Back in 1973, you could have been forgiven for thinking that the newly announced VAT was some sort of April fool’s joke, but we’re now 40 years on and few business owners are laughing.
Value Added Tax to give it its full name was introduced on 1st April 1973 and launched at a nice low 10%. Starting its life producing a relatively small £1.5billion income for the government, VAT is certainly proving to be a great source of income now, with an estimated £84billion expected to fall into the till this year. Assuming this figure materialises, VAT will make up an astounding 13% of the government’s total annual income.
Clearly there’s no getting away from the fact that VAT is a great income generator for the country, but it’s not such good news for businesses at large, and in particular small and medium sized businesses. With 40 years of VAT behind us, we’re now looking at a tax that has seen its rate doubled during its lifetime. Add to this, the fact that the tax that started its life as a relatively straightforward affair is now so complex that most business owners have waking nightmares when it comes to the administration of this lucrative source of national income and you start to see where the problems lie.
Invented by the French in the 1950’s, the introduction of VAT was a requirement on joining the Common Market or European Union as we know it now. This tax has not only grown in complexity for business owners during its lifetime, it is also a confusing tax for shoppers. With four different rates of VAT currently in play in Britain, it’s difficult to work out which rate might apply to the items you’re keen to buy or sell. Split into luxury items and necessities, there is no getting away from the fact that it’s hard to work out why certain goods you’d assume to be luxuries, for example caviar, don’t actually attract the higher rate of tax, yet others that are necessities do.
For business owners, keeping their VAT records in order and staying out of the spotlight of the VAT man is a never-ending challenge. Making sure your accounts are in order may seem obvious, but where VAT is concerned, this can be an administrative nightmare. Ideally you should ensure that you have access to the right software to make sure you simplify the process as much as you possibly can. Thereafter, although you might be tempted not to set your VAT funds apart from the remainder of your business’ funds, you really must do so. Making sure that in your bookkeeping you have a separate VAT account and putting all the VAT you charge religiously into that account will help keep your VAT house in order. That, and having a reliable and straight talking expert on hand will certainly make your VAT life easier.
If you’d welcome some help with meeting your VAT obligations, why not get in touch? It costs nothing to chat, and streamlining your VAT might cost less than you imagine.