VAT Guide
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Very Annoying
Timing
Business are facing tough times at the moment with research
showing consumer confidence plummeting in the wake of budget cuts
and the VAT increase in January 2011. HMRC have published a full
guide here:
http://www.hmrc.gov.uk/vat/forms-rates/rates/rate-rise-guidance.pdf
if you would like to get more details on the rise - this is all at
a time when the rate of inflation is staying high. When the new rate kicks in
businesses will need to pass the costs on or make savings elsewhere
to recover the costs. Make It Cheaper takes a look at what
businesses should be taking into consideration and practical steps
they can take to cope.
VAT rise and consumer
confidence
A recent study by
Nationwide revealed that consumer confidence
fell to a 20-month low during November as people became
increasingly negative about the future of the economy. When the
standard VAT rate increases to 20% on January the 4th it
is likely to further compound this pessimism. There are also
reports of
retailers using the VAT increase to 'smuggle' in even
higher price rises with the VAT increase. The net effect of this
could be a major drop in consumer spending in the new year as the
perception of a significant price hike is created and consumer
confidence declines.
Pricing
You will need to adjust labelling/online pricing/advertising to
reflect your new prices as it is illegal to advertise a product or
service for sale at a price which is lower than the actual amount
to be paid. You will also need to get your accounts in order; in
September Nick Clegg announced an additional £900 million will be
made available to HM Revenue & Customs (HMRC) to step up
criminal prosecution of people avoiding taxes, a five-fold increase
on current funding allocated to this task.
Are you
affected?
It is worth bearing in mind that many products and services
will not be affected as they don't attract the
standard rate of VAT. To see a full list of what is exempt then
check with HMRC here:
http://www.hmrc.gov.uk/vat/forms-rates/rates/goods-services.htm#2.
If you operate in these sectors you will not be directly affected
however many VAT exempt sectors, such as financial services,
charities and educational bodies will see increased irrecoverable
VAT added to the goods and services they pay for.
Reducing your
overheads
Passing on the cost of the VAT rise might not be an option for
your business. With people becoming more and more price sensitive
simply increasing your prices could kill your business. Some people
are looking at ways of proactively reducing costs rather than
taking the drastic steps such as making people redundant, cutting
advertising costs etc.
There is however a number of other costs that could be reduced
saving your business money and helping you cope in the New Year.
Many of these just require renegotiating terms. Many services such
as www.makeitcheaper.com
will do the leg work for you, renegotiating your contracts on your
behalf. For example Make It Cheaper successfully switched over
42,000 businesses on to cheaper business energy contracts saving our
customers 10's of millions of pounds.
Tips for businesses
- Identify which of your products/services will be affected by
the VAT rise
- Communicate with your existing customers to allay any fears
they may have about how your service will increase in price
- Asses the coming year in relation to the VAT change and
identify any impact on cash-flow
- Ensure that you have revised all of your pricing to reflect the
VAT rise online and offline
- List out overheads and identify material saving
opportunities
- Use online comparison and savings websites to cut costs
- If you are unsure on how to proceed consider contacting your
accountant if you have one contact one if you don't - it can
get quite complicated!
Helpful Resources
HMRC handbook for the VAT rise:
http://www.hmrc.gov.uk/vat/forms-rates/rates/rate-rise-guidance.pdf
Guide on time of supply or tax points:
http://www.hmrc.gov.uk/vat/managing/returns-accounts/tax-points.htm
Quickbooks guide to VAT rise:
http://quickbooks.intuit.co.uk/small-business-accounting/easier-vat-rate-change.jsp
