The VAT rate is due to change on the 4 January from 17.5% to 20% which will mean a huge headache for businesses that are VAT registered.

Many of the high street brands have been quick to use the VAT hike as an incentive for consumers to purchase certain items before the increase. However, the changes will have ramifications for many businesses, which they will need consider prior to the changeover.

Bill Ballard, from accountancy firm Ballard Dale Syree Watson believes that the changeover will be more of a complex issue for some businesses than it is for others.

He says: "It is important that business owners are clear what changes need to be made to their accounting software to accommodate the rate change. There will also be an added complication for those businesses adopting the cash accounting or flat rate scheme." 

Mr Ballard feels that the changes will have more of an impact in terms of how businesses implement the increase as it is not necessarily a 'one solution fits all' problem. For example clubs and sporting organisations will need to take care when charging members annual subscriptions that bridge the 4 January 2011 date.  

"Where it will become really complicated is where you have supplies that will run over 4 January date, for instance construction contracts where part of the work is done before and part after the date of the rate change, care is required.

"My advice to anyone unsure on how they need to prepare for the changeover is to consult their accountants first. During the change over period, anti-forestalling legislation will also be in place to stop those businesses gaining an unfair advantage by deploying tactics such as undertaking large transactions prior to the increase. 

"Business owners really need to ensure that the transitional period is handled correctly to avoid repercussions, such as having to make adjustments at a later date:" concludes Mr Ballard.