VAT Checklist: Be ready for the January 4th increase

To give small businesses  a helping hand when adjusting their books in line with the change, Intuit UK, have worked with us to compile a checklist covering the major areas affecting UK small business and highlighting the potential pitfalls – as well as opportunities – the VAT change will bring. 

With this in mind the increase in the VAT rate could be used as an incentive to further encourage customers to do their shopping before the 4th January 2011.

What’s more, the New Year bank holiday on Monday the 3rd January will surely see a flurry of sale grabbing shoppers hitting the highstreets and online. What’s’ more, according to a survey by the British Retail Consortium (BRC), almost two thirds of retailers expect sales over Xmas to be at least the same or better than in 2009. Therefore, if you are trading over the holiday period and busy bank holiday weekend, it may be possible to use the opportunity to boost sales by taking advantage of the festive period. 

If you are passing the VAT increase onto customers, it may be helpful to inform customers of the change in cost of goods now. Instead of waiting until the 4th of January to change your display prices, make it clear that prices are going up. Put signs up that stating the new price and communicate that the increase in prices is due to the VAT rate change. This will reinforce that it is a mandatory change and may help to ease any unwelcome response. 

 

More specifically, traders now have 28 days in which to update their ticket prices. General notices should advise customers that products subject to the change are not for sale at the price indicated and that the prices will be adjusted to take account of the change.

This also applies to catalogues and sales literature which still reflect the pre-4th January 2011 prices. You can still use these for up to 28 days after the VAT rate change so long as:

• There is a label (firmly attached) which prominently states that some or all of the prices printed in it are to be adjusted to reflect the VAT increase
• The label has sufficient information to enable your customers to calculate the adjusted price of any product listed in the catalogue or literature
• The label refers to and is accompanied by a supplement which enables them to calculate the adjusted price.

If you sell goods or services online, don’t forget to update these prices as well. This can be a time consuming job for companies that sell products online so don’t forget to book your resource to get this job done. 

It’s also important to make sure that staff are aware of the changes coming in to effect and that they understand your VAT company policy. Having a consistent and clear message across the company will help to ensure the message to consumers is consistent and therefore ensure strong customer loyalty is retained during this time. 

The increase in VAT may result in a potential rise before, and then fall in sales after the 4th January. Cash flow forecasting should take account of this potential rise and then fall. 

There may also be transactions which span the VAT change date so it’s worthwhile noting that regardless of whether a business uses standard or cash VAT accounting, it is the tax point that determines the rate of Standard VAT to be applied.  For cash accounting, this means that even if payment is received or made after 4th January 2011, the 17.5 percent rate will be due on supplies and purchases made before 4th January 2011, 

If you are trading between the 1st and 3rd January 2011, be aware that when you come to prepare your VAT return, you will have a mixture of both 17.5 per cent and 20 per cent transactions. 

If you start a job before the 4th January 2011 but finish it afterwards, you may account for the work done up to 3rd January at 17.5 per cent, and the remainder at 20 per cent. Businesses that find the festive season slower than other periods of the year can therefore take advantage of the VAT rate change by suggesting that their customers and prospects commence work in 2010.