Pictured above: Phil Jeffrey
VAT is due to rise on 4 January 20% but for many businesses the
considerations should be far more than simply the increase in rate,
says Phil Jeffrey, VAT director for the East Midlands office of RSM
Tenon.
"Businesses need to be aware of the administrative time and
costs involved in the change and ensure they are prepared in order
to minimise the impact of re-pricing goods and changing software
and accounting systems. It is estimated that the VAT reduction from
17.5% to 15% in 2008 cost UK businesses £175M in
administration and a further £125M when the rate returned to
17.5%.
"The new rate needs to be carefully applied to ensure businesses
don't fall foul of anti avoidance regulations and incur penalties.
In particular, they need to be aware of the special rules that HM
Revenue and Customs has published for businesses who are invoicing
before 4 January for goods or services spanning or being provided
after this date.
"For many businesses though the commercial considerations will
be the most significant if their customers are unable to reclaim
the VAT. Businesses have been feeling pricing pressures for some
time and must therefore start thinking about the ramifications of
passing the increased VAT cost to customers. It will be a
case of weighing up the potential loss of customers if the increase
is passed on in full with the cost to the business of bearing some
or all of the increase.
"As always, good communication is key and where possible it is
advisable to discuss the VAT increase with the key customers and
suppliers to find a mutually agreeable way for everyone to minimise
the impact of the VAT increase. Supply contracts should be
revisited to see if prices can be re-negotiated to help maintain
margins if the increase is to be absorbed.
"For those on the flat rate scheme revised higher VAT rates are
introduced at the same time as the change in the standard VAT rate.
This will have a corresponding impact on cash flow which will need
to be managed.
"The businesses that are best placed to manage the VAT rate
change are those who understand the implications and have planned
and prepared accordingly. The answer therefore is not as simple as
2.5%."