Small businesses hit by VAT hike

Almost a third of small businesses say they will need extra funding to cope with new 20 per cent rate of VAT, according a new report.

Some 35 per cent of small and medium sized enterprises (SMEs) surveyed by the banking group Aldermore said the new rate will strain their cashflow. The tax is payable on invoices issued, not payments received, and could therefore bite into companies' working capital, the bank said.

"The VAT rise will only add to the financial squeeze faced by many SMEs," Aldermore chief executive, Philip Monks, said.