Although food is not subject to VAT, rates for other goods and services that food producers need to run their businesses including machinery, petrol and printing, will increase to 20% from January 4 following George Osborne's (pictured) emergency Budget.
This could potentially have a big impact on cash flow for small firms, warned Montpelier Chartered Accountants' director Trevor McLean: “The food industry was relieved to have escaped being caught in the VAT net, but the rise in the overall rate could still be damaging to small businesses.
"It increases the cost of buying goods and services from suppliers at a time when margins are tight and companies are struggling to manage their cash flow."
He added: "Small food producers should consider voluntarily becoming VAT-registered to off-set these higher costs. This won’t however, offset the administrative burden of the rate change for companies which will need to ensure that their back-office systems are robust enough to handle the increase."
The increase in the rate of VAT to 20% could push up costs for SMEs that are not already VAT-registered by at least 2%, claimed McLean.