With just one week to go until the Government’s temporary summer VAT reduction comes into force on 25th June, accountancy firms are urging small businesses to review their pricing structures, POS systems and VAT processes to avoid potential costly mistakes.
The Accountancy Partnership
Under the Great British Summer Savings scheme, VAT various qualifying meals and activities will be reduced from 20% to just 5% for children’s meals, children’s cinema and theatre tickets, and admission to family attractions from 25th June to 1st September.
However, accountants have raised concerns that many small businesses are still uncertain around which products and services apply, and could leave SME owners with VAT reporting errors, resulting in additional admin and big fines.
‘We are still getting emails and calls from our clients wondering what products and services are going to qualify for next week’s VAT cut,’ says Lee Murphy, Managing Director of the Accountancy Partnership. ‘The risk isn’t that businesses fail to comply with the changes but that they’re either unaware of the changes or there isn’t a clear list of what is included.’
Advising businesses to use the next few days to carry out a proper review of products and services that will be affected, Lee adds: ‘A simple error in how a product is categorised or a transaction is recorded could create issues further down the line if businesses are later required to justify their VAT treatment. ‘For many small businesses, particularly those in hospitality, retail, leisure, VAT admin can already be extremely time-consuming and so introducing temporary rates just creates another layer of confusion.’
He is therefore advising operators to carry out the following tasks in advance of next week:
- Review the products and services
Get to know which products and services will qualify next week for the reduced rate. If you’re uncertain about this, then work with your accountant to take a look at which products and services need to be changed. - Check your POS
Check your point-of-sale systems and your accounting softwares. These will help you accommodate any temporary VAT changes. Make sure every relevant product is assigned to the right VAT code before the change begins. Test receipts, reports and integrations so your sales data flows correctly into your bookkeeping software. - Verify pricing structures
Review your pricing before the VAT change takes effect. Decide whether prices will stay the same, be reduced for customers, or be adjusted to protect margins. Hospitality businesses should also check set menus, packages, service charges and promotions, as these can become messy if the VAT split is unclear. - Brief customer-facing employees and finance teams
Make sure that your employees understand what is changing before customers start asking questions. Front-of-house teams should know which products are affected and how to explain any price changes. Finance teams need to understand the new VAT codes, reporting requirements and how to spot errors quickly once transactions start coming through. - Keep detailed records of decisions made regarding the VAT treatment
Keep a clear record of how you have treated each product or service for VAT purposes. This should include pricing decisions, VAT codes, accountant advice and system changes. Good records will help if HMRC asks questions later and will make it easier to reverse any temporary changes afterwards.