VAT Rate Change
A quick summary of the key practical points to think about...
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.
Retailers will also have to consider the practical impact
of re-pricing. Whether they start to slowly increase prices from now to all
them to spread the impact (both practical and financial) over the next few
months is one issue. Another alternative would be to display a sign advising
customers that a price adjustment will be made at point of sale to reflect the
increased VAT. The law requires that prices in the retail sector are shown including
VAT, but the Price Marking Order 2004 (SI 2004/102) allows a period of 14 days
for prices to be adjusted, during which time a general notice to customers must
be displayed. There is a proposal to allow this period to be extended to 28
days, but I am left wondering about the impact on a business of such an
approach. Surely the customers will be decidedly unimpressed?
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.
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 2009.
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.
Source: http://www.accountingweb.co.uk/
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