Vat is called different things in different countries. GST is another abbreviation for it. What ever it is called it places an administration burden on your business. When the rate of VAT is changed a huge domino affect happens in your business. All the Sales prices must change and every piece of paper or web page that mentions the price of an item must be changed. Here are some of the areas you need to ensure you take into account when VAT rates change

1. Price lists that show VAT inclusive prices. If the rate changes from 21% to 21.5% you have got to change every price on the price list. If you have a preprinted catalogue price list you need to reprint it.

2. Price lists that show VAT exclusive prices but in the small print is written "price excludes VAT at 21%" the 21% must now be changed to 21.5%

3. Your Sales margins will change if you don't increase your sales price including VAT as you will have to lower your VAT exclusive price to keep the same selling price

4. If you use spreadsheets that specifically have the VAT rate of 21% typed in on every line, you will have to change them all to 21.5%. This might be a good time to change your spreadsheet to use a cell reference and not a specific vat rate

5. Word Processing documents that have "21%" typed on the page. You may have document templates that are all based on 21%. These need to reflect the new 21.5% rate

6. Pricing labels on shelves that display the price and the barcode of a product. Every label that shows a price needs to be changed to reflect the new 21.5% vat rate and reflect the increase in price

7. Pricing stickers stuck to a product have to be changed to reflect any increase in price. If you display both the vat inclusive and exclusive prices then you need to change every label

8. Items that come with the price printed on them or on the tag attached to them. You need to change every price on them

9. Some tills will have to be reprogrammed to take into account the change in the VAT rate.

10. Online catalogues that show VAT inclusive prices need to be changed to reflect the new increased price

11. Direct Debits or standing order payments will have to change to reflect the increased amount due on each invoice

For businesses not registered for VAT your cost price will now go up. Although you don't charge VAT on your sales, you will need to take into account an increase in your costs and decide whether or not to absorb the increase or pass on the cost increase to your customers

 

Here is the correct method for dealing with the new VAT changes on a cash receipts basis.

IMPORTANT: It used to be that when VAT rate changed and you were on a cash receipts basis you paid the VAT to teh revenue commissioners on the VAT rate applicable on that date and not at the rate the invoice was raised at. This is no longer the case. When you receive payment you calculate VAT at the rate charged on the invoice. This may be an administartion nightmare for soem people as you have to ientify on every receipt what rate was charges. If you have slow payers you could have 21% and 21.5% rates having to be calculated.

The revenue commissioners have a detailed explanation on their website

 

The effect of a change of rate on an invoice where you do not increase the sales price is as follows

 

30th November invoice issued

Net €100

Vat@ 21% = €21

Gross €121

 

Same invoice but now issued on 1st December for €121

Net €99.59

Vat @ 21.5% €21.41

In this case you lose 41 cent or another way to look at it is that you pay over 41 cent more to the tax man

What seems like a small increase in VAT, will be a costly administration exercise for you business as you start to change the selling price of every product affected wherever that price is displayed.