TaxCorporate TaxCharities hit hardest by VAT?rise to 20%

Charities hit hardest by VAT?rise to 20%

Some businesses, including banks and charities will be hit much harder than others by the rise in VAT to 20% announced in the Budget

With chancellor George Osborne announcing the widely-predicted rise in the
standard rate of VAT to 20% from 17.5%, accountants have warned that some
businesses stand to lose more than others when the change takes place.

While many businesses’ income statements will be largely unaffected by the
rate change, Mike Bailey, head of indirect tax at PwC, and Marc Welby, VAT
partner at BDO, both point out businesses that are exempt from VAT – such as
banks, charities and certain public sector businesses – will be hit as they will
not be able to recoup the extra VAT costs on expenditures, for example,
accountancy and legal fees.

However, while anti-forestalling measures mean clients cannot ask firms to
pre-invoice for their services to take ­advantage of the current lower VAT rate,
Welby said that “the rules do allow a firm to invoice a client in January,
locking in the 17.5% rate for services performed in 2010”.

“Obviously this would need to be demonstrated to HMRC and the application of
the lower rate is at the discretion of the supplier – businesses that can
recover VAT will not need to take advantage of the lower rate, but it could help
those that are VAT-exempt,” he said.

Bailey added that the administrative burden in applying the rate change could
be potentially costly for businesses, but noted that “businesses may have
learned lessons from the last VAT rate changes” which were announced by the
previous government.

“While you can’t totally eradicate the expense from applying the rate change,
businesses will have had six months’ notice of the change as opposed to last
time, so that takes some of the pressure off,” Bailey said.

Related Articles

'Innocent' companies will be hit by tough HMRC anti-fraud powers

Corporate Tax 'Innocent' companies will be hit by tough HMRC anti-fraud powers

1y Stephanie Wix, Writer
Building company director banned for 7 years for VAT under-declaration

Corporate Tax Building company director banned for 7 years for VAT under-declaration

1y Richard Crump, Writer
Berkshire motor business VAT fraudsters sentenced

Corporate Tax Berkshire motor business VAT fraudsters sentenced

1y Richard Crump, Writer
The growth and challenges of digital sales taxes globally

Corporate Tax The growth and challenges of digital sales taxes globally

1y Editorial comment
CIoT urges government to rethink VAT approach to online traders

Corporate Tax CIoT urges government to rethink VAT approach to online traders

1y Richard Crump, Writer
UK votes to leave EU – accountancy profession reacts

Accounting Firms UK votes to leave EU – accountancy profession reacts

1y Fraser Simpson, Reporter
HMRC calls for extra time in Spot the Ball legal battle

Corporate Tax HMRC calls for extra time in Spot the Ball legal battle

2y Fraser Simpson, Reporter
Bishop Fleming launches new cloud accounting product

Accounting Firms Bishop Fleming launches new cloud accounting product

2y Richard Crump, Writer