VAT increase and its consequences

The latest VAT rise is the second within a year in the UK. After former chancellor Alistair Darling reduced VAT to 15 per cent for 13 months during the recession, it was increased to 17.5 per cent once more in January 2010 - and now it has risen to 20 per cent.Many in the UK fear that this new increase in VAT will curb the enthusiasm of consumers for shopping. Retail sales will fall by about £2.2bn in the first quarter of 2011 because of the rise in VAT, according to a report by the Centre for Retail Research. According to a survey by the financial institution Aldermore, almost a third of Britain's small and medium-sized companies say they will need more funding to cope with the government's increase in VAT sales tax. An analysis by the financial magazine "Journal" comes to a similar conclusion: "For many small businesses in the North East, the rise is expected to dampen trade at a time when families are already struggling with wage freezes and other pressures on their budgets."Potential impact on the pet businessCompanies in the pet supplies sector are showing concern about the VAT increase too. "It might be prudent to order early in order to beat this VAT increase," one pet food manufacturer advised its customers in the days leading up to the rise. Denes Natural Pet Care announced on its website at the beginning of the year that "all orders placed from 4th January will be processed at the new prices. However, a few of our products are on offer and those will remain at their current prices." And according to a report in the UK trade journal "Pet Product Marketing", Supreme Petfoods has decided that the "prices of both 'Original Gerty Guinea Pig muesli mix' and 'Science Selective monocomponent guinea pig foods' are remaining the same, despite January's increase in VAT."Online retailer Zooplus.co.uk also announced good news on the Internet: "VAT may have gone up, but our prices have not. Pet lovers can still find our great selection of pet food, pet accessories and supplies at the bargain price they enjoyed before the rise in VAT."When asked by PET worldwide about the effects of the VAT increase, representatives of the UK pet supplies industry tended to be reluctant in their responses. Matthew Bubear, CEO of Casco Europe, reckons that "in terms of business to business transactions where companies are collecting and then paying VAT to the government, the 2.5 per cent change will not have a very significant impact on their cash flow." The sector expert judges…