Getting to grips with imminent increase in VAT; with PAUL SPENCER Partner at Spencer Gardner Dickins at Cheetah Road, Coventry Asktheexpert.
It will be felt most by those who cannot recover the VAT such as individuals, charities and partial exempt businesses.
The increase effectively increases their costs in what is already a difficult period and businesses who supply these customers may suffer a drop off in trade.
Organisations will need to decide whether of not they can absorb the VAT increase or pass it onto their customers. Other potential issues may arise surrounding dates of sale and care will need to be taken in determining what is known as the 'tax point' to ensure the appropriate rate is applied.
This is usually the earliest of either when the date the goods were delivered to the customer, when the payment was received or the date the invoice was issued.
Those using cash accounting are likely to have to use the old and new rates of VAT for some time.
HM Revenue and Customs has issued new rates for businesses using the flat rate scheme which will need to be applied from January 4, 2011.
For all VAT registered businesses there will be the added burden of filing a VAT return which includes both the old and new rates of VAT.
As with previous VAT rate changes, HMRC claim they will operate a 'soft touch approach' with regard to the changeover, and will not specifically target this area for compliance checks.
But businesses should still be vigilant in this area and seek professional guidance where necessary.
From a practical point of view all businesses will need to ensure that accounting systems, tills, websites, invoices, price tags and price lists are all updated to reflect the VAT change.
This will be a time consuming process and is likely to have a disproportionate affect on smaller businesses without sophisticated systems in place.
Lessons will have been learnt from dealing with the changes in VAT rates in the past few years - however it will still take up a considerable amount of time to get the systems in place to deal with the change in time for the latest change.