Prepare today for tomorrow’s VAT: Stay Profitable, Stay Competitive!

The 0.5% VAT increase, effective 1 May 2025, might seem small, but it can have a big impact on your business. It has ripple-effect consequences that touch every corner of your business. From how you price your products and manage supplier costs, to how much cash you have on hand and how your customers perceive your value, this small shift can squeeze margins, disrupt cash flow, and test customer loyalty if you're not prepared. These changes can test your resilience, but they don’t have to catch you off guard. We’ve got you covered with a practical TuesdayTip, real-world example and strategies to help you adapt with confidence.

Review your pricing strategy: Don’t rush to hike prices across the board. Instead, assess your margins and determine where you can absorb the cost and where a slight adjustment is necessary.

Update your financial forecasts: Factor in the increased VAT into your cash flow projections, supplier costs, and customer pricing. Better to know your numbers now than be caught off guard later.

Communicate clearly with customers: If you’re increasing prices, be transparent. Customers appreciate honesty, and it builds trust.

Find efficiency gaps: Look for small cost-saving wins by cutting waste, streamlining operations and renegotiating with your suppliers. Every bit adds up.

Ensure your systems are ready: Make sure your POS, accounting software and invoicing systems reflect the new VAT rate from Day 1.

Bonus Tip - Educate your staff: Especially sales and customer service, so they can confidently explain any changes to your clients.

Real-World Example: When VAT rose from 14% to 15% in 2018, online kitchen and homeware retailer Yuppiechef didn’t simply raise prices. Instead, they ran a promotional campaign locking in old prices for early buyers, used the VAT shift as an opportunity to drive urgency and sales, and reviewed their product margins. This helped cushion the impact, maintain customer goodwill, and sustain profitability without compromising their brand.

Moral of the story? Use change as a catalyst for strategy - not panic. A proactive mindset today = a profitable business tomorrow.