Guidance for Business on the New 20% VAT Increase
15th March 2011
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The 4th January 2011 was the date that the new increased VAT rate of 20% came into effect.  This is an increase from the previous 2010 rate of 17.5%. 

Although this is an increase in the amount of VAT levied there are no other changes in the way that it applies to VAT registered businesses that sell or purchases goods or services.  As with the changes in the past, to and from 15%, this VAT rate change does not affect the other VAT rates that apply for certain goods and services that are zero rated, reduced rated or exempt goods (e.g. most food items, children’s car seats and insurance, respectively).

If we assume that retailers will pass on the VAT increase to their customers then many goods and services bought in the UK will become more expensive.  It has been predicted that the increase will result in a day-to-day rise in costs of around £216 a year for the average home.  For many businesses the increase in the VAT rate need not necessarily put them in a bad position.  Some businesses may choose to absorb the VAT rise but of course this will have a direct impact upon their profits.  Other businesses may consider this a good opportunity to carry out a review of their trading costs/profits that may well lead to an overall increase in their prices above and beyond the VAT increase.

Dealing with this new VAT rise might be just the catalyst that you need to take stock, carry out a review of your businesses pricing structure and to understand how best to apply the VAT increase.  If you would like help with this then do give us a call at Stewart Fletcher & Barrett on 01455 268 695 for a no obligations initial review and guidance session. With these recent changes the time is right to get good advice.

To find out more about Stewart Fletcher & Barrett Chartered Accountants visit our feature on thebestofhinckley.

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