By Max Clarke
The recent Value Added Tax (VAT) hike has repercussions for small businesses, says Chas Roy-Chowdhury (CRC), head of tax at the Association of Chartered Certified Accountants (ACCA).
Chas Roy-Chowdhury says: “All businesses — whether small or large — must now pay an extra 2.5 per cent more for their purchases from their suppliers. This will be more of a problem for those that are not VAT-registered. However, most firms that are over the VAT threshold — those that have a turnover of at least £70,000 — can recover the costs.
“But for those firms under the VAT threshold, they will end up paying more for their goods. As a result, there is a chance that they will increase prices to recoup these costs. SME owners will no doubt have to make difficult commercial decisions about whether they can afford to do this, or risk putting up prices. There’s a definite knock on effect for SMEs from their suppliers and for their customers.”
When it comes to being prepared, Chas Roy-Chowdhury advises the following to SMEs: “It’s important to make sure that accounting systems are adjusted so that the correct VAT rate is being paid. Some VAT returns are filed monthly or quarterly, and so 4 January may fall in the middle of this return period.
“Generally, whenever the supply was made to the purchaser, you charge the rate of VAT that applies on the date the invoice was issued. But as usual with tax issues, there are some exceptions — for instance, if you are selling a vehicle and the customer has contracted to purchase it but will pay for it on 1 March, they may still be entitled to the 17.5 per cent rate.”
“If you are dealing with goods that were sold at the previous VAT rate but returned after the increase, you should give refunds and credit notes at the rate that applied when you made the sale.”
Chas Roy-Chowdhury also explains that SMEs could also defer VAT payments, explaining: “HM Revenue & Customs’ (HMRC) has a scheme called Time to Pay. If SMEs are absorbing the cost of the VAT hike, it’s probably because they feel they have to. HMRC should not use this as a reason not to negotiate deferred payments. But each case is treated on an individual basis and at their discretion.”