January's VAT Rate Increase – Why's it Different?

With the “Comprehensive Spending Review” ringing in our ears, it’s easy to forget that there will be an increase of standard-rate VAT to 20% on 4 January next year.

This is no doubt painful for you if you live in the UK. But for businesses trading in the UK, it’s easy to think this is just a repeat of the last increase this last January. It’s not. There will be several different consequences for systems and commercial arrangements, such as:

1. Have you changed any systems since the last increase?
2. Has the supplier of any of your systems changed their advice? Or issued an upgrade that needs to be implemented?
3. In any case, are you happy with what you did last time, or would you do it differently?
4. The last increase was a reversal of a decrease. With only four days notice of the decrease, many businesses took a short cut on aspects such as pricing which were simple to reverse. This is not the case this time.
5. How will any VAT-inclusive pricing be changed?
6. The change mid-month is also an issue for anyone trading online or offline over the New Year  period

There are also a number of issues that are the same, some of which are:

1. Do your staff understand the rules around credit notes, and transactions that span the transition?
2. If you are using any SaaS cloud systems, who is going to change the rate – your provider or you? In any case, are you happy with the way your provider is going to implement it?
3. If you interface financial transactions from one system to another (including transfer into spreadsheets for reporting), will the VAT element be handled properly?
4. How will your expenses system cope, given it has to be used by many of your staff?

Further issues and advice can be found in this other VAT rate change article. This and other relevant articles can be found in the list to the left of this one.

Mistakes can be expensive. For any type of business, there are VAT penalties, you can incur unnecessary administration costs during the transition, and management reporting may be incorrect. For B2C businesses of course pricing is crucial. Will that £9.99 item be re-priced, or will you take the hit?. It's therefore worth planning and implementing carefully.

What do you need to do to ensure your business, its systems and your staff are ready?

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VAT Rate Increase January 2011 - Why Different From Last Time?

It is tempting to think that the VAT rate increase this coming January is just a repeat of the rate increase this last January. It isn't:

• The new standard VAT rate will apply from 4th January 2011 (the Tuesday after the Bank Holiday). For many B2B (Business-to-Business) companies this will mean the first day of a new accounting period, but for retailers, etailers and some B2B it will be part way through a period.

•  On the commercial side, the last increase was a reversal of a previous decrease. This time it is a real increase, and new approaches will be needed for pricing etc

• On the systems side, software vendors will have chance to put better solutions in place than when a few days' notice was given in 2008. This may mean software upgrades and/or changes to their advice. Last time, many vendors didn't have specific functionality and/or automation for aspects such as credit notes and un-despatched orders. Hopefully they will this time.

• In any case, any business that has changed their systems in any way during 2010 will need to look afresh at the rate change issues.

The key is to make the most of the rate change, by addressing the commercial and systems issues positively. Here are some ideas.

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