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Practitioner's Diary: VAT reduction isn't that easy

28th Nov 2008
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Our West Country general practitioner finds that practice is far more complicated than theory when it comes to accounting for the VAT rate reduction.

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27 November - We have tried a number of scenarios with accounting software and have run into quite a few problems, especially with cash accounting. Clients that change their default VAT rate to 15% on Monday morning are going to have to watch the posting of late November purchase invoices. We usually send out fee invoices for the previous month over the first week of the next month, so that means we really need to delay updating the VAT rate until we close down November. But that means we may also have to delay entering December purchase invoices (OK I know we can override the automatic VAT calculation on purchase).

Sage advises users to change the T1 VAT rate to 15% next Monday. We prefer to make T3 the 15% rate and set that as the default for all customers and suppliers, otherwise the system will allow you to issue a 15% VAT credit note against a pre-1/12/08 invoice with 17.5% VAT. I foresee some Sage users having a mass of odd balances left on their ledgers when they are supposed to be zero!

The change is only going to last for 13 months, so we reckon it's better to run with the two rates in the system. Anyone else agree?

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25 November - Several emails and telephone calls this morning about the VAT reduction. Gave some advice. Then read the PBR notes and revised the advice. Then read them again and decided I had better try to digest the implications and spent the rest of the morning producing notes for clients and our team. It sounds easy enough but it's not. And the end of next December it's going to be even worse I reckon!

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24 November - A long afternoon and evening tying to assimilate the PBR. As usual quite a lot of small print and a lot of fuss about nothing in the media.

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18 November - Stephen, that's SO tempting! This is a bit of a sensitive case though, I'm not sure if I can risk antagonising the Inspector.

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17 November - I am speechless for once. I don't know what to say, I'll just quote from a letter I have just received from a VAT office, part of which reads:

"On (date) Mr X (my assistant at the time) wrote to the registration team asking for someone to contact him to discuss the case (I remember it well, we couldn't get to speak to anyone on the phone). Although a form 64-8 was received we did not have a copy of your client's signature on file against which to compare it and hence the officers felt they were unable to enter into correspondence (we asked for a phone call!) with Mr X. They were unable to contact your client by telephone (goodness knows when they called and how many times they tried - I have never had any difficulty speaking to him) and it appears that it was not pursued."


Suggestions please as to how I should phrase my reply!

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12 November - One way small businesses can get paid quicker is by accepting debit and credit cards. A new client came in today for a consultation and expected to pay us at the end of the meeting. It was so easy to take his VISA card and take the money there and then, job done. Cards are ideal if you do a lot of personal tax work, but many businesses now have debit cards so it might just help your cashflow if you took cards.

There are good deals for small businesses wanting to start taking cards. FSB members, for example, can open a Streamline account without having to pay the £200 joining fee (a good reason in itself for joining the FSB).

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10 November - Our clients seem to mirror the results of this survey. We are getting a lot of requests for help with cashflow management and credit control. A lot of small businesses are beginning to realise that they need to:

a) get their invoices out more promptly and not wait a couple of months,
b) chase customers who don't pay - and chase them seriously too, and
c) bank the cheques promptly - I still have clients who only bank a couple of times a month!

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6 November - Interesting reading over on UK Business Forums, a survey of business people on the question: "Which one measure would most help your business survive a recession?" Over 40 per cent reckon the one thing that would help most is customers paying them within 20 days.

Maybe we should encourage clients to take a lead here, both to improve their credit control so that customers DO pay them on time - and also seeing that our local clients are not taking advantage of local suppliers. I know screwing your creditors has always been regarded as a cheap source of business finance, but maybe it's time small businesses got together and started to help each other.

How do they stand up against purchasers in large companies? Ultimately by refusing to supply them unless they adhere to their credit terms. This may sound far fetched, but I reckon that with businesses going to the wall, and therefore reducing competition for some goods and services, big companies will have to start taking better care of their small suppliers or they may find themselves running out of materials or be unable to get their machines repaired.

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5 November - Talking of estate agents, I have just been talking to the client I would nominate as "Most Likely Estate Agent to Survive the Recession". He is also in the running for an award as least successful estate agent in the area. Why both? Because over the last few years he has managed to sell only a couple of properties every month, if that. So now that's all his competitors are doing he's at last able to compete on a level playing field with the big boys. And since he doesn't have such high overheads, and has learned how to survive on very little, he is well placed to survive the downturn in house sales!

I'll let you know if he's still in business next year.

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3 November - Pleasant lunch with the area senior manager of one of the local high street banks. Like me, he's somewhat bemused about this whole credit crunch business. His bank has stacks of money. He is not facing any restriction on available funds, OK lending criteria are tighter, but that's really in contrast to the gung-ho, cavalier lending of recent years. He has already lent well in excess of what he lent in the whole of 2007, as have his colleagues on the personal side. He is certainly very open to new business proposals from my clients. The trouble is my clients appear to be battening down the hatches, convinced that the economic storm is about to wreak havoc and destruction on the West Country economy.

And it probably will, because they're behaving like it's inevitable - a self-fulfilling prophecy! Just like the problems the rest of the country is facing - they just seem to take a little longer to get to us down here.

I notice a new estate agency has opened up in town though. That's what I call positive thinking!

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Check out ourWest Country general practitioner's October diary for an update on his tax return filing and thoughts on helping clients through the recession.


Replies (4)

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By David160
24th Nov 2008 17:55

We should not be rude to HMRC
I think that comments such as those suggested by Stephen and Emily, should not be made. These personal remarks are unprofessional and give accountants a bad reputation; even if true. You can ask to speak to someone more senior such as the supervisor. Remember that such comments are often recorded by the staff; this may result in a complaint letter against you; some organisations allow the member of staff to immediately put the telephone down, thus ending the call. This means that you have to redial, wait in the queue again, and repeat the lengthy explanation of the problem again to someone else, thus wasting your time; the solution to your problem may be deliberately delayed or mislaid. You also give them an excuse to criticize you; this deflects the discussion away from the problem you want solved.

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By dialm4accounts
20th Nov 2008 10:30

Somebody intelligent
Or how about this one from a friend of my dad's, who would ring up the Revenue and demand:

"Can I speak to somebody intelligent, please?"


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By stephenkendrew
19th Nov 2008 09:35

Suggested reply
Here's one phrase I've used recently in a letter to HMRC: -

"May we suggest the person dealing with this case is returned to the village they are currently depriving of it's idiot."

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By AnonymousUser
04th Nov 2008 07:41

Confidence Webinars
I think we all know confidence plays a major part in the economy. It's not really about how much cash we have but how fast it moves! Accountants can choose to sit back and let the press sent the agenda or decide to play a leadership role with their local community.

Have you thought about hosting a series of Webinars with this bank manager for clients and the local business community? I heard Sahar Hashemi (who set up Coffee Repulic) talk and she engaged an accountant because she thought we was a "good news" accountant.

You could have a PR campaign running to help restore confidence and I'm sure your local paper would pick it up. And, you may find some local businesses deciding to run with you rather than their current firm who will be more worried about the 31st January deadline!.

Good luck.


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