Do you know what you need to do when the VAT rate changes on 4th January 2011?  If you’re using our online accounting software, the answer is NOTHING!

From midnight on the 4th January 2011, the standard rate for VAT will increase from 17.5% to 20%.  If you are VAT registered, you will have to charge 20% on anything you sell or any services you provide from then onwards.  Any outstanding invoices for work done previous to this can still be processed at 17.5%.

This change in the standard rate of VAT does not affect sales of goods or services that are charged at another rate of VAT. These are:

Zero rated – for example most foodstuffs, children’s clothing or books,

Reduced rated – for example children’s car seats, domestic supplies of fuel and power, and

Exempt – for example education, health and financial services.

You should already know if you trade in any of these items, but if not you can ask your accountant for advice.

The rules themselves therefore, are fairly straight forward, however, things get complicated when you have to apply them to your business:  you may have to change your prices before you start trading on the 4th (or keep them the same and reduce your margins) – which if you’re in retail and have thousands of items in your product range, can be a problem!

Obviously, the amount of VAT you will have to pay will also go up (but this shouldn’t be a problem as the amount of VAT you’re being paid for each sale or invoice will go up – and so it shouldn’t affect your cash flow as long as you account for the extra money coming in and don’t think you can spend it, and haven’t decided to keep prices the same and reduce your margins!) and similarly you’ll be able to claim more VAT back on the goods and services you buy.

For further information on what to do and when, and how the rules apply to your particular business, check out that guidance on the HMRC website, www.hmrc.gov.uk

However, the good news is, that if you’re already using Liquid Accounts, you won’t have to worry about making sure that your accounting system is up to date and using the new VAT rate for your invoices and records: When you login on the 4th it will have been automatically updated for you.

In contrast, if you are using one of the older desktop programmes like Sage or Quickbooks, you’ll be expected to update the software yourself.  You should be sent instructions on how to do this (but last time the VAT rate changed it took some software companies 2 weeks to contact everyone!).

Please keep an eye on the dashboard for further information about this, however, we will be dealing with this in a similar way to when the VAT rate went down to 15% and then back up to 17.5%: From 4th January the VAT codes O1 (Sales) and I1 (Purchases) will have been reset from 17.5% to 20%.  If you need to process any outstanding sales or purchases you will find that the old VAT rate is still available under the codes – O1 (17.5%) and I1 (17.5%).  If you have any queries about this please don’t hesitate to contact our Support Team on 0845 450 7304, support@liquidaccounts.net.

The bad news is that, unfortunately the VAT change also means that your Liquid subscription will be going up on January 4th.  If you are on the basic package for £20 per month plus VAT, your new bill will be £24 per month including VAT (instead of £23.50). If you are currently paying us by Direct Debit then your payments will be changed automatically and you will be notified on your next invoice.  If you are paying us by some other means then we will be contacting you in the New Year to change your payment schedule.

And if you haven’t signed up yet for our award-winning and accredited software now might be a good time to take the plunge…

EXCLUSIVE OFFER: SIGN UP FOR A LIQUID ACCOUNTS SUBSCRIPTION BEFORE 1ST JANUARY 2011 AND GET THE FIRST MONTH FREE, ON TOP OF OUR STANDARD ONE MONTH FREE TRIAL.  VISIT WWW.LIQUIDACCOUNTS.NET , CALL 0845 450 7304, OR EMAIL SALES@LIQUIDACCOUNTS.NET

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