I’ve been thinking about the possible impact of the VAT rise announced in yesterdays budget and I wonder if it might lead to more companies outsourcing abroad, which could affect jobs in the UK.
Although most businesses can claim back VAT expenditure, if they also charge VAT to their customers, financial companies generally find the situation with VAT more difficult. This is beacause many financial products such as bank charges, loans and insurance policies are not liable for VAT so these finance businesses have to undergo tricky negotiations with VAT inspectors to agree a portion of their VAT expenses that they can reclaim.
Financial services companies will therefore feel the impact of the VAT rise more than businesses that can claim back 100% of their VAT.
Does this matter? Well actually it does because staff need things to work with and incur costs that also have a VAT charge. Those costs are set to increase by 2.5% in January next year, meaning that the costs of hiring and maintaining staff will go up.
The welcome reduction in employers National Insurance from April 2011 will help, of course, but rising VAT may well force financial services companies to review their expenditure and this may mean more outsourcing abroad, at the cost of UK jobs.