Tips to successfully handle the VAT rate change in Jan 2010
On 1st January 2010, small businesses will have to switch back to the traditional 17.5% VAT rate, following 13 months at 15%. To quickly adjust to this change, Intuit has provided Bytestart readers with some helpful VAT tips:
1. Raise awareness
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;
2. 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.
Businesses should make an additional effort to close invoices and due items by the end of 2009 to streamline the transition.
3. 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, those 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 commission work in 2009.
VAT rate reversal premature?
Diana Flier, compliance analyst at Intuit UK, comments: “Given the fact that the UK is still officially in recession, it is disappointing to see that the Government has no plans to extend the VAT reduction. Considering the burden of readjusting to the 17.5% rate, small businesses are wondering if the 13 months relief has been beneficial at all to them. Even worse, some businesses are considering absorbing the rate increase to remain competitive in the current tough market conditions.
“We do hope to see more long term measures to support small businesses in the upcoming months, however the present climate doesn’t allow small business Britain to adopt a ‘wait and see’ approach. In order to succeed in the recession, it is crucial that businesses take a proactive approach and start planning ahead. For them, being prepared for the January deadline is absolutely key and can turn into an opportunity to increase sales before the end of the year.”
Posted November 12, 2009
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