Research amongst 1,500 businesses reveals nearly one in five SMEs are not ready for VAT increase

On the 4th of January 2011 businesses across the UK will finally come face-to-face with the 2.5% VAT increase, but with just over a month until the changes come into effect new research from business software and services provider Sage has revealed that nearly one in five small businesses are not ready for the increase.

The Sage UK Omnibus surveyed 1,500 small and medium sized enterprises (SMEs) from Sage's 800,000 strong UK customer base in November 2010. It found that while 68% of SMEs are anticipating the effect, a substantial 11% have yet to contemplate the impending changes, and a further seven per cent have expressed concern about their lack of preparation.

The 17.5% to 20% VAT increase has been put in place by the Government to tackle Britain's record debts. In the June Emergency Budget, Chancellor George Osborne highlighted that this single tax measure will generate over £13bn a year of extra revenue by the end of parliament.

Suzanne Wardingham, VAT Specialist at Sage UK, has outlined a number of measures that small businesses can take in order to ensure they are best prepared in January. "In the past couple of years we've already had two changes to the standard rate of VAT, so making the change is not as much of a daunting task as it used to be for some businesses. As before, SMEs will have to decide whether they want to pass the costs on to their customers. However, as the VAT increase takes place on the 4th January rather than the 1st this time, there will be some businesses that have to complete a VAT return incorporating both standard rates of VAT. Where this is the case, we strongly recommend that the business owners seek advice from either their accountant or HMRC if they are unsure."

Suzanne Wardingham advised, "It's likely that accountants will be busy with clients' self-assessment returns towards the end of the year, so consult with them early on to understand how the change will impact day-to-day transactions. I would also suggest exploring whether there are any special dispensations for your business to help you manage the change more efficiently. Last time retailers received a two-week grace period to re-price stock on the shelves.

"I would also stress the age old golden rule - be good to your customers. If possible invoice them in plenty of time before the change, so they will not incur the higher VAT rate and will appreciate the gesture. If you need an excuse, you can use it to send an extra early Christmas card."

To help its small business customers navigate the VAT change Sage has created a dedicated microsite which provides details on what the changes mean for Sage's software. For further information, please see: