Posts tagged ‘Rate Increase’

Drowning under a mountain of paperWith 2011 more that half way through, how is your business performing?

 

Here are twelve tips to act an aid-memoire when trying to stay in control of your business:

  1. If you are not producing regular management accounts, consider what financial information can be easily extracted from your accounting system to help you monitor the business. You can only extract meaningful information if your records are up to date and accurate.
  2. If you are selling a product, make sure you know your break even sales volume – this could be higher than you realise, particularly with pressure on prices.  What level of waste are you experiencing?  Are you carrying too much stock?
  3. If selling a service, check how many hours of time you are invoicing out a month – how much of it is resulting in billable income?   Are you charging at the right levels?  Are you competitive without being cheap?
  4. Project Management PlanRevisit your business forecasts and cash flow projections for the coming 12 months on a regular basis – are they still realistic in the current climate?  What costs can be trimmed back?
  5. If cutting costs, make sure you know which of your costs are fixed and which are variable.
  6. What can you delegate/outsource so that you can devote more of your time to looking after key clients and driving the busimess?
  7. A big, bad debt can be disastrous for business, so make sure you monitor your debtors carefully.  Keep in regular contact, resolve disputes quickly and discuss options at an early stage if they are having difficulties.  A debtor making round sum payments on account is often a warning sign.  Consider credit checking businesses that do not have any history with you.
  8. Look after your purchase ledger with as much care as your sales ledger.  Good suppliers are key to you being able to deliver to your customers, keeping prices down and an essential source of credit when managing cash flow.
  9. Make sure you have up to date information to hand when requesting a renewal or increase in your banking facilities and keep your bank manager informed of changes to the business and its performance.
  10. Check that the financial structure of your business is correct.  If you are relying on short term finance for long term projects then you need to get the balance right.  What assets do you have to secure more cost effective commercial finance?
  11. Income taxGet your tax affairs up to date and make sure you have provided for payments due in January and July as well as Corporation Tax due nine months after the accounting period if trading through a Company.  This is just as important if profitability has declined as you may be able to reduce any payments on account that fall due.
  12. Check you are using the most effective VAT scheme.  If you have a large sales ledger, cash accounting may be more appropriate.  Have you calculated whether the flat rate scheme results in less VAT being paid over to HMRC?

 

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.