to the government. VAT is charged when a VAT-registered business sells to either another business or to a non-business customer. When VAT-registered businesses buy goods or services they can generally reclaim the VAT they've paid. There are three rates at which VAT is charged, the standard rate of 17.5%, then reduced rate of 5% and zero percent rate, also some goods are exempt from VAT. VAT was first introduced on April 10 1954 by Maurice Laurié although Dr. Wilhelm von Siemens first proposed the concept in 1918. The rate put in place initially was 10%. VAT was initially introduced just too large businesses but was then later introduced to all businesses.
The decision to increase VAT was made by Chancellor George Osborne, The chancellor's decision to increase VAT did not come as too much of a surprise. It had been widely suggested that increasing VAT would be a good way for the coalition government to raise some of the extra cash it needed to reduce the amount it has to borrow. The chancellor said the move would raise more than £13bn a year by the end of the parliament.
"That is £13bn we don't have to find from extra spending cuts or income tax rises," Mr Osborne said.
And the raising of the standard rate of VAT brings the UK more into line with rates elsewhere in Europe as shown in this diagram.

2.0 Findings
2.2 An interview was carried out with the owner of a small convenience store. The followings questions were asked and these are his answers.
Question - Are you aware of the VAT increase?
Answer – Yes the government are increasing the rate from 17.5% to 20%
Question – Do you know why they are doing this?
Answer – I think that it has something to do with clearing the government’s debts.
Question – Do you think that this...

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