Posts tagged ‘Financial Burden’

Now, I’m not particularly interested in politics, but the state of the economy and the property market is something that I just can not ignore.

Is it just me, or does George Osbourne’s grasp of economics worry you too?

In this Telegraph article  he is quoted as saying that 95% mortgages are not “weapons of mass destruction” despite warnings from RICS that they could create another housing bubble and he believes that large home loans are part of a “healthy market” and “aspiration society.”

Real Estate=Big MoneyHow does he think the 2007/8 crash happened?

When Maggie gave us the opportunity to be home owners, do you think she envisaged British people being up to their eyeballs in debt?

Simple?

There are two very obvious problems with big mortgages

  1. If you stretch yourself to the maximum to afford a loan at a time when interest rates are at historically low levels what do you do when interest rates rise, as rise they must, sooner or later?
  2.  What do you do when the house in which you have 5% equity drops in value by 10%?

The answer in each case is default on the loan and hand the keys back, and we all know who will end up paying the costs of these bad bank debts!

Responsibility?

So who should take responsibility for promoting  this “so what” attitude to debt?

The first time buyers who are being allowed to take on such a huge financial burden?  The lenders? The Government?

Personally

Frankly as the owner of several buy-to-let properties I am revelling in the shortage of properties caused by the recession, profiting from the low interest rates and the chance of another “bubble” is very exciting!

But I am sure I am in the minority with this rather selfish outlook.  What’s your view?  Has the Chancellor got it all wrong? Will his strategy help the country to recover from its economic crisis?

 

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.

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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 4th 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 4th 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.