The latest from eBay’s Online Business Index. A survey of more than 600 VAT-registered business selling online, shows that nearly a quarter (24%) of online businesses will absorb the whole cost of the VAT hike to avoid stunting consumer demand, a further 39% will avoid passing on the whole cost. Only a quarter (23%) intend to pass on the full cost of the rise to their online customers.
As these figures show, there is little doubt that the coalition’s policy to increase VAT is going to hurt small business trading online. More than that, I suspect that the impact will be greater than this survey shows. VAT registered businesses (who were the ones surveyed) can claim VAT back but many small businesses (who might not be turning £70k), who aren’t VAT registered don’t have that opportunity. In my anecdotal experience, most smaller online sellers will be absorbing the whole 2.5% increase. And don’t forget too that they’ll be paying it to when they buy goods and services as well. A double whammy.
The result is going to be a hit on profits for small businesses that are already lean and operating on small margins. eBay sellers know that online buyers are price conscious bargain hunters so they will be reluctant to raise prices. They are also, often, already offering Free P&P to entice buyers in. These small firms, which are the lifeblood of eBay and vital to our recovering economy, will also be hurt if consumer demand also falters over the course of the year.
What can eBay sellers do?
Talk to your accountant: Make sure that your business is as tax efficient as possible and taking advantage of all the various schemes available. It might be time to reconsider registering for VAT or using one of the flat rate schemes.
Monitor the impact closely: The government has indicated that this change will be permanent, so there is no reason to rush into anything this week. Keep an eye on sales and conversion and see what the effects are. It might be hard to discern, but eye the numbers like a hawk. Experiment a bit too. You may be able to edge prices up a little, so test the waters. Audit your listings: it’s a good opportunity to make sure that they are as good as possible.
Examine your competitors: You know who you’re competing with, so keep an eye on them too and see what they’re doing. If you’re nimble you may well be able to outwit them and find a competitive advantage.
Change tack, if needs be: Just because you’ve decided to decided to absorb the VAT increase now, doesn’t mean that you can’t change your mind later. Keep your options open and prepare to make changes if your business is suffering.
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