Serving over 2 Million visitors each year

Search
Free Accounts Software for All Small Businesses
You can now download TAS Basics for FREE. It’s the complete working program and there’s no charge, no obligation and no time limit. Get it now!

Overcome the January 2011 VAT hike by planning in advance

print  e-mail 

It’s been a few weeks now since the Emergency Budget was announced, and since revealed it has been widely considered a tough yet fair budget that has been put in place to tackle the countries current economic challenges.

Within the budget all aspects of the economy were impacted, including the small business sector, where specific measures have been put in place in order to encourage the sector to grow:

  • Small companies’ tax is set to fall from 21 to 20 per cent.
  • New firms set up outside London, the South East and the East of England are to be let off employer National Insurance contributions, up to £5,000, for each of the first 10 employees recruited.
  • The enterprise guarantee scheme is to be extended to small businesses in order to improve access to credit.
  • From April 2011, the threshold at which employers start to pay National Insurance will rise by £21 per week, above indexation.
Whilst the above measures will address many of the challenges businesses have faced over the last two years, there are a few mountains to climb for small businesses in the months ahead with yet another VAT rate change on the way.

The 4th of January 2011 marks the date that the standard rate of VAT will increase from 17.5% to 20%. For small businesses throughout Britain this is familiar news as it marks the third VAT rate change within two years. However, whilst the situation may be familiar the rise will add to the administration task of small business owners, who now have to take on the project of implementing the change within their books.

With six months to prepare, here are some top tips on how small business owners can get the most out of the rate change if they plan in advance:

1. Get up to speed– Make the most of the information and tips available online which will help you to get ready and understand the details of the VAT change, and how it affects your business. Remember - getting this wrong could be costly. We recommend taking a look at the HMRC guidance in order to keep up to date with VAT notices and information.

2. Ask questions – Once the VAT change takes effect, it’s important that you make sure you’re always applying the correct rate of VAT – this means making sure you know the ‘time of supply’ or the ‘tax point’ for every transaction, so that you can use the correct rate. This can be a confusing process, so don’t be afraid to consult with your accountant to make sure that you fully understand how each of these transactions should be handled. That’s what they’re here for!

3. Keep your books in order – Adapting to the new rate can be a very weighty task for business owners. There can also be additional confusion where transactions span the VAT change date. Make sure that you’re on top of your books from the start – it will save time and avoid confusion later about what rate of VAT to apply.

4. Tell your customers – Businesses should start making their customers aware of the VAT change as soon as possible to avoid disappointment or misunderstandings. This could include displaying new prices and giving customers practical examples of what the prices will look after the change.

5. File bookkeeping electronically–Filing VAT can be extremely time-consuming if done using spreadsheets or paper-based methods. Using some simple accounting software can take the pain out of this process and greatly reduce the likelihood of a costly mistake in calculation. When changes in VAT rates do happen – you can then update your records appropriately.

About the Author

Intuit is a leading provider of business and financial management solutions for small organisations and their advisors including accountants and bookkeepers. Intuit work with British small businesses to understand the challenges that they face and find the solutions they need to be more successful. For more information, please visit: http://quickbooks.intuit.co.uk

Posted July 28, 2010

Latest articles in Value Added Tax
 
Overcome the January 2011 VAT hike by planning in advance
Here are some tops tips on how small business owners can get the most out of the VAT rate change in January 2011, if they plan in advance. [July 28, 2010]
 
VAT rate change to 20% - how "artificial" transactions are treated
VAT expert, and Bytestart contributor, Les Howard, outlines the anti-forestalling legislation which will apply when the standard rate of VAT rises from 17.5% to 20% in January 2011. [July 22, 2010]
 
Thousands of claims could follow Man United VAT ruling
Manchester United's landmark VAT case could open the floodgates for thousands of claims from businesses across the UK, according to tax experts. [June 17, 2010]
 
Flat Rate VAT Scheme - first year bonus for newly registered businesses
As an incentive to new VAT registered businesses to consider using the Flat Rate Scheme, HMRC allow a 1% reduction in the flat rate percentage for your type of business for one year. This can be a significant benefit for newly registered traders. [June 11, 2010]
 
VAT Registration - When should I register?
When should you register your business for VAT, why you might want to voluntarily register, and where to find out more about the registration process. [April 5, 2010]
 
VAT returns for many businesses must be submitted online from April 2010
HMRC are reminding small business owners that VAT returns will soon have to be submitted online from April 2010 if you have a turnover of £100,000 or more, and for all new VAT registrants from 1st April 2010. [February 10, 2010]
 
Changes to European Union VAT system from 1st January 2010
Small businesses in the UK may not yet be aware of a number of important changes to the European Union VAT system which took effect from January 1, 2010. [January 25, 2010]
 
Accounting for the 1st January 2010 VAT change
If your VAT quarterly returns end on 31st January or 29th February 2010, they will include VAT collected and paid at both 15% and 17.5%. Readers who are on the cash accounting or Flat Rate VAT scheme are urged to take care when working out their VAT liabilities. [January 18, 2010]
 
Was the VAT rise a waste of time for small businesses?
A recent survey has revealed that 79% of businesses saw a huge increase in business administration as a result of the VAT rate changes in 2009, while over a third (36%) said that the rate rise had actually incurred costs and driven down profit margins. [December 21, 2009]
 
Small businesses urged to prepare now for January 1st 2009 VAT change
With the VAT rate returning to 17.5% on January 1st 2010, businesses are being warned to begin preparations for the change now or face disruption in the New Year. However, it appears that only one third of companies are likely to have prepared for the change in advance. [December 3, 2009]
 
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 [November 12, 2009]
 
VAT registration delays - new firms "fighting for survival"
Start-up businesses are struggling to set up and expand because of delays of between three and five months waiting for VAT numbers, according to a leading accountancy group. HMRC is supposed to complete most VAT registrations within two weeks. [October 1, 2009]
 
Checking to see if a VAT registration number is valid
How to check that a VAT registration number you have been given is valid. This could help protect you, should your business become innocently involved in a chain of fraudulent transactions such as carousel fraud. [August 10, 2009]
 
VAT - Value Added Tax Guide
A summary of Value Added Tax for small businesses. When you should register for VAT, what the registration threshold means, how you repay VAT to HMRC, and links to further information. [May 18, 2009]
 
Detailed guide to the new VAT penalty regime from April 2009
April 2009 marks the introduction of a new VAT penalty regime. This article provides an in-depth guide to how the penalties will work. [March 31, 2009]
 



Click Here





Our Partners
Key Services
Key Services
Useful Guides
Click Here

© Bytestart Limited 2005-2010 - All Rights Reserved | Terms of Use | Site List | Website Feeds | Rss Feed RSS Feed

Business Insurance, Business Bank Accounts, Public Liability Insurance, Professional Indemnity, Startups, Limited Company, Sole Trader