Yes - you can't fail to have noticed that VAT's on the rise again. From 4 Jan 2011 the standard rate is 20% (up from 17.5%).
While the papers are talking about the cost to us as real people who buy stuff, it's worth pausing a moment to work out what it might mean for you as a small business, or freelance, or whatever you call yourself.
If you're not VAT registered it will just mean things you buy for the business are 2.5% more expensive.
[For some this might be the point at which they take the plunge - especially as getting a 5th of the cost back from purchases is not insignificant. Just don't take the plunge without considering the implications for your business.]
If you are VAT registered, there are a couple of issues to be aware of:
1/ Any invoice with a tax point of 4 Jan 2011 or later will have to include VAT at the new higher rate. Invoices up to 3 Jan 2011 will charge VAT at the old rate of 17.5%, regardless of when you are paid.
2/ If you're in the flat rate scheme for small businesses (aka "VAT for lazy people"), the flat rate that you use to calculate how much you give to the VAT people will go up.
For example the 'Film,radio TV and video production' flat rate goes up from 10.5% to 13%.
Personally I will be ensuring that I have no invoices dated 1st-3rd Jan 2011, just so that it keeps the calculations simple. It will mean my Jan-Feb-Mar VAT quarter will be all at the new rate.
It might be a bit more complicated for you if you have a VAT quarter that runs, for example, Dec-Jan-Feb. In this case you'll have a mixture of rates across the quarter. Don't panic about this. Just do calculations up to 3rd Jan, and a separate calculation for the period from 4th Jan.
HMRC have some helpful documents here:
about the change in the standard rate
about the change to the flat rate percentages if you're in that scheme
Finally, if you are VAT registered and you use one of David Thomas Media's old income and expense spreadsheets, bear in mind that changing the VAT figure on the summary sheet will change the VAT calculation all the way through the sheet - in all the category tabs.
Ditto the VAT and flat rate figures on our cash flow spreadsheet.
Solutions? You can overtype the relevant parts of your records from 4 Jan, or do calculations manually until your next financial year.
Of course you could also do something clever with the formulae if you know how.
Let's hope it'll be a while before they fiddle with it all again. Anyone want to bet that the rate comes back down again just before the next general election?
Comments