VAT rise will strain small firms' funding

Almost a third of small and medium-sized companies say they will need more funding to cope with the Government's increase in VAT sales tax, a survey revealed yesterday.

By The Newsroom

Published 25th Jan 2011, 08:58 BST

Updated 25th Jan 2011, 08:58 BST

The survey by Aldermore, one of a clutch of new banks to spring up in the wake of the credit crisis, found 35 per cent of SMEs (small and medium-sized businesses) surveyed also feared the VAT rise would strain their cash flow.

The coalition Government increased VAT to 20 per cent from 17.5 per cent on January 4.

"The VAT rise will only add to the financial squeeze faced by many SMEs," Aldermore chief executive Philip Monks said. "With many of the big banks still reluctant to extend credit, the VAT rise could strain working capital to breaking point."

Earlier this month, Aldermore said it was expecting to become profitable over the course of 2011.It was set up in 2009 and is backed by private equity companies AnaCap and Morgan Stanley Alternative Investment Partners.