In a new trading update, Watches of Switzerland Group has detailed a “particularly volatile” festive period, with consumers turning away from the luxury sector to shop in categories such as fashion, beauty, hospitality and travel. Watches of Switzerland Group noted that despite a positive start to the early part of Q3 FY24, it then experienced a volatile trading performance in the run-up to and beyond Christmas, as challenging macro-economic conditions impacted consumer spending in the luxury retail sector. The business now expects these challenging conditions to remain for the balance of its fiscal year. While sales in the US remained strong with continued double-digit growth, the UK was more challenged. This impacted a broad range of luxury watch brands and non-branded jewellery. In light of the recent challenging trading conditions and based on a more cautious view of the outlook for the remainder of the fiscal year, Watches of Switzerland Group is revising its full year guidance for FY24, which assumes no recovery in consumer demand. Brian Duffy, Chief Executive Officer, said: “The festive period was particularly volatile this year for the luxury sector, with consumers allocating spend to other categories such as fashion, beauty, hospitality and travel. Whilst we are disappointed with this trend, we are encouraged by our market share gains in both the US and UK. “I would like to thank our colleagues for continuing to provide high quality service and support to our clients against this challenging backdrop. We remain confident in the markets in which we operate, our model and the delivery of our Long Range Plan announced to the market in November 2023.”

Robinson plc, the Chesterfield-based manufacturer of plastic and paperboard packaging, is anticipating a slight dip in revenue for 2023. In a new trading statement, released prior to the announcement of its final results for the year ended 31 December 2023, the firm noted that revenue for 2023 is expected to be £49.6m, which is 1.8% below the prior year. After adjusting for price changes and foreign exchange, sales volumes are 6% lower than in 2022, however, the company said it was “pleased to report” that 2023 operating profit before exceptional items and amortisation of intangible assets is expected to be ahead of 2022, and in line with current market expectations. Robinson plc said: “We anticipated that sales volumes would come under further pressure because of inflation, the cost-of-living crisis, the de-listing of some products by our customers, and certain of our customers continuing to prioritise existing business over innovation projects, a characteristic which started during the Covid-19 pandemic. “These factors have manifested in lower sales in 2023, notably in the first half of the financial year.” With lower demand and continued inflationary pressures, Robinson plc implemented a restructuring program in June, which resulted in exceptional costs of £0.4m and annual savings of £0.7m, of which £0.4m benefited 2023. The business added: “We believe we have now passed the worst of the downturn with our customers; sales volumes in the second half of 2023 were 1% above the comparative period in 2022, as implemented new projects began to take effect. As a result of successful sales activity, we expect a substantial increase in sales volume in the plastics business in 2024.”

The update comes after the company was impacted by Storm Babet, during which the River Hipper, which flows through Robinson plc’s premises in Chesterfield, had risen to its highest ever recorded level and flooded part of the site.

Dunelm Group, the homewares retailer, has seen a “strong sales performance” for its first half despite a tough market backdrop.

In a new trading update the Leicestershire-based business has indicated that total sales increased by 4.5% to £872m. Pre-tax profit expectations for the full year, meanwhile, are in line with market expectations.

Dunelm said of the positive figures: “Growth in the first half was driven by customer demand for our consistent, outstanding value proposition. Whilst we are conscious that the outlook for consumer spending remains unpredictable and market conditions volatile, we are confident that we can deliver further market share gains and retain our tight operational grip on costs.”

Nick Wilkinson, Chief Executive Officer, added: “The breadth of our range and outstanding value of our proposition continues to be well received by customers, resulting in a strong sales performance for the first half despite a tough market backdrop.

“Consumers remain under pressure and are actively seeking true value at all price points. Our customer offer and positioning as the ‘Home of Homes’ resonates particularly well in this environment, and we are confident we have continued to gain market share. At the same time, our strong operational grip continues to help us navigate the difficult environment and manage our margins.

“Looking ahead, we remain excited about the compelling opportunity for growth for our business. We have continued to execute at pace on our strategic plans, opening four new stores over the first half of the year, whilst continuing to expand our ranges and improve our digital offer. Our new Spring collections look fantastic in store and are being really well received by customers as we reach the end of our Winter Sale, leaving us well placed to make further progress in the months ahead.”

Revamping the VAT system could be the key to unlocking billions in trapped economic firepower, according to the Federation of Small Businesses (FSB). In a new paper, the UK’s largest business group pushes for a rise in the turnover threshold from £85,000, where VAT currently starts biting, to £100,000. This would give firms stepping into the VAT-paying ring crucial breathing space, and an incentive to grow their turnover without fear of having to charge customers an extra 20% overnight. FSB is also suggesting bringing in a smoothing mechanism, to ease the transition for small firms, owner-managed companies and some of the self-employed who go just over the threshold. At the moment, many small firms – estimated to hit 44,000 by 2025 – keep their turnover just below the £85,000 threshold, according to the Office for Budget Responsibility, which also thinks that hundreds of millions of pounds of potential economic activity could be lost due to this ‘bunching’ just below the threshold. Increasing the threshold and smoothing mechanisms The £85,000 threshold was fixed in 2017 – but had it kept pace with inflation, that figure would top £100,000 today. Rocketing inflation pushed small firms to hike prices and inadvertently increase turnover without fattening profits, unwittingly ensnaring many into the VAT net, piling on extra burdens in time, money, and complexity. FSB’s recommendations come after firms with a turnover of between £75,001 and £100,000 said the £85,000 threshold:

• Is a barrier to growth (38%)
• Would encourage them to invest in their business if it was raised (29%)

Meanwhile:

• A fifth of small firms (19%) say a discount to the amount of VAT payable after reaching the threshold would incentivise them to invest and expand in their businesses
• This rises to 41% in the hospitality sector and 23% in the wholesale and retail industry.

Alongside a higher threshold, FSB wants the transition from not paying VAT to being subject to the tax to be less of a sudden shock to small firms. To that end, FSB wants the Government to bring in a smoothing mechanism, so small firms aren’t left out in the cold if they go a penny over the threshold, as is currently the case. FSB sets out two possible ways a smoothing mechanism could work:

• VAT allowance option: HMRC could allow eligible small businesses to reduce their annual VAT liability by a set amount (i.e., £5,000), similar to the existing Employment Allowance, which can be offset against small firms’ National Insurance bill.
• Rebate option: HMRC could administer a rebate proposal where small businesses with a turnover up to £20,000 higher than the threshold level can apply for a rebate on their net VAT paid. The rebate would reduce the overall VAT liability a small business pays, and would decrease as turnover increases.

Under the rebate option, and assuming a threshold of £100,000, FSB is proposing that businesses with turnover of £100,000-£109,999 be given a 20% discount on their net VAT, while firms with turnover of £110,000-£119,999 would get a 10% discount. Simplifying the rules There are many infamous examples of the quirks in the VAT system when it comes to deciding what is and isn’t subject to the full rate of VAT. For example, a notable court case has been fought over whether a certain kind of sweet treat counts as a cake (not subject to VAT) or a biscuit (VAT-able if wholly or partly covered in chocolate), with judges deciding the outcome based on whether it went stale (like a cake) or soggy (like a biscuit) over time. The complex rules on what is and isn’t VAT-able cause headaches for small firms, who don’t have the same level of resources to devote to keeping track of differing VAT levels as large corporates. Tax compliance costs small firms £25 billion every year, with each firm devoting seven working days to it annually. Being caught in the VAT net also means having to switch over to paying taxes via Making Tax Digital, which costs small firms nearly twice as much to comply with than filing manually. And FSB is calling for the recent decision that taxi passengers should be charged 20% VAT on each ride they take to be reversed. Adding this extra expense will mean higher costs for people travelling to hospitals, women trying to get home safely at night, elderly people who require door to door transport, and many other groups. The FSB’s paper shows that if the rules were streamlined:

• 18% would be incentivised to invest and expand.
• 30% of hospitality firms would be incentivised to invest and expand.
• 27% of small manufacturers would be incentivised to invest and expand.

Tina McKenzie, FSB’s Policy Chair, said: “VAT compliance flattens small firms by stifling their growth and emptying their coffers. It’s crying out for a modern makeover to match today’s economic landscape. “We can’t let it squash the ambitions of small businesses, strivers, and budding entrepreneurs. The flaws in our current system are glaringly obvious. We are at a breaking point – a drastic overhaul of VAT is needed. “Raising the threshold to reflect inflation, introducing a buffer to soften the blow for those just over the limit and demystifying the rules to save small business owners from a VAT-induced headache could unlock hundreds of millions in extra economic activity. “As a country, we need to think about how to take VAT to the future. Our paper sets out a way forward that will help small firms and sole traders, from B&B owners and independent shops to plumbers and hairdressers. “If the Government wants to show that it’s really on the side of small firms, a commitment to look at our suggestions and ease the VAT burden would go a long way towards that.” Richard Wild, Head of Tax Technical at the Chartered Institute of Taxation, said: “We welcome this report which takes a fresh look at the challenges faced by small businesses by virtue of the VAT registration threshold and the complexity of the VAT rules. “In particular, the idea of a smoothing mechanism to reduce bunching just under the VAT threshold deserves serious investigation by Government. “It’s six years since the Office of Tax Simplification undertook its review of VAT, and with the Government’s emphasis on growth, it’s time to take the issue out of the too-difficult box.”