Administration, bookkeeping and accounting are hugely important considerations for businesses.
Read the diary of a newly qualified bookkeeper here.
When a recession hits, constant monitoring of a firm’s financial situation becomes even more vital, and when you throw changes to VAT into the mix, bookkeeping skills are paramount.
Back in November, the government decided to reduce the tax on goods to 15 per cent in an attempt to boost consumer spending in a struggling economy.
The 2.5 percentage point reduction was, according to John Wright, chairman of the Federation of Small Businesses (FSB), “a large administrational headache for the majority of small firms”.
“They had to change pricing, re-print key publications and alter their invoicing systems with apparently few positive effects,” he said, pointing to research by the FSB which found that 98 per cent of small businesses saw no improvement in sales or profits following the reduction.
The FSB is among those that have called for the increase to be delayed until April, at the start of the new tax year.
Mr Wright claimed that this would make it easier for small businesses that would otherwise have to deal with a confusing VAT return.
However, despite various pleas for the government to retain the rate at 15 per cent, it looks as though ministers will stick to their original plans to return VAT to 17.5 per cent on January 1st, 2010.
Malcolm Trotter, chief executive of the International Association of Bookkeepers (IAB), said this will raise two main issues for businesses: the cost of implementing the changes and the processes required to be compliant to the new tax rates.
He stated that small cash businesses will be particularly affected by the rise in VAT.
“Where invoices are involved and there are time lags between the date of ordering, date of invoicing and date of delivery of the goods – that’s where businesses can get confused if they’re not fully aware of the VAT rules in terms of what rate is to be charged and when, and how you work that out,” he explained.
Mr Wright echoed these comments: “If the VAT rate does, as looks likely, return to 17.5 per cent in January, this will cause another big problem for small firms, which will have to make all the same changes again to their pricing, invoices, till systems and other administration.”
Small business owners may therefore want to look for bookkeeping and finance courses in London ahead of January, in order to be fully prepared for dealing with the changes.
Otherwise, Mr Trotter advised businesses to seek out the services of a bookkeeping or accountancy firm to make sure they get it right. The reduction could therefore boost demand for such skills, he suggested.
“Clearly businesses will be in a bit of a quandary again,” he said.
“There’s going to be some nervousness in certain businesses about making the change correctly,” Mr Trotter added, so bookkeeping courses could be the key to alleviating this anxiety.
“It is always very important for small businesses to keep their accounts in order and especially more so ahead of the change in VAT,” confirmed Mr Wright.
The concern for businesses is the date of invoicing, as this is the key for the level of VAT charged, Mr Trotter explained.
So for example, if goods are delivered in January, following the rise, but they were originally invoiced to a company prior to the change in December, then the 15 per cent VAT rate will apply, even if the current rate stands at 17.5 per cent.
“And when invoices are received from the suppliers, you need to make sure these are correct. We picked up ourselves, as a business, a few that had not been done correctly and we had to go back to the supplier,” Mr Trotter continued.
“If you’ve been charged the wrong rate of VAT by the supplier, this is the sort of thing that people and businesses are fraught and concerned about.”
That is when the services of a bookkeeping firm are warranted, Mr Trotter advised. “A good bookkeeper is ideal in this situation to put their mind at rest and put the right system and checks in place,” he concluded.