North West firms would "prefer" a VAT increase
BUSINESS leaders across the North West want the new coalition government to increase VAT rather than any other tax, according to new research.
KPMG’s latest quarterly National Business Confidence Survey shows that a total of 61% of the 202 executives polled believe that a VAT rise would be the best option for their business.
A National Insurance increase is the least preferred option.
Making the UK an attractive place to do business crucial during the ‘fledgling recovery’ is now crucial according to KPMG.
Christine Hewson, head of tax for KPMG in Manchester, said: “Despite the coalition’s silence on a possible VAT rise to date, it is surely a tempting target given its revenue raising potential.
“A rise from our current 17.5% to the European average of 20% would, on current spending patterns, yield around £1bn a month from the moment it is introduced.
“The big unknown, however, is the potential risk that such a move could stifle consumer spending and thus hamper the recovery, as it could cost the average household £425 a year.
“VAT is seen as the lesser of the tax evils because it is an indirect tax paid by consumers.
“So to a certain extent, it’s a wash through for companies operating in a predominantly business to business environment.
“However, for those operating in more business to consumer markets such as retail, financial services, hospitality and consumer goods, it can be far more significant as increases in VAT are either passed on to the consumer putting the end prices up, or absorbed by the suppliers at the cost of squeezing their margins.
“Our sample was quite strongly biased towards business to business industries such as manufacturing, with just 10% of respondents from the retail and financial services sectors – both of which could potentially be hit very hard by a VAT rate rise.”
An increase in National Insurance was the worst option according to 39% of respondents and this was followed by a rise in corporation tax cited by 29% as a bad move.
The government has stated its aim is to ‘create the most competitive corporate tax regime in the G20’.
According to KPMG, achieving such an objective is crucial as 30% of the sample said they thought the UK tax system was uncompetitive, with only 21% saying that it was competitive.
Mrs Hewson added: “As we embark on this fledgling recovery, some extra stimulus to help businesses thrive would be welcomed.
“Despite the government’s intention to reform the overall business tax system by ‘simplifying reliefs and allowances’, now could be the time to enhance the existing incentives such as research and development tax credits and the capital allowances regime whilst embarking on a full consultation process on the wider simplification and reform package.”
