Businesses start with Education. We can initiate the changes you’ve always wanted. We believe in enunciating your power. Understanding how to take off the VAT increases your financial prowess. A VAT, or Value Added Tax, is designed to stimulate the economy, but does it take into consideration the needs of small businesses and everyday clients? VAT suffocates small businesses. The European economy adopted VAT long before America. VAT consists of taxing goods and services at each stage of distribution. It has become a way for large businesses to reduce costs and puts the average consumer at a disadvantage. Corporate taxes ensure the business class contributes to social services. Consumption taxes, or levies on goods and services, are intended to favor large corporations rather than working consumers.
Implications of Taxes on Small Businesses in the UK
In the UK, the VAT tax is 20%. Large taxes can be daunting for new business founders. Taxes can be barriers for low-earning individuals. To launch a thriving enterprise, capital is required. Families are often the starting point, and taxes on businesses, including VAT, can provide barriers to launching a venture. It discourages people from starting businesses as it allocates costs at every step of the production line and induces an excessive amount of paperwork.
Businesses that Aren’t Subject to VAT
The UK government alleviates VAT for zero reduced products such as:
- Kids’ apparel and shoes
- The majority of products shipped from Great Britain (England, Scotland, and Wales)
- Books and newspapers
- Goods exported from Northern Ireland to countries outside the UK and EU, as well as those supplied to VAT-registered EU businesses
Other companies deserve the chance to thrive.
Inconsistency in VAT Distribution
VAT is not distributed with consistency. For instance, a gingerbread man is not subject to VAT unless he is covered in chocolate and has icing eyes. Convoluted regulations render it challenging for business operators to comprehend tax laws. It is intended to protect the wealthy from increasing taxes but neglects small businesses. Small enterprise owners range from disabled people to single mothers.
Disadvantage for Women
There are only 1 million women business owners in the UK. Women founders do not have the support to start businesses and are often forced to scale back hours and services to adjust childcare. The inequality is not random. Men are twice as likely to inherit family businesses, leaving women in a unique position of vulnerability. Businesses often sustain themselves through family legacies. If women are to accumulate capital, tax breaks must be given. Businesses build from capital accumulation, which is often found in social networks. Financial resilience is not given to women or other marginalized groups.
Did You Know You Can Deduct VAT in Transactions with Other Businesses?
VAT-registered businesses can deduct the VAT they have disbursed to other companies. This facilitates equal footing in businesses. All businesses in Europe are subject to EU regulations, and sometimes national regulations are mandated by an individual EU Member State.
Strict Regulations Cost Businesses
Payments made between 16 and 30 days late trigger a penalty of 2% of the amount outstanding on day 15 if the full amount is paid. After day 31, a second penalty is implemented: a 4% late fee is applied daily. Costs will continue to accumulate until an agreement is made with the Bank of England once the amount is paid. This contributes to the failure of enterprises: if ventures are penalized for financial mishaps, it may lead to bankruptcy. To assist small businesses, allow for exceptions and forgiveness.
Business Death Rate
In the UK, over 304,000 businesses fail each year. At Starbacklinks LCC, we want to support the growth of businesses. We want to ensure monetary prosperity by ensuring you understand how VAT harms small enterprises and consumers. We want you to understand how to make accurate calculations.
Increasing Taxes Harm Small Businesses
In the UK, VAT, growing income tax, and national insurance (NL) are all exorbitant costs for businesses. These costs cause difficulties for businesses and the input cost hinders growth. Large corporations can accommodate large costs, however, small businesses rely on reduced taxes and economic freedom.
Already Existing Costs of Starting a Business
Starting a business requires high costs and investments. It costs to buy supplies to start the business and ensure there is a margin of error. It requires economic sustainability and a support system to fall back on if failure is the business’s fate.
Black and Asian Business Owners Earn Less Than White Business Owners
In the UK, Black and Asian business owners receive lower income than their white equivalents. In the UK, the typical white businessperson makes £35,000 annually and the standard black entrepreneur in the UK receives £25,000 a year. Black-owned businesses are also more likely to fail: 16% of white entrepreneurs failed to succeed and had to close down, and 28% of their black counterparts failed to generate income from their enterprise. It isn’t because black business owners lack the work ethic or the merit, it is systematic. Racism gives way to poverty and failure to thrive. Only 3% of company founders in the UK are Asian, compared to the 8% of entrepreneurs aspiring to launch a venture but do not have the financial standing to do so.
Value-Added Tax Removal
Even American investors, including Warren Buffet, sympathize with lower classes and believe taxes should be reduced. His philosophy on taxes includes, “If anything, taxes for the lower and middle class and maybe even the upper middle class should even probably be cut further.” There have been debates on how to give businesses a boost in the UK. Sarah Beale, CEO at the AAT, believes a three-five-year period with no taxes will allow small businesses to succeed and change the trajectory, “Imagine if we were to have a sustained period with no new taxes, no changes to thresholds, no changes to the applicability and criteria of any tax. Such a period of certainty would benefit companies large and small along with their accountants.”
More than 47,000 businesses in the UK were on the verge of failure in 2024 and this is a 25% rise from the last few months of 2023. To mitigate this problem, the origin of the financial destitution must be analyzed. Input costs must not be dismissed. In a UK article about the crisis, Julie Palmer, a partner at Begbies Traynor, discusses the economic conditions that led to the crisis.
“After a difficult year for British businesses that was characterised by high interest rates, rampant inflation, weak consumer confidence and rising and unpredictable input costs, we are now seeing this perfect storm impact every corner of the economy,” she said.
The government promotes VAT by touting its usage for public infrastructure and services. The load falls on the consumers, not the government. In the UK, businesses are also responsible for paying the tax. Businesses are required to sign up if their VAT total income exceeds £90,000 and if the business earns less than £90,000 they may opt to register for VAT, but it is not a requirement.
How to Deduct VAT from Final Calculations
As a consumer or a business owner, there are ways to deduct the VAT and conduct financial calculations without including it. The calculation is simple: Divide the total by 1.2 (which is 1 + UK VAT Percentage). This will make it simpler for you.
