The rate of VAT in the UK increases from 17.5% to 20% as of 4th January 2011.

As the owner or director of a small or medium-sized business have you considered how this rise is going to impact upon you and your business?

What should you do?

The main alternatives are to either pass on the increase to your customers or let the business take the hit. There are pros and cons with both choices.

If you decide to let the business take the hit then you need to know how much effect this will have on your profits. More focus on sales and marketing activities to help boost your revenues would be advisable. You could contact an experienced bookkeeper to help you work out the impact on your profits and what level of extra sales would be required to cover the rise in VAT.

If you decide to pass on the VAT increase to your customers then you are protecting your current profit levels but customers never like price increases. If you increase the price then you run the risk of losing some customers to competitors.

To keep a close eye on your business throughout the year it may be worth investing in the services of a good bookkeeping services company. They will be able to produce regular management accounts for you so you can always have an accurate picture of your business.

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