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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