Sage Blog

We’ve known for a while now that the VAT increase was coming. In fact, we’ll finally come face-to-face with the 2.5% VAT rise on the 4^th January. But while you’ve probably been busy planning for Christmas, has your business got its plans in place to cope with the new 20% VAT rate?

Well, if you’ve not given it too much thought so far you’re not alone. We surveyed 1500 of our customers and we found that nearly one in five small businesses are not ready for the increase.

So, what else did our survey find? Well, while 68% of small businesses are anticipating the effect of the VAT rise, a substantial 11% have yet to contemplate the impending changes, and a further 7% have expressed concern about their lack of preparation.

Suzanne Wardingham, our VAT Specialist, has outlined a number of measures that small businesses can take in order to ensure they are best prepared in January:

Getting prepared

We’ve set up a website to help our customers navigate the VAT change and find  details on what the changes mean for our software. http://www.sage.co.uk/legislationchanges

Pass on the costs?

In the past couple of years we’ve already had two changes to the standard rate of VAT, so making the change is not as much of a daunting task as it used to be for some businesses. As before, small businesses will have to decide whether they want to pass the costs on to their customers.

VAT return

As the VAT increase takes place on the 4^th January rather than the 1^st this time, there will be some businesses that have to complete a VAT return incorporating both standard rates of VAT. Where this is the case, we strongly recommend that the business owners seek advice from either their accountant or HMRC if they are unsure.

Ask your accountant

It’s likely that accountants will be busy with clients’ self-assessment returns towards the end of the year, so consult with them early on to understand how the change will impact day-to-day transactions.

Special dispensations?

Exploring whether there are any special dispensations for your business to help you manage the change more efficiently. Last time retailers received a two-week grace period to re-price stock on the shelves.

Be good to your customers

If possible invoice them before the increase so they will not incur the higher VAT rate and will appreciate the gesture.

Cath Sheldon, PR Team

The tax situation for small and medium sized enterprises (SMEs) has increasingly become a focus for debate in this election (For small businesses the choice on tax is not straightforward). Putting the spotlight on this issue is good news for small businesses, as research amongst our own customer base suggests that many find the complexity of the tax system frustrating. The overwhelming majority (72%) of UK SMEs we surveyed, also indicated that the complexity of HMRC rules is a barrier to start-ups.

We surveyed 2,000 of our SME customers in March 2010, from our 800,000 strong UK customer base. Insights from the Sage Omnibus, enables Sage to highlight the challenges facing UK firms and provides a barometer for British business.

The survey discovered that seventy-seven per cent of businesses felt that the current tax system is preventing them from taking advantage of tax benefits and breaks. Furthermore, sixty per cent of SMEs polled did not know what breaks they may be eligible for.

Our research shows that there is a lot of confusion amongst the UK business community about the current tax system. At times of economic uncertainty, knowing what tax benefits and breaks your firm is entitled to can make the difference between success and failure. My advice to all businesses would be to seek professional advice from an accountant to inform them of any breaks that they may be entitled to.

Interestingly, more small businesses would choose to make the current tax system simpler (34.5%) over freezing VAT at its current rate of 17.5% (25.9%), highlighting the extent of their frustration. When asked what single change they would like the government to implement, SMEs indicated that they would also like to see the planned 50p income tax for top earners (5.8%)scrapped.

Jayne Archbold, Managing Director of the Accountants’ Division