7 tips on how to handle the VAT change

For the past 11 months, small businesses have been getting used to the 15% VAT rate that came in to effect in December 2008. Now, small businesses need to get ready for yet another admin challenge as the VAT rate will go back to the usual 17.5% on Friday 1st January 2010

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25th November 2009 at 9:30 am

1. Be aware – To ensure you’re in the best possible position, start planning for the change now. Be aware of the rules surrounding advance deposits/pre-payments received before 1 January 2010 for goods or services made after this date. Getting this wrong could be costly! We recommend that you refer to the HMRC guidance for additional information in regards to the VAT change.

2. Inform customers
– Businesses should start making their customers aware of the VAT change as soon as possible to avoid disappointment or misunderstandings. It is important to clarify that the increase in prices of goods and services is due to the VAT rate change and it is not discretionary.

3. Display new prices
– In certain instances, it may also be appropriate to give customers practical examples of what the prices will look like from January 2010. Businesses that interact directly with the public, such as retailers, should display announcements in their shops and create bespoke banners for their websites. Also, be aware of the special circumstances under the Price Marking Order 2004, which grants businesses up to 14 days to adjust ticket prices and there is talk of this being extended (see further details on smallbizmatters.co.uk).

4. New year, new books – Adapting to the new rate can be a very cumbersome task for some business owners. There can also be additional confusion where transactions span the VAT change date. Regardless of whether a business uses standard or cash accounting, it is the tax point that determines the rate of standard VAT to be applied. For cash accounting, this means that 15% VAT will be due on supplies and purchases made before 1st January 2010, even if payment was received or made after 1st January 2010.

5. Boost sales
– On the positive side, the VAT rate change can be used as an incentive for customers to do their shopping before the end of 2009. This can be positioned as an early January sale and communicated with the appropriate marketing tools such as Direct Mail and flyers.

6. Get to work
– Businesses that find the festive season slower than other periods of the year can also take advantage of the VAT rate change by suggesting that their customers and prospects commence projects in 2009. If you start a job before 1 January 2010 but finish afterwards, you may account for the work done up to 31 December at 15%, and the remainder at 17.5%.

7. Ignorance isn’t bliss
– Don’t leave it too late and find yourself in a mad rush to make the change in January. Your customers won’t appreciate the sudden hike in prices, and it may have a negative affect on your reputation. This is a mandatory change and everyone is in the same boat.

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Diana Flier

Diana is a payroll and compliance expert with over 20 years’ experience in payroll systems and processes. In her role at Intuit, she works closely with small businesses to help solve their financial management issues, particular in the areas of payroll and VAT compliance. She is also a council member of the Business Application Software Developers Association (BADSA) and currently represents BASDA on the Personal Accounts Delivery Authority (PADA) Employer Representative committee. http://www.smallbizmatters.co.uk/

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