Stay Small, Earn a Wage but Nothing More

So we’re a couple of weeks away from the latest change to the VAT rate. For businesses like mine that sell mainly to other VAT registered businesses it’s not too big a deal.

The companies I feel sorry for are those selling to consumers. They have to either put up their prices (and make themselves uncompetitive) or they need to take a hit on their already-squeezed margins. Not nice.

I’m hearing that quite a few businesses are de-registering for VAT to avoid – or delay- dealing with this problem. They must be firms that have sales of less than £70k in the past 12 months (as that’s the threshold at which you must be VAT registered) .

So why did they register for VAT in the first place? Because they have aspirations, because they want to grow their businesses and eventually employ others. All great aspirations and exactly what the government would have us believe they want from small businesses.

But as @maxinemaxxy put it on a blog post yesterday:

My personal belief is that this change puts micro businesses firmly in their place. Stay small, earn a wage and no more. They will find it a surmountable barrier to go from non VAT to VAT reg and many won’t bother to aspire to that, nor take on staff, or have longer term visions of growing their business beyond the VAT threshold.

There’s something perverse about the whole VAT set-up. I don’t pretend to know what the solution is, but the current set-up really doesn’t encourage people to grow their businesses much beyond making a decent living just for themselves.

Image Credit: renjith krishnan / FreeDigitalPhotos.net

http://www.mattchedit.com/Blog.aspx Matt Chatterley

While I definitely agree with your last statement – and in my opinion the way VAT works is one of many things in UK legislation (tax in particular) which seem to be *intended* to act as deterrents to entrepreneurship (surely they would have been adjusted if not?) – there is another aspect to this.

And it’s mentality. On day 1, we registered for VAT, even though our year 1 projection was under 70k. Year 2 was under 70k as well – we remained registered. These days, we wouldn’t have a choice – but the point is, we always knew that we wanted to be in a position where it wasn’t a choice!

And where are we now? The rate change is something we cannot delay or avoid – we just have to deal with it (we are in an odd place where we are partly b2b and partly b2c – as our small business customers are often not VAT registered) – we absorb it on some jobs and simple pass it on for others.

But one thing is for sure, we’ll be growing in 2011. I for one don’t want to simply “get by” – I want to prosper. To create jobs, employ apprentices – and lots more besides.

Of course, I suppose the more ambitious we are, the more likely we are to end up flat on our backsides – but surely if you risk nothing, you gain nothing?

…. better hop off the soapbox now 😉
http://www.maxxy.co.uk Maxxy and find-me-an-accountant.com

Thanks for picking up on this

It seems like it is a bit of a knee-jerk reaction for many of these small businesses who are considering de-registering for VAT. Hopefully they will speak with their accountants or get some marketing assistance first.

Interesting though the difference in views from Accountants. Some think the small businesses were ill-advised initially and should never have been VAT reg from the start and others think that it’s a non-event or actually an opportunity to put up prices and hide behind the increase.

And good luck Matt
http://www.woodyoulike.co.uk Karin H

I’m with Matt on this one. We also registered for VAT very early on – and it also took us more than 3 years to reach the actual threshold, no going back for us know though also 😉

If your business depends on clients looking for the lowest price then indeed VAT increase will hurt – for a while, remember the hefty petrol increases over a year ago, price of crude oil is nowhere as high as it was then but still everyone has got used to the “higher” price.

If you are in a niche market where price is only third or fourth item in the decision cycle, this increase will hardly have any influence in the number of sales. The increase back from 15% – what a waste of effort that was – to 17.5% has gone unnoticed by most IMHO.

We deal mostly with domestic consumers and our trade is “rife” with cowboys. Being VAT registered gives us an edge on them 😉

Karin H (Keep It Simple Sweetheart, specially in business)
http://www.paymo.biz Jan

Oh well, in Romania the VAT is currently 24%. go business!
Socialism will ruin Europe in the end and asians will be laughing their asses on in the process. (unless you have huge petrol reserves like norway:)
Andy

We import from the USA and have kept our prices the same even when the exchange rate meant we could have lowered prices. This has enabled us to build up more profit, prior to the VAT increase, so we will not be increasing our prices. However we are in a niche market with very little competition. But I think you should take some comfort that as long as your competitors are also VAT registered then they face the same problem.
http://www.woodyoulike.co.uk Karin H

Fail to see what socialism has to do with VAT – originally “invented” to pay for the EU.
Dan Ladds

Hate to say it, but if you want to stay small, pack it all in and go get a regular job. In any market, particuarly the one we have at the moment, you’re either growing or you’re shrinking. If you want to make sure you’re not shrinking, then you have to actively ensure you’re growing.

It’s interesting to talk about attitude – a few weeks back you tweeted an article about the lack of business coverage in the media, from which I quoted, “we have a media which wants us to feel ashamed for trying to earn money”. Well, looks like we have a tax man with the same attitude.

The funny (in a despairful way) thing is, this attitude of “It’s the businesses that got us into this recession, let’s punish them” is only going to drag us down. You want jobs, Britain? Then take your grubby hands off, let us make some profits and we can create some!

End of the day though, people here have the attitude whereby if they see someone with a nice car, they don’t admire it and say, “One day, I’ll have one of those…”.

They wait ’til they’ve walked off and key it. Success is evil, kids.
http://www.woodyoulike.co.uk Karin H

“Hate to say it, but if you want to stay small, pack it all in and go get a regular job. In any market, particuarly the one we have at the moment, you’re either growing or you’re shrinking.”

Don’t agree with this theory. Not everyone wants to grow big, just to make a decent and reliable, sustainable living. Nowadays a “regular” job will not give you that. Being in control of your own business has more chance to give you that. And you’ll “grow” as much as you decide you want your business to grow – this is not the same as stating you’ll have to go full throttle otherwise you’re shrinking.

Don’t you know that “small is the new big”?
http://robert-craven.blogspot.com/2010/10/entrepreneurs-refuse-big-big-payouts.html
http://www.amazon.co.uk/Small-Giants-Companies-Choose-Instead/dp/0141031492
Danny

We’re considering moving away from TAS Books to KashFlow and I’m trying to work out whether it’s the right move.

The website interface and simplicity of the software looks good – a world away from the dinosaurs like TasBooks, Sage etc.

We are a property investment business, we invoice the same people every 3 months and have loads of bills to pay. We run 6 little companies as we need to segment out ‘client service charge monies’ for each building.

Can any existing users of KashFlow or any other online software make any observations about whether this move sounds right. Is KashFlow going to be sophisticated enough for Limited Companies.

I also need to make sure that our accountants are happy with the data we would export from KashFlow at the end of each year.

Any comments welcome.

Regards

Danny
http://www.woodyoulike.co.uk Karin H

I’ll go first, then?

You can very easily set up repeat billing (monthly, quarterly etc) in KashFlow (hope the quarterly option will also be available soon on the repeat purchases ;-))

Loads of bill payments now only takes me a minute or two, also again due to repeat purchases – where you can even tell KashFlow to book the payment automagically.

Then on to the different buildings and service charge: I’m thinking Projects here. Give every building a “Project number”, you allocate invoice, bills and journal posts to each of them (which will give you an instant profit and loss too, so you can see which of the buildings is bringing in most ;-))

Hope this helps. Oh, my accountant is rather happy with the program, he’s even considering becoming a “KashFlow partner” 😉

Karin H

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Stay Small, Earn a Wage but Nothing More

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