Businesses calm on VAT increase

The new VAT rise in January isn’t causing business much of a headache, with experts claiming they are all “very calm” about it.

The 17.5 percent to 20 percent VAT increase will hit businesses on January 4 2011 and has been put in place by the government to tackle Britain’s record debts. In the June Emergency Budget, Chancellor George Osborne highlighted that this single tax measure will generate over £13bn a year of extra revenue by the end of parliament.

Instead of worrying about having the correct software in place, businesses are taking it in their stride. In fact, according to Martin Dane VAT Principle at BDO LLP, the decline in VAT was much more of a problem than next year’s rise.

“Businesses had eight to nine days to adjust their systems and begin labelling, invoices and marketing points. This cost businesses £3 billion in the short space of time,” he told TechEye.

“This time round everyone is very calm. We’ve had a rise, then a decline then two raises again so we’re getting used to the upheaval and having to tweak the systems.” 

Chaz Roy-Chowdhury, head of Tax at ACCA agrees: “Businesses are just getting on with the process this time. Also, next year it’s easier as businesses don’t need to put these in place until 4 Jan. It’s much easier compared to 1 Jan last year when businesses scrambled to get this done on time.”

Both said retailers just had to ensure that the shelf price reflected the the till price, although under UK law they have 28 days to change these as long as they alert customers through banners and marketing within store.

“Businesses have more advanced software in place that dictates and changes the VAT depending on whether its going up or down. There are a few panics, for example trying to get labelling and ticket pricing done on time, but it’s manageable,” added Mr Roy-Chowdhury

Sage isn’t so confident. According to the company one in five small businesses are not ready for the increase. In a survey of 1,500 small and medium sized enterprises (SMEs) it found that while 68 percent of SMEs are anticipating the effect, a substantial 11 percent have yet to contemplate the impending changes, and a further seven percent have expressed concern about their lack of preparation.

Suzanne Wardingham, VAT Specialist at Sage UK, said: “In the past couple of years we’ve already had two changes to the standard rate of VAT, so making the change is not as much of a daunting task as it used to be for some businesses. As before, SMEs will have to decide whether they want to pass the costs on to their customers.

“However, as the VAT increase takes place on the 4th January rather than the 1st this time, there will be some businesses that have to complete a VAT return incorporating both standard rates of VAT. Where this is the case, we strongly recommend that the business owners seek advice from either their accountant or HMRC if they are unsure.”