On January 4th, 2011, the UK’s VAT rate will rise from 17.5% to 20% bringing the UK in line with the rest of the continent. This impending VAT increase was one of the most controversial elements of the coalition government’s first Budget announcement, and expects to have important implications for businesses of every size. As a result VAT registered businesses are now putting in processes to handle the increase.

For these VAT registered businesses, one of the key elements involves making sure their finances are in order. Presently, a lot of small businesses do not have the correct accounting systems in place to deal with the increase in VAT. The results of this mean that firms can run into issues paying and receiving monies, which in turn could result in difficulties when it comes to keeping record of finances.

Despite these problems, the HM Revenue and Customs are likely to offer very little leeway to those firms that fail to keep their accounting properly. Problems could occur if credit notes are given before 4th January, but are redeemed after.

Quentin Pain, founder and chairman of accounting software firm, Accountz believes that the run up to the 4th January, will throw up a number of issues for businesses and that is why it is imperative they start planning for the increase now. “The impending tax rise is really gaining on us now and its important businesses start putting procedures in place. If companies do not take correct measures, particularly SMEs, they will end up suffocating under red tape and could end up paying the wrong amount of tax, resulting in potentially crippling tax fines.”

Quentin is clear that in order to ensure that businesses are prepared for the rise, an effective review and consolidation is needed of their current accounting systems, with new processes put in place for 4th January.

“By having an effective accounting structure in place will allow businesses to make a seamless transition to the new VAT rate, while at the same time allowing them to focus on their core business activities, free with the knowledge that their finances are secure. One way businesses can reduce this burden is to implement a technology solution for their enterprise, capable of accommodating the rise. At Accountz, our unique VAT Date Aware architecture means the correct rate is automatically applied meaning that for sole traders, start ups, small and mid sized businesses VAT rate changes are seamless.” concluded Quentin.