Further VAT increases in 2010 'likely'

News Article - 11 December 2009
Category: Business

Experts recently warned that VAT rates may eventually rise to 20%. The current rate of 15% - introduced early this year to help consumers cope with the economic downturn - is scheduled to return to 17.5% on January 1st next year.

When VAT reforms have been introduced in the past, many companies have struggled to absorb the changes efficiently. Reducing the rate to 15% was estimated to have cost UK businesses £470m and the complexity of the changes this coming January - which include a new reverse VAT charge in addition to the 2.5% basic rate increase - is expected to increase this figure. Further changes later in the year may cause these costs to rise dramatically.

If the basic VAT rate rises to 20%, businesses may also be faced with the task of making goods more attractive to offset increased costs to the consumer. In addition, smaller VAT changes - such as the April requirement for companies to submit their VAT 100 forms electronically - may increase administrative costs as businesses struggle to distribute resources.

In addition to the basic rate increase, experts are predicting changes to 'green taxes,' which aim to provide financial incentives for companies adopting carbon-reduction programmes. Carbon-intensive activities - such as air travel and car hire - are expected to be targeted with tax hikes. Companies that do not have carbon-reduction programmes in place may find they are taxed more heavily by these measures.

With so many VAT reforms predicted, the agenda for the coming year can look confusing. Businesses of all sizes may be worried about experiencing excessive downtime, particularly during the economic downturn where profit margins are easily squeezed. Research shows many companies underestimate the effect of VAT reforms; last year, 12% were still addressing the changes in the weeks following the basic rate reduction to 15%.

"Companies that prepare early are inevitably in a far better position to quickly absorb the upcoming VAT reforms," says Kevin Misselbrook, Customer Services Director at Access. "With the possibility of further VAT changes, revisiting your strategy now will ensure you experience limited downtime if reforms are introduced."

Companies requiring advice can contact Access for information on how to minimise downtime associated with the upcoming VAT changes. For example, a dedicated business software package can help absorb some of the impact. The modular-based Access accounting software is continually kept up-to-date to comply with all the latest VAT legislation, well before it comes into effect. The Dimensions software package already reflects the January VAT changes.

For tailored advice regarding the upcoming VAT changes, please contact Kevin Misselbrook on 0835 345 3300

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