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VAT change the new Y2K ?

We're hearing suggestions (although admittedly the first person to suggest it was a recruitment consultant, who obviously has a vested interest in whipping up demand for programming staff) that next Monday's change in the VAT rate in the UK from 17.5% to 15% is going to be the equivalent of Y2K for software companies as they struggle to implement the changes in time. Any thoughts on this subject matter – particularly as over the next two to three years the figure is going to return to 17.5% and then possibly up to 18.5%.

11 replies on “VAT change the new Y2K ?”

You didn't get suckered into this item via the “recruitment consultant” referred to in “Recessionary Tales” #1 below did you Charles?

If you have decent software then a vat rate change is simpy a case of adding or ammending current vat codes. Subject of course to advice from your accountant 😉

No – an entirely different recruitment consultant who is raising the Y2K bogey on LinkedIn 😉

I think software will handle it, the only issues with that being whether the operators can remember HOW to change a vatcode, it not being something you have to do everyday – expect a lot of calls to support desks.
Other than that, I imagine lots of spreadsheets that extract net values from gross will need adjustment.

Hi Charles
I am sure that most of our clients are aware of this but for those that have missed our usual mailings our advisory note can be found below.
The VAT changes will require no amendments to our software beyone the usual maintnenance issues.
I think that VAT change day will be as adamp as squib as Y2K.
You will need a login to our client portal to gain access.
Mark Garnish

Looking at the typos on my email this is the first and last time I try and blog on a crowded commuter train from a blackberry!

I've already posted earlier, but I've been thinking further about this and I now do think there might be some issues for firms. Normally there's been plenty of advance notification for this sort of change and we've been able to approach it methodically.
The issue I'm thinking about in particular is that, as far as I've read the advice from HMRC, the new rate only applies to time recorded AFTER 18th November. I quote HMRC as follows:
'[Use the new rate except…] For example, if you issue a VAT invoice on 1 December for goods or services provided before 18th November 2008'
The issue I can see if that most software assigns VAT at billing time, and in addition assigns it to the whole of the fees rather than to the individual transactions (otherwise you get all sorts of horrible rounding problems).
A secondary issue is assigning VAT to disbursements; apparently you've have to back out and reinput anything in the system that dates after 18th November.
There is a further argument about Vat being at 17.5% in instances where 'you were paid before 1 December'. I don't think money on account would count in general for this, but monies taken for specific purposes – for example to pay counsel – probably would.
I'm going to discuss it with a couple of clients to get their views…

Changing the rate of VAT should be easy from a software application point of view. It is more he administrative issues around how this change should be implemented that will cause the headaches.

I understood that payment in advance (such as money on account) would count in general for this. There will also be issues re Counsel Fees since they could have been billed to a client and VAT charged at 17.5% but actual tax liability on Counsel's invoice is at the point of payment which could then be at 15%. I did receive an email from Law Soc yesterday saying they were reviewing the implications and would issue guidance later when they had considered it. Nothing as yet of course!
As a general principle, this change is going to cost a huge amount to implement. Not just law firms, but every other business in the country. Imagine how many shops will have to re-price every single item in between 4.00pm on Sunday when they close and 9.00am Monday when they re-open. An item that cost 4.99 will now be 4.88 for example. More change needed in tills. What is the betting that prices stay the same and shops take the extra profit? And all this to save the average income family something under £10 a month.

Probably not that relevant in the legal sector but business that publish and print catalogues that quote VAT inclusive prices are going to have to reprint the lot – and ditto online traders. And as the last commentator said – all for about £10 a month. Makes some of the business decisions we see taken in the legal IT sector look like sheer genius in comparison.

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