We  are excited to announce that Elaine Clark will be providing regular accounting articles on the Clear Books blog. Elaine is Managing Director of online accountancy practice Cheap Accounting who are proud users and Partners of Clear Books.

To find out more about Cheap Accounting and why they love Clear Books so much read their recent 60 Second Interview.

This month Elaine sheds some light VAT…


The beginning of January 2011 saw the standard VAT rate rise from 17.5% to 20% – the highest rate that it has ever been in the UK.

It’s not a 2.5% price rise!

Most seem to think that this means a 2.5% price rise but in fact the rise is 2.1%.

As a pedantic accountant I just had to point that one out!

So to my point ….

Vat kills my business!

Recently I have seen a few grumbles that needing to register for VAT can kill a business.

One of the reasons quoted for this seems to be that it immediately puts up a price by 20% (the rate of VAT).

Again as a pedantic accountant I do not follow this argument.

Yes 20% has to be applied to the selling price, assuming that the goods / services are a vatable supply.

However let’s not forget that vat can be claimed back on goods and services bought – a fact that seems to slip the mind of some.

Self Employed v Business Owner

To launch a successful business with thought to the longevity of that business needs a plan.

All aspects of the business growth would be considered in that plan – marketing, sales, operations and finances to name but a few.

The plan would incorporate the operating constraints of the business such as laws and taxes.

So surely the business owner considered what would happen when the VAT threshold was reached?

What the impact on the sales, market share, operations and finances would be?

The plan for the impact of VAT should be in place from the get go!

Without thought to this, is it truly a business or it is just a matter of being self employed with a turnover that should never exceed £70,000 – which if course in itself couldbe a brilliant way to earn a living in the 21st century.

It’s not child’s play!

Running a business is hard. If it was easy everyone would do it.

Tough business decisions need to be made within the ‘rules of the game’.

VAT is one of those rules.

Like it or not – but planning for how if impacts your business is part and parcel of running a successful business.

Use your energies to work through your business plan to see how the rules impact your business.

Posted by David Eaton

David is a Chartered Accountant and Director of SME Strategies (smestrategies.co.uk) which offers tailored support to ambitious SMEs and gives mentoring to owner managers.