SMEs are buying equipment overseas rather than in the UK so they don’t have to pay VAT upfront, says the founder of beer company Brewdog.
A simple change in the way VAT is charged on capital purchases could hugely benefit SMEs without costing the Treasury a penny, says James Watt, founder of brewer and pub owner Brewdog.
He called on the government to stop the process of making SMEs pay VAT upfront on capital purchases and then claim it back later, saying that the cost of funding this extra 20% of the cost upfront is driving SMEs to buy equipment overseas.
He said: “It would make so much sense and be so simple and effective. The government wouldn’t end up with any less money at the end of the day. It would encourage small companies to invest more, it would encourage them to create jobs and most importantly it would encourage small companies to spend their money in the UK – which has another knock on effect of encouraging British manufacturing and more British jobs. A few simple changes to the current system could make a big difference.”
Watt, who started Brewdog in 2007 with Martin Dickie, said that the need to find an extra 20% for VAT has meant that so far his business has bought all of its equipment from overseas, at a cost of £1 million. They bought their bottling machine from Italy, for example, because buying it from the UK would have meant having to find an extra £20,000 to pay the VAT on it, which they did not have available to them for the three months it would have taken HMRC to refund it back to them.
Watt said: “Our finances were pushed to its limits and we simply could not afford £20,000 of our money not to be in our bank account for this time. We feel we could have done more to help the UK economy if the system did not heavily incentivise us to buy our equipment from overseas markets.”