Commercial and Systems Implications of the 20% VAT rate

As George Osborne and the UK coalition has decided to raise standard VAT to 20% from next January, "usefully" on 4th January rather than on 1st , at least we have the chance to prepare properly for the rate change.

With only a few days' notice of the reduction to 15% in 2008, and the reinstatement of the 17.5% rate, I produced a series of articles then on the key system issues.

Although the increase to 20% is similar, it will be different in both the principles and practical application. I have written an article that sets out some pointers in these key aspects:
  1. Commercial impact
  2. Sales pricing
  3. Issues for software and SaaS services
  4. Additional issues for users
As mistakes can be expensive, in terms of VAT penalties and unnecessary administration during the transition, it's worth planning and implementing carefully.

I'm encouraging both vendors and users to comment on how their specific software is going to cope with the rate change, which I trust will add value.

I hope you find the full article useful "Commercial and Systems Implications of the 20% VAT rate".
  • Thanks Chris, interesting post and useful full article.

    I think that businesses will be a little more used to what is required, having gone through this twice recently (to and from 15%). However, it can still be a painful, time-consuming and many might think unnecessary exercise. The biggest issue is for retailers who have to change all their prices (again) and decide what to do about the £9.99 article - what does that get rounded to?


  • Thanks Richard. The rate change can certainly be tedious, painful and time-consuming! With more notice, hopefully both on-premise and cloud software vendors will make it easier for users than last time.

    It is tempting to think that this is just a repeat of the rate increase this last January. It isn't:
    • The new standard VAT rate will apply from 4th January 2011 (the Tuesday after the Bank Holiday). For many B2B (Business-to-Business) companies this will mean the first day of a new accounting period, but for retailers, etailers and some B2B it will be part way through a period.
    • On the commercial side, the last increase was a reversal of a previous decrease. This time it is a real increase, and new approaches will be needed for pricing etc
    • On the systems side, software vendors will have chance to put better solutions in place than when a few days' notice was given in 2008. This may mean software upgrades and/or changes to their advice. Last time, many vendors didn't have specific functionality and/or automation for aspects such as credit notes and un-despatched orders. Furthermore any business that has changed their systems in any way during 2010 will need to look afresh at the rate change issues.
  • Seeing this headline "Don't be complacent about January's VAT rise" reminded me we're now just 3 months away. Any commercial or systems changes would need to be planned now, in case there's printing or other issues to address. How are your preparations going?