Posts Tagged ‘VAT’

We’re backing a campaign to get the VAT registration threshold increased to 100k.

Currently, if your business turns over £67k or more then you are obliged to register for VAT.  Sometimes registering for VAT can be beneficial, and if you are using software like KashFlow then the administrative burden is virtually non-existent – it calculates files your VAT returns directly to HMRC.

But  for small businesses that sell to consumers, VAT registration can cause a real problem. Their customer can’t reclaim the VAT – so the business can either put up their prices or take a big hit to their profits.

Elaine Clark from Cheapaccounting.co.uk has started a petition. She says

I have a client who is approaching the VAT registration threshold. They cannot increase their prices to cover the VAT to be paid to HMRC as there is a large competitor in the vicinity and the price competition is tough so they will have to absorb the VAT into their profit.

It will probably mean the closure of their business and the loss of their livelihood. This is something which I think should be avoided.

So if this government are serious about helping small businesses survive the downturn, they can start by increasing the VAT registration threshold to £100k.

Please take 2 minutes to sign  this petition - it will help to save small businesses.

The change in VAT rate on 1st December 2008 went relatively smoothly for accounting software vendors. The SaaS vendors all showed off that we got any required changes rolled out in the blink of an eye, some of us didn’t even need any changes.

But in reality the offline, locally installed, disc-based, on-premise, old fashioned (whatever you want to call it!) vendors also got any required changes out to their customers in adequate time. Some of them tried to use it as an excuse to force you to upgrade or buy a support contract - but that was no surprise.

But I think there’s trouble brewing that hasn’t quite come to the surface yet.

Our software exports data in a format compatible with Sage 50 and with the excellent Digita range of products. It can also automatically email you your data as a backup in this format every week. Some of the files we generate for this require that we include the “T” code.

Sage uses T codes to indicate what VAT rate is applied to a transaction. T1 means “Standard Rate”. So if the transaction in KashFlow is standard rated for VAT then we list it as T1 (yes, yes, we take into account the EC stuff, now isn’t the time or place!).

One of our Partner Accountants got in touch today to say that our export files were “wrong”. She said that we should be showing T1 for items prior to 1st Dec ‘08 and T6 for items after that date. Why T6? It was just the code they chose to use for transactions at 15% so as to differentiate from those at 17.5%

My thoughts on the matter were that we were right to show it all as T1. It’s all still Standard Rate, it’s just what that underlying percentage rate actually is that’s changed.

I posted on UKBF where there is an army of knowledgeable and helpful accountants to try to get some clarification and other views on the matter.

It turns out I’m in agreement with Sage (now that’s a turn up for the books!): their guidance was to stick with T1 and set it to 15%. But it this wasn’t practical for most people, so they’ve all chosen one of the many spare T codes between T0 and T99. There’s no consistency at all in what’s been chosen by different people.

To stir things up even more, we’re all meant to be changing back to 17.5% at the end of this year. What random codes will we all choose then?

I’m not sure what other specific problems this may cause. I’m not an accountant. But something tells me that we’re going to hear much more about the problems this confusion has caused. Just remember where you heard it first!

Still, at least the minor change in VAT rate staved off a recession. Oh, hang on…

I’ve seen announcements from a  few other accounting software companies this morning about how they’ve upgraded their systems to deal with the new VAT rate as from Monday. All very odd. We’ve not had to change a thing in KashFlow to support it – I guess that’s just a sign of how flexible it is. The only thing we will be doing is changing all accounts with a default rate of 17.5% to have a default rate of 15% as from Monday morning.

The big thing that other vendors seem to be overlooking is the Flat Rate Scheme. If you’re VAT reporting period has this change of rate in the middle of it then you have to essentially do two reports – one on the old rate and another on the new.

Needless to say, we have added something to KashFlow to deal with this as detailed in our Change Log page.

I’m sure this will become a big issue for users of other software once the smoke clears.

So it’s been confirmed – for a year from next Monday, the standard rate of VAT will be reduced to 15% instead of 17.5%.

I’m still not sure how this is meant to help the man on the street. The only benefit from this is going to be to companies at the end of the VAT chain. That is, those that are registered for VAT but sell mainly to non VAT registered companies or individuals (ie, “the man on the street”)

Argos aren’t going to re-print their catalogue. So a digital camera is still going to cost £50. The only difference is that HMRC will only get £6.38 of the money instead of £7.45, the difference is profit for Argos