The Federation of Small Businesses (FSB) has discovered that many SMEs are being hit by a rise in the level of flat rate VAT.
Small businesses are focusing on ramping up sales and marketing rather than raising prices in preparation for next year's VAT hike.
In his Pre-Budget speech, chancellor Alistair Darling confirmed that the VAT rate will return to 17.5 per cent by January 2009, having been cut to 15 per cent earlier this year to encourage consume
According to a survey of 1,600 business owners by the Federation of Small Businesses, 71 per cent think the VAT rise will be detrimental to them.
A VAT loophole that allowed Guernsey and Jersey-based traders to avoid VAT is to be closed by the government.