Small shops to gain as sales tax hits big retailers

NOT all retailers face a painful squeeze from the VAT rise to 20 per cent.
Smaller companies such as independent retailers, corner shops and convenience stores that fall below the threshold at which VAT is paid will not have to accommodate the change.

Retailers that generate turnover of £70,000 or less per year do not have to register for VAT, so won’t need to put up prices, said Lorraine Parkin, head of VAT at accountant Grant Thornton. “That might make independent retailers a little more competitive.”

Small businesses or sole traders with gross turnover of less than £150,000 are also eligible for HMRC’s flat rate scheme, which allows them to calculate VAT at a lower level. The scheme reduces VAT on items such as cosmetics to eight per cent, or vehicles to six per cent.

“Many business turning over less than £150,000 can avail themselves of the flat rate scheme so they will be paying lower percentages of VAT than the other retailers. It is medium to large businesses that will have to take the hit for the increase,” she said.

Other items such as food and children’s clothing are exempt from VAT.