With the end of the year fast approaching, small businesses will need to get ready for yet another admin challenge: the VAT rate change. On Friday 1st January 2010, business owners will wake up to the after effects of a 13 months 15% VAT reduction and return to the usual 17.5% rate. Despite the fact that an extension of the VAT reduction would be favourable, small businesses can still get the most out of this transition if they plan well in advance.
To quickly adjust to this change, small businesses can rely on some easy to follow top tips:
Inform your 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. 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.
Be aware:
1. Of the Price Marking Order 2004 - As January is traditionally a busy time for traders, you might not have time to adjust all your ticket prices on the 1st. It’s worthwhile remembering that, under the Price Marking Order 2004 (SI 2004/102), you have up to 14 days to do this. Until then, you can display general notices that advise your customers that an adjustment in price, to take account of the VAT change, will be made at the till.
Have your say - the BIS is proposing that this period should be extended from 14 to 28 days. Responses to this consultation must be received by Monday 23 November 2009.
2. Of the rules surrounding advance deposits/pre-payments received before 1 January 2010 for goods or services made after this date. 15% VAT is calculated on the deposit/pre-payment received before 1 January 2010, and 17.5% on the amount received after this date. Getting this wrong could be costly!
3. Of the requirements if you use the cash or flat rate methods of VAT accounting. We recommend that you refer to the HMRC guidance for additional information in regards to the VAT change.
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.
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. In addition, 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%. Keep accurate records, as you will need to be able to demonstrate to HMRC that the apportionment of VAT is fair.
Comments