Small businesses urged to prepare now to avoid VAT complications

Businesses throughout the UK have been urged to properly prepare for 4 January 2011, when the VAT rate will rise from the current 17.5 per cent to 20 per cent.

However, it is the smaller firms that risk complications as they may not have adequate accounting systems in place to deal with the switch seamlessly, says the Forum of Private Business.

“Many smaller businesses will have to changes their prices before they start trading on January 4,” said Forum chief executive Phil Orford. “Businesses can of course keep their prices the same and absorb the increase but this will affect their bottom lines.”

Update accounting systems​

“The main problems businesses are likely to encounter around the VAT rise will be with their accounting systems.”

While the systems of many businesses are based on modern software that will automatically update on the VAT increase, some smaller businesses use older desktop accounting systems that expect the user to update the software.

Orford said that firms will need to make sure that their accounting system changes accordingly and is issuing invoices and recording sales and transactions at the new rate from January 4.

Business owners also need to check that everything is at the correct rate when completing their next VAT return, he said.

Don’t leave it until the last minute​

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HM Revenue & Customs (HMRC) has also put out a reminder to businesses to ensure they are ready for the change.

"With the Christmas and New Year holidays almost upon us, businesses must be ready to implement the increase to the standard rate of VAT,” said Director of CT & VAT, Jim Harra.

“Don’t leave it until the last minute to make any necessary changes to your book-keeping and accounting systems including invoicing and tills. You also need to make sure your staff are fully aware that the new 20 per cent rate must be charged from 4 January.”

More information on implementing the increase can be found in this HMRC VAT guide.​