I’ve already had queries from small business owners who are concerned about passing on the VAT rate rise AND stay competitive in an already difficult trading environment, especially in the face of competitors who aren’t registered for VAT.
This will affect many small businesses whose turnover just creeps above the registration limit so they have to register whilst local competitors don’t and they are concerned about passing on the VAT rate rise for customers who can’t claim the VAT back. One is a hairdresser with a small salon and a couple of part time employees, another a company providing secretarial services to medical practitioners who can’t claim back the VAT charged because THEIR supplies are exempt.
They’re all asking for advice on dealing with the VAT rate rise and staying competitive.
Marie
UPDATE:
There is no easy answer to this issue and I’m sure that the Federation of Small Businesses, the CBI and other trade bodies will be inundated with queries about it over the coming months.
The main thing is to ensure that the business is taking advantage of the VAT Flat Rate Scheme as that normally saves money.
Here is the link to the information on the HMRC website http://www.hmrc.gov.uk/vat/start/schemes/flat-rate.htm. The scheme works on the basis that you issue VAT invoices, as usual to your clients and charge the normal 17.5%/20% VAT. If you’re a retailer, you just take your normal Daily Gross Takings. When you come to completing your VAT return, instead of paying the difference between ouput tax and input tax, you simply apply a reduced VAT rate to your GROSS (ie VAT inclusive) income, although you don’t claim back any of your input tax.
The rate you apply to your turnover depends on the nature of business that you provide, at present the flat rate for secretarial services and hairdressers is just 11.5%, compared to the standard rate of 17.5%. Obviously that flat rate will go up next January to reflect teh 20% standard rate, but there will probably still be a good saving from using the scheme.
Have a look at the information about the VAT Flat Rate Scheme and see if you think it will work for your business. It is relatively straightforward to apply and I know that a lot of smaller businesses use it as they get a really good saving from using it. That way you could make yourself more competitive.
I’d suggest that you ask your accountant to run through the figures with you so that you can see how the scheme would work then you can decide whether or not it’s worth applying to use it.
Marie