VAT: Top Tips to Prepare for the VAT Rise in January 2011

In an attempt to raise revenue and reduce government borrowing and debt, the UK VAT rate is set to rise on 4th January from 17.5 percent to 20 percent. To avoid an administrative headache, small business can prepare for a smooth start to 2011 with some year-end planning.

Intuit UK has some top tips to help small business owners avoid mistakes and possibly even see some short-term benefits from the VAT changes.

1. Get a head start to the New Year

To make sure that you can quickly adjust to the new changes, it makes sense to start planning for the change now. There are a number of rules surrounding advance deposits/pre-payments received before 4th January 2011 for goods or services made after this date. And it’s worthwhile being clear on these new rules as getting it wrong could be costly. The HMRC website has all you need to know about the changes http://www.hmrc.gov.uk/vat/forms-rates/rates/rate-increase.htm.

2. Communicate with your Customers… and Staff

Most consumers are aware of the upcoming VAT change, however to avoid potential disappointment and misunderstandings, it is a good idea to start making your customers aware of any VAT changes as soon as possible. Making it clear that the increase in prices of goods and services is due to the VAT rate change, and that it is not discretionary, may help to ease unwelcome price increases. It’s also important to make sure staff are aware of and understand your VAT company policy so that they can communicate the change accurately to customers.

3. New Year….New Prices

One task that many small businesses will need to consider is changing ticket prices both in-store and online. From the 4th January, you will have 28 days in which to update your ticket prices. In order to comply with this, you will need to display general notices which advise customers that some products may not be for sale at the price indicated, and that the prices will be adjusted to take account of the change.

These changes also apply to catalogues and sales literature which still reflect the pre-4th January 2011 prices. These can still be used for up to 28 days after the VAT rate change so long as:

  • There is a label which states that some or all of the prices printed in it are to be adjusted to reflect the VAT increase, and
  • The label has enough information for customers to calculate the adjusted price of any product listed in the catalogue or literature, or
  • The label refers to and is accompanied by a supplement which enables them to calculate the adjusted price.

For companies that sell goods or services online, it’s important to update these prices as well. If this is a large task it may be worthwhile getting some extra help to ensure everything is updated in time.

4. Getting the timing right

Transactions which span the VAT change date will add to the administration. It is the tax point that determines the rate of Standard VAT to be applied regardless of whether a business uses standard or cash VAT accounting. For cash accounting, this means that the 17.5 percent rate will be due on supplies and purchases made before 4th January 2011, even if payment is received or made after 4th January 2011.

What’s more, unlike last year this VAT rise takes place on the 4th not the 1st January. While this is good news for pubs and clubs, it does mean that if you are trading between 1st and 3rd January, you will have to take account of the fact that you will have a mixture of 17.5 percent and 20 percent transactions when you are preparing your VAT return.

5. How to benefit from the VAT increase

With the prospect of shoppers buying ahead of the looming VAT hike in January it may be time to increase promotions and marketing. The increase in the VAT rate can be used as an incentive to encourage customers to do their shopping before the 4th January 2011. Monday 3rd January is a bank holiday, so if you are trading over the bank holiday weekend, use the opportunity to boost sales over this period. A tailored marketing campaign with direct mail, flyers and social media could help to generate the extra attention to boost sales.

6. Bring your business forward

Some businesses traditionally find the festive season to be slower than other periods of the year. For companies that work on a project basis such as builders or landscape gardeners, suggesting that your customers and prospects commence projects in 2010 could be a profitable move. If you start a job before 4th January 2011 but finish it afterwards, you may account for the work done up to 3rd January at 17.5 percent, and the remainder at 20 percent.


Intuit is a leading provider of business and financial management solutions for small organisations and their advisors including accountants and bookkeepers. Intuit works with British small businesses to understand the challenges that they face and find the solutions they need to be more successful. For more information on how to cope with the VAT change, read Get Ready for the VAT Change

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