Watch Out For New VAT Penalties and Rate Increases Next Year

If you are in business and registered for VAT no doubt you have been briefed on the increase in VAT from 4 January 2011, it’s going up from 17.5% to 20%.  Of course if every business was registered for VAT this would create no problems as every trader would have to add on the same amount of VAT.

But that’s not the way it is!

If your business turns over less than £70,000 a year you do not have to register and if you don’t register you can charge £100 that a VAT registered person would have to charge £120 for (after 4 January next year).

And of course there are complications if you don’t register, as you can’t reclaim VAT on your purchases.

Never the less we would expect smaller service related businesses, with a low cost base, to make the most of their increased competitive advantage in 2011.

Just to add to VAT registered traders problems, from April next year the penalty you will be charged for late filing or late payment of VAT Returns is also on the increase!  Our thanks to local accountants Robson Laidler LLP who have flagged this up; here’s what they have to say on the matter.

“When VAT Returns are late, normally payments will be late too, as the trader will not know how much to pay unless the Return has been prepared, so potentially there will be two penalties for each late Return – one for the late filing and one for the late payment.

The first late Return under the new legislation will attract a fixed penalty of £100; this is a significant contrast to the current regime where the first late Return is not penalised at all.  Subsequent late filing can increase these charges significantly.

If you are late paying any VAT due, the penalty charged will be between 2% and 5% of the VAT due.  The longer you take, the more you will pay.”

So there you have it.  It seems to make sense to get your VAT Returns filed on time even if you have to negotiate payment terms.

Name*:
E-mail*:
Captcha*:
Text*: