The impact of the VAT increase announced in the chancellors Emergency Budget on Tuesday is going to have an effect far beyond the high street, according to tax experts at PricewaterhouseCoopers LLP (PwC) in the Midlands.
The firm is encouraging all businesses to take steps now to prepare for the increase in VAT from 17.5 to 20 per cent, due on January 4, 2011, which is set to have a variety of impacts.
Stuart Wallace, tax expert, PwC, said: “Retailers across the Midlands will be facing tough decisions regarding whether to pass the rate increase on to customers or reducing margins at what is still a tough time for the high street. But, on the other hand, retailers are well rehearsed in adapting to VAT rate changes having implemented the lower rate of 15 per cent and then its reversal in the past 18 months.
“It is other firms around the region, such as financial services, charitable organisations and the education sector, which will need to carefully consider how a 2.5 per cent increase in VAT will impact their cash flow, as they will be unable to claim back all of the additional 2.5 per cent in tax.”
The VAT increase will also prove a logistical challenge for companies in the region, who will need to consider the timing of invoicing and pricing of supplies that span the rate increase.
Mr Wallace added: “Companies will have to think carefully about the pricing of supplies which will be made before and after the rate change. Companies and individuals will also need to plan the timing of their invoicing and payments, to ensure they get the correct VAT rate. Clearly, supplies which are made before the increase will benefit from the old rate whilst it is still available.”