Pictured above: Steven Holden

A leading Midland tax advisor is warning businesses across the West Midlands to be on top of their game with the VAT rate rise only weeks away.

Steven Holden, Tax and Trust Manager at Halesowen-based mfg Solicitors, is keen to ensure businesses in the area stay one step ahead from the possible pitfalls that could appear with the 1st January rise from the standard rate of 17.5% to 20%.

Steven comments: "The Coalition Government announced back in June that the standard rate of VAT would rise to 20% on 1st January 2011. Even though this revenue-raising decision was widely publicised, it's expected that some businesses will be unprepared for the possible impact the rate change could have. The need to prepare and plan for the increase is vital as certain areas could prove confusing."

For example, if a business is billing a customer before 31st December 2010, the VAT remains at 17.5%. However, if the invoice is raised on or after 1st January 2011, then the VAT will be 20%.

There is also a grey area which might catch some out. If a business invoices a customer before 31st December, but supplies services after this date, then HMRC will treat this transaction as if VAT was charged at 20%. Not calculating this situation correctly could mean businesses show a reduction in profits.

Steven added: "There is no doubt that many people have already brought forward large purchases as they aim to beat the January hike. Equally, there is no doubting businesses across the West Midlands will benefit from that surge. However, many businesses will need to take a step back and ensure their VAT ducks are in very neat rows before they raise a toast to what promises to be an interesting new year."