The much complained about VAT increase from 14% to 15% has now been in effect for one month. Have you noticed an impact on your business? Will there be an impact on your business? Not sure? Continue reading, we’ve listed some points for you to consider.
What is VAT?
Just to recap, VAT is as the name suggests – a Tax on the Value that you (business) adds to a product before selling it to a customer!
Therefore, if you’ve added no value to the product no VAT is charged.
VAT’s Effect on Business?
In theory, VAT should not influence business as it’s a non-impacting addition to what we are already doing.
In practice however, VAT has several detrimental effects on business, namely:
- Cashflow – as VAT is most often calculated on an invoice basis, the moment clients do not pay within 30 days of invoice the majority of SME’s experience a cashflow crunch.
How do you overcome this?
- Clients can be incentivised to pay sooner
- Suppliers can be paid later
- Margins can be increased to cover the shortfall
- Input costs – as a result of market forces many input costs will be increased. This could have an impact on your business if you’re unable to pass these costs onto your clients.
- Salaries – Consumers bear the brunt of VAT increases as they have no option to offset their effect, this often leads to demands for higher salaries. The higher salaries, ultimately has an impact on the selling prices of goods and services.
As you can see the VAT increase affects business in many ways. Make the time to sit with your accountant / business advisor to understand how your business is being affected and put the necessary steps in place to minimise its effect.
At Phezulu VBO we do more than just assist clients with Business Structuring, we are your “one-stop SME shop”, assisting with everything from Accounting, Business Management, BEE, Consulting, Company Registration to Payroll and Mentoring.
For more information, please visit our website or give us a call on 010 003 8558.