2010 Budget: Corporate banking clients to pay higher VAT

Small and medium-sized clients of the corporate banking sector may be concerned by yesterday’s (June 22nd) announcement that VAT will rise to 20 per cent next year.

Chancellor of the Exchequer George Osborne revealed from January 4th VAT will increase from its current level of 17.5 per cent.

The Federation of Small Businesses (FSB) said smaller corporate banking customers will struggle to absorb this increase and may have to pass the cost to their customers.

Such a move could reduce the competitiveness of smaller UK businesses, especially because their larger counterparts may not feel the VAT rise impact as much and therefore avoid increasing their prices.

A spokesperson for the FSB stated: ’Big firms have the cashflow available to not pass on all of the increases to their customers, which small firms do not have - especially in the current economic situation.’

She added while increases in tax will help to cut the deficit, help must be given to firms that want to expand and employ more people.

However, Mr Osborne did reveal a new tax scheme. Some business start-ups will be exempt from up to £5,000 of employer National Insurance Contributions for the first ten employees hired.ADNFCR-2318-ID-19853647-ADNFCR