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Corridan Financials
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Advice on managing the VAT sensibly for business
So will the pre-budget report VAT change affect our pockets and our businesses?
I have received a number of phone calls on this issue. I have watched as the media reporting that it will be costly for retailers and small businesses to change all of their prices on the shelf, on the web and on printed material by next Monday!
Lets take a look at this in practical terms.
If you trade business to business and both businesses are VAT registered then you will be quoting a basic price plus VAT. The VAT is irrelevant in terms of what the product or service costs you, both parties will either reclaim the VAT paid or pay over the VAT received to HMRC.
The difference will be seen in the VAT return. You may find that you have paid for your supplies before December 1st including VAT at 17.5% but then sold to your customer after December 1st including 15% VAT. You may find yourself in a situation where you are waiting for your refund of cash from HMRC till the end of the VAT quarter.
If you trade with non VAT registered businesses or consumers then there are two scenarios that may occur.
1. You quote your prices plus VAT. In this instance your customer will see a reduction in the amount they have to pay. A product costing £100 plus VAT will, after December 1st, be £2.50 cheaper. THE BUSINESS STILL KEEPS THE £100, so no change to their income.
Before Dec 1st
Ex vat price - £100.00
VAT - £17.50
Customer pays - £117.50
After Dec 1st
Ex vat price - £100.00
VAT - £15.00
Customer pays - £115.00
2. You quote a VAT inclusive price. In this instance you do not have to change your price if you do not want to. A product costing the customer £117.50 before December 1st will cost the customer the same after December 1st. THE BUSINESS PAYS LESS TO HMRC THEIR INCOME WOULD RISE FROM £100 to £102.17
Before Dec 1st
Ex vat price - £100.00
VAT - £17.50
Customer pays - £117.50
After Dec 1st
Ex vat price - £102.17
VAT - £15.33
Customer pays - £117.50
So what am I saying?
If you are a small business and you sell to consumers you do not have to pull in all your staff and change your prices and tickets in the store before December 1st. The change in VAT is about how much of the final price belongs to HMRC. It is however an opportunity for businesses to be able to reduce prices to the consumer and non vat registered businesses as soon as is practicable without it affecting their income.
Do I think that the Change in VAT will affect consumer spending?
Where the price take is significant and the VAT reduction is passed on to the Consumer then yes those who have money to spend potentially will spend in the next 12 months to take advantage of the price reduction.
Will it make me buy a new shirt sooner than planned to save 62p… I don’t think so!
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