During his first budget speech in the Summer the current chancellor announced that the standard rate of VAT would be increased from 17.5% to 20% on 4^th January 2011, the third rate change in two years. 

If you are using the flat rate scheme, this change will affect you too.  Be sure to check your new rate on the HMRC website.

Administrative Burden

For business that supply goods and services to other VAT registered businesses, the burden will be one of administration.

• The default rates in bookkeeping systems such as SAGE need to be altered – ask for help
• Business owners and bookeepers need to be clear about the tax point being used – the time of supply is important.
• If you are using the Cash Accounting Scheme it is imperative that you can identify payments received on or after 4^th January 2011 that relate to supplies made prior to that date, to be able to account for them at 17.5%
• Make sure your book keeping is as up to date as possible, confusion surrounding work/supplies that span the VAT change are likely to be exacerbated if you are behind with your paperwork.
• If you display prices inclusive of VAT you will need to be prepared to change literature/brochures/websites etc.

Financial Burden

But for business such as tradesmen and retailers that supply goods and services to non-VAT registered consumers, there are additional considerations as the change may have a significant financial impact.

• How price sensitive are your customers?  Will they find a cheaper alternative or simply stop purchasing your offerings if you add another 2.5% to your prices?
• If you don’t increase your prices, can your business afford the reduced margins?  If you don’t increase them now, when?
• Speak to your customers, they may be willing to pay a deposit in advance of receiving your goods and services to take advantage of the current VAT rate. (For full details on whether this ruling can apply to your business click here )
• Ensure you have procedure in place that will allow you to measure the amount of work carried out up to the date of the VAT rate change, such as detailed timesheets, as you are entitled to split your invoice.  i.e. work performed in 2010 charged at 17.5% plus work carried out in 2011 at 20%.

Effect on Economy

The Chartered Institute of Personnel and Development has predicted that the VAT rate increase will result in the loss of an estimated 200,000 UK jobs.

The effect on an already under pressure retail sector is going to be huge, I don’t think anyone dare to hazard a guess at how huge.

We have been fortunate enough to benefit from one of the lowest rates of VAT in Europe for many, many years, but will this increase really have a significant effect on our huge deficits?  I am not convinced.

For guidance on how to implement the change and minimise the impact on your business, please get in touch.

Another easy to read article about the VAT increase and price sensitivity : What’s a small business to do?  

The information provided in this blog illustrates my opinions and experiences, it does not constitute advice and I do not accept responsibility for any actions taken or refrained from as a result of reading this post.

PAYE notices of coding are notorious for being erroneous, but HMRC have surpassed themselves with this computer generated nightmare that not only leads to extra work and a lot of confusion but may even leave you paying too much tax.

Multiple Notices

In the last few months you may have received several Notices of Coding all showing different codes for the tax year 2010/11. There have been a number of instances where taxpayers have been receiving one tax code one day followed by a different one the next or even more than one code in one day. This has left many people bewildered and uncertain about exactly what tax code will be operated against their income and many of the codes issued are wrong anyway.

New HMRC  system

The problems have occurred as a result of HM Revenue & Customs recently introducing a new system for issuing coding notices called the National Insurance and PAYE Service (NPS). The new service has brought to light various discrepancies in their records and so they have been trying to rectify the errors, hence so many codes being issued all at once. They expect to complete their review by mid April 2010 which will hopefully bring an end to all the confusion.

Resolution?

Any problems occurring as a result of an incorrect code will ultimately be resolved at the end of the tax year once a taxpayer submits their 2010/11 Tax Return to HMRC. However if serious problems are not dealt with near the beginning of the tax year it could result in a large underpayment arising for some people which it may not be possible to collect via a later year’s tax code.  If you are not required to file a Tax Return, over or underpayments may go undetected for quite some time.

A careful review is necessary

In view of the problems which have occurred it is important that any codes received for 2010/11 are reviewed fully. If you believe that your code is incorrect you should either contact your advisor if you have one or HMRC as soon as possible.

Need help?

As agents we receive a copy of the majority of PAYE Coding Notices issued to our clients and therefore we are able solve many of the matters arising before problems begin to appear. We have discovered various reasons for an incorrect code but the problems particularly appear to have affected those with multiple employments. Close scrutiny of your code is therefore important.

Disclaimer: This article is for general guidance only.  All taxation planning should only be undertaken after appropriate professional advice.  George Hay Chartered Accountants are registered to carry on audit work and regulated for a range of investment business activities by the Institute of Chartered Accountants in England and Wales.

The information provided in this blog illustrates my opinions and experiences, it does not constitute advice and I do not accept responsibility for any actions taken or refrained from as a result of reading this post.