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.
6 hours extra grace on VAT rate change - but still a headache for small businesses
It was reported this week that the Treasury has agreed to delay the VAT increase by six hours. This is welcome news for businesses that would have previously had to make the change at midnight on New Year’s Eve – especially the pubs, clubs and restaurants that will be open for business. The reprieve also applies to retail and telecommunication businesses that will be operating beyond midnight on 31 December 2009, and although good news, it doesn’t make the admin challenges of the adjustment for small businesses any easier!
Come January, business owners will wake up to the after effects of a 13 month 15% VAT reduction and return to the usual 17.5% rate and as such, have to face the problem of trying to sell products and services at higher prices to customers who are still hesitant to buy.
The VAT reduction came into force in December 2008 to help consumers with the recession. However, the fact is that the UK is still officially in recession and therefore, consumers are not likely to have more cash to splash in 2010 and will not like hiked up prices!
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