November 25, 2009Sage warns of VAT change complications

Sage has warned businesses to prepare for the VAT changes or face the consequences.

The financial software provider has found that just a third of businesses will be prepared for the VAT changes before they close their offices for the Christmas period.

The VAT rate will return to 17.5% on 1 January 2010 causing disruption to accountancy firms and businesses in the New Year.

"This is cause for serious concern - managing the change for something as integral as VAT is not as easy as simply flicking a switch. In fact, it can be hugely complex for businesses both small and large," said Kevin Hart, head of government relationships at Sage UK & Ireland.

"Those that fail to plan the changes now will pay the price later," he added.

When the VAT rate was reduced this year, businesses were given just four days to prepare for the amendments. Sage has said that its VAT development team and support staff had to work around the clock to prevent widespread disruption.

There are special arrangements being drafted for certain businesses operating beyond midnight on 31 December.

Sage is advising its clients to get in touch with their accountants as soon as possible to discuss how the changes will impact them.
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November 17, 2009Brown backs down over child care vouchers

Potential revolt over proposals to replace tax free vouchers with free places for poorer families forces a retreat.
Downing Street has confirmed prime minister Gordon Brown has been forced into retreat over tax relief for child care following a "petticoat revolution" on Labour’s back benches.
He was said to be "listening" to warnings the proposal to scrap the relief in favour of free places for some over twos could turn into as big a fiasco as scrapping the 10p tax rate.
A spokesman said formal proposals will be announced in the Pre Budget Report, seeking to square the circle between Mr Brown’s Labour Conference announcement that the existing relief attached to company provision of vouchers is poorly targeted and a decision since to allow the care voucher system to continue.
There is speculation this could mean restricting the relief to the standard rate of income tax.
Since such a climb-down will severely limit the funds available for providing more free places.
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Accountancy Age

November 9, 2009VAT rate change: A practical guide

HMRC has now provided a complete guide to the rate change a summary of the key practical points to think about would be helpful.

Retail businesses

Whether retail businesses increase their prices or not on 1 January 2010, they will have to account for VAT at the 17.5% rate from then on. So if the prices are not adjusted to reflect the rate change, the business will suffer an immediate reduction in margin. The actual reduction in sales value is 1.85%, but of course as this all comes off the gross profit this will have a much bigger impact if margins are very slim. So all retailers who supply standard rated goods need to think in advance about the impact of the change. Whether they re-price or not, the rate will go up, so they will need to consider a mix of three alternatives :

Hold prices and take the profit hit
Increase prices to maintain margins, or
A mix of the two - increasing prices by less that the VAT hike to avoid hitting sales too hard, and accept some margin reduction.

Web based suppliers

Similarly those supplying goods and services over the internet will need to assess their position on supplies to end consumers. Businesses should now be thinking about what work will be needed to implement price changes, and whether any outside help in re-pricing on the website will be necessary. Businesses which have pre-printed price lists and order forms may also need to take steps to prepare.

Tickets to events

Tickets, including season tickets, to events are liable to VAT when the ticket is sold rather than when the event happens. Organisers of events will therefore wish to ensure that any printing on the tickets which will be sold across the date of the change in rate reflects their intentions. This would need to be taken into account when setting the price of the tickets.

Invoices issued in 2009

Generally speaking, if an invoice is issued to a customer before the change in rate, the VAT chargeable is 15% and not the increased rate. However, as there is ample opportunity for this rule to be exploited in favour of customers who cannot recover all (or in some cases any) of the VAT they bear, there are special rules designed to prevent early invoicing distorting the VAT base. That being said, these rules do not cover all eventualities, so some businesses may decide to raise invoices in December in respect of supplies they will make in early 2010. There is a separate article dealing with the anti avoidance rules - so check there first before launching into a "cunning plan".

Flat rate supplies

New rates will apply to those businesses making flat rate supplies from 1 January 2010. However, businesses should not adopt the old flat rates in place before the reduction, as HMRC has already warned that there will be some changes to rates. Revised flat rates will be published before the end of 2010.

Coin operated machines

The normal treatment is for supplies to be accounted for when the machine was used. If machine operators do not intend to visit and empty machines during New year’s day, they will need to apportion the sales at the next cash collection date. They will also need to have supporting evidence that the apportionment was reasonable. Once again, as there is a detrimental effect on profit, machine operators will need to consider the impact on their business in advance of the change.

Software

Business will need access to both the 15% rate of VAT and the 17.5% rate for some time after the change happens, as any credit notes raised in respect of supplies made during 2009 will have to be credited at 15%. Purchases should have VAT recovered at the "correct" rate, and if some purchased invoices are delayed this may lead to the recovery of VAT at 15% for some time. Businesses should not, therefore "over write" their standard rate of VAT in their accounting software.
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