IT departments VAT-whacked As Alistair Darling scrambles to deny plans to raise VAT to 18.5 per cent in order to pay for his borrowing binge the row over the problems it will cause for UK businesses deepens. A Treasury document, available here, apparently put online accidentally, showed the government did have plans to jack VAT up to 18.5 per cent from …
Not true that most are losing out by 2.5% when on the flat rate scheme - new figures have been published with guidance to the new rates, which mainly seem to reflect the 2.5% reduction as well, although as usual IT Contractors get screwed over as their allowance is only going from 13% to 11.5% so will be worse off.
You honestly couldn't make this stuff up as to what a poorly thought out "solution" this is.
The last comment in this article is not quite correct: HMRC have also lowered the rate at which VAT must be paid through the Flat Rate scheme, so those companies using the scheme won't lose out.
However, in my case, I've noticed that whilst they've 2.5% of the VAT rate, they've only dropped the Flat Rate scheme by 1.5% - essentially clawing back an extra 1% of VAT.
I bet that wasn't highly promoted in the pre-budget report!
"it's a global parameter but there are points in our procedures, which sit slightly outside our main system (order forms and import routines), which do have the VAT hard coded into them."
Then maybe you should have hired Developers/DBAs that knew how to build a scalable system instead of cutting corners?
Who on earth hardcodes something that no matter how infrequently, may change at any time.
Why isn't there an icon with Homer Simpson available when you need it? DOH!
....the Thatcher Government got around to dropping the amount of tax to be deducted from building industry sub-contractors from 30% to 27.5%. I received a phone call from one of our customers because they had been unable to get through to the authors of the software.
Fortunately, some time before, I'd blagged a copy of the "manual", as it was laughing called, so I went in to check the paramater settings. The one for tax rates, far from showing 30.0 showed a nice healthy 768.
Thank goodness for the excellent teacher that taught me all kinds of numbering systems. I managed to calculate the correct round number to put in this slot. Don't have time to recheck now, but I believe 629 equated to 27.5%.
Regards
Neil
It is not quite a 2.5% hit for small businesses. I used to charge 17.5%, and pay 13%. Now I will have to charge 15%, and pay 11.5%. So the difference has gone down from 4.5% to 3.5% ie a 1% hit. This is still a pain, especially if cash flow is tight. I'll just end up buying less equipment, which is the opposite of what Messrs. Darling & Brown wanted.
The new rates are in Appendix E in the following document:
http://www.hmrc.gov.uk/pbr2008/vat-guide-det.pdf
anyone who hardcoded the VAT rate into their systems deserves everything they get. I know it hasn't changed in a while, but it's just courting disaster not assuming it could.
Somehow it reminds me of that problem in america where they couldn't cut anyones pay until the systems had to be rewritten to support it.
As a developer i find it highly amusing when all of the corner cutting to save a bit of money comes back to bite a business.
This is a nightmare for me. A couple of our systems have it hard-coded in, and the prices are based on nice, round numbers being inclusive of VAT. Changing those to stupid figures (i.e. a £10 "topup" becomes £9.73) looks daft, and may well break things in ways I've not thought of.
The other solution is to increase the price so we still charge £10. But that means we have to inform our customers that we are doing this. Those in a contract with us will probably not be pleased about this.
I've highlighted this to the business and am waiting for them to make a decision on what to do. The problem is that no matter what we choose I simply will not have time to investigate and make the change. We have large projects on for big customers that are due next week and these will be taking priority over the smaller systems that need a VAT change.
The timescales are ridiculous. As is the whole cut-con in the first place.
"Such firms have effectively been hit by a 2.5 per cent cut in revenues." - Not true they have also updated the flat rate payout schemes, I am in my first year of trading as a contractor through a limited company I now only need to pay out 10.5% (I used to pay out 12% so have lost 0.5%)
The only place where this will be dead easy will be on imported goods. Same for putting it back up.
Frankly, if HMG WANTED to make a special stimulus for the Chinese economy it would have had trouble to dream up such a good one as this.
It does nothing for the internal market and drops all imports by 2.5% immediately. What else can an importer into the UK wish?
"Those retailers that are passing on the tax cut are struggling to get their systems changed in time for Monday." Sorry - it affects those who do not pass on the saving as well. They still have to issue VAT receipts and account for VAT at the new rate. And could the Chancellor really have given more notice? That would have totally killed sales in the time before the change takes affect.
IMHO,
You are broke, same as USA only without the ability to print money.
UK external trade deficit runs at about 4 billion a month, even in 2007 before this latest problem. Euro zone ran a surplus 28 billion Euros in 2007 for reference.
UK biggest export is services, including financial services, the sector in collapse so the external deficit will increase. It runs a huge deficit on manufactured goods. i.e. I'm predicting ever worsening UK trade deficits.
UK continues to raise barriers to Europe and the rest of the world. UK economy is propped up by selling bonds to China. i.e. perceived wealth is really borrowed money from China that's been invested in UK property. Increases in property prices is paper growth not real growth, so your ability to pay it back is not there.
Put it this way, supposed you started spending, and inflated the property prices further, selling each other 'house makeovers' or whatever it is your economy did. Who would you sell these properties to at that inflated price? That inflated property cannot be exported.
IT services can still be exported, but I left and so should you, there is a better life to be had abroad and they have money and UK has Jacqui.
China and the exporting nations will not accept payment in Sterling for goods because they cannot use that currency to do anything with it. They do not need sterling to buy financial services now, because that market has died. They do not need sterling to buy British manufactured goods because your manufacturing industry has gone. They will not not want sterling bonds because the likelihood of growth for an isolated economy are slim. They cannot even visit the UK now because it's become fortress Britain, so they couldn't even spent sterling as tourism money!
So Brown really does not want to stimulate the consumer to buy because that would suck in imports and make the balance of payments worse. He should be doing the opposite to reduce the trade balance. If he does that, then he has to call an election before the pound falls and inflation hits.
So Q2 2009 I reckon is the latest he can call an election. He's gambling on the consumer feeling good, buying more, the growth figures would look better. He calls an election, he hopes he gets elected again, then the next balance of payments quarterly figures look real bad, the pound drops, all hell breaks loose but *after* the election.
He can't leave it to late in 2009 to call the election then.
The stimulation of business is one thing (good IMHO), but the VAT decrease is the last thing that's needed. When the woman was asked on TV what she'd spend the extra on, she says "great I'll go fill the fridge" she doesn't understand there is no VAT on food. Likewise when she said she'd go buy clothes and shoes for her kids, there is not VAT on childrens clothes. The VAT decrease helps her buy a TV from China, not food from Aldi!
So to sum up,
2009 will see the pound fall, inflation rising, job losses increase, hefty tax rises and higher yield gov bonds. Brown will seek to time the election to before the numbers come out.
Ummmm...
Did this guy honestly think he was being clever in using a "global parameter"? As for hard coding a VAT rate!?! I would say that goes from incompetent to negligent.
You use a lookup function for things like this. Therefore in an admin screen the user can set the change in advance using date ranges to define when the new rate(s) apply. Think lookup tables.
Therefore the function will return the old rate at 1 minute before midnight and the correct rate after midnight. Please let me know where I can send my invoice for helping out.
Let's get the message out there - if your system can't easily handle VAT rate changes then your system wasn't written properly - and its the programmer's fault.
IT? cos I'm not sure this guy should be calling himself a "software developer" any more than I could call myself an rocket scientist (sure I can fix it - give me that spanner - what could be so hard?)
Only a freaking idiot would hard code a variable tax rate ino software.
The moral of the story is - get rid of any software package that has done this - who know what else the developers didn't understand about accounting.
For 99% of retailers it will be a matter of setting a new tax code, and saying use the new one from midnight on Sunday. For any that can't do that, sack the fecking accounts software supplier!
-LHM
was winging how he faced something like 17,000 individual shopping cart items to recode on his company website and would have to lose trade while he took his website offline to make the changes!!! Others were moaning about the cost of having to get their company invoices reprinted...
To correct those commenting on the "not so bad" loses on the flat rate VAT scheme, you are mistaken, as it has always been described misleadingly. You pay the flat rate on the gross amount you charge - ie: the amount including VAT! If a commercial product were advertised in this way the advertising standard authority would probably do them for misleading advertising, but it's HM.Gov so they can get away with such chicanery.
So on the old IT Consultant flat rate of 13% and the old VAT rate of 17.5%, you paid HMRC 13% of 117.5% of whatever you charged. So in reality it was a flat rate of 15.275%, and you made only 2.225%, not 4.5% that you thought!
At the new IT Consultant flat rate of 11.5% and the new VAT rate of 15%, you pay HMRC 11.5% of 115% of whatever you charge. So in reality that is a flat rate of 13.225%, and you make only 1.775%, not 3.5% that you thought!
Re: crap apps unable to deal with the VAT change and "as-of dates" - as I like to say, if you don't buy the solution you need, you'll pay for it later. Well later is now in this particular case. Of course this sort of thing is endemmic when business cut costs so aggressively and vendors compete to be the "lowest bidder".
It is NOT as simple as changing ONE field from 17.5 to 15, it is VERY far from being that simple. Chances are that a lot of software does have the rates (note the plural) in the code - in a function that calculates the VAT rate based on the various variables that affect it.
For the clueless, the VAT rate to be charged does not apply the same to all products - there are at least 3 rates there. It also varies depending on when/how the product was bought (used car trade, principally depends on whether VAT was reclaimed by the business that first bought it). It varies by customer AND the use to which the customer puts the goods.
So it may well be that the easiest way to handle this is to write a routine which applies all the "if <condition> ..." tests and returns the rate. This is probably what most poeple would call 'hard coded'. but if you want to handle VAT properly, it's probably the only way to do it.
Glad I'm not involved in that any more !
While hardcoding the value is idiotic in any scenario, how easily the change can be made depends on the original requirements of the system.
If there was no requirement for VAT to be amendable, or for it to possibly differ by product, then chances are the indian company you offshored your development to, built exactly what you asked for without questioning it.
What I'm looking forward to is the people who just go into the Tax Code table in Sage and change the 17.5% to 15% and then realise in the middle of January that their computer generated quarterly VAT return is complete garbage because they changed 2/3 of the way through a VAT quarter.
I think for something like Sage, the only safe way is to create a new tax code @ 15% and then on Monday change the default tax code for customers/suppliers from the 17.5% code to the 15% one and leave it like that for the next 13 months.
Was the proposed 18.5% rate... Isn't it the first time we've had a VAT rate that isn't readily susceptible to mental arithmetic... Its a good few years since I've worked in retail, and maybe everyone's tills are so automated now it isn't a big deal, but I certainly used to have to work out VAT amounts in my head. 17.5 wasn't to bad: 10% + half of that plus half again, but add a 1% of the number you first thought of and its getting a bit of a pain to keep in your mind...
Actually, if you've designed and coded your application correctly, it's as simple as adding one new record at 15% and end-dating the previous one for 17.5% in your VAT_RATES table. I know, because we did it this morning. Of course, if you didn't know your arse from your elbow when creating your application and have built a pile of shit, then I expect your explanation will hold a bit more water.
Oh, thanks for leaving your name. I'll hard code our enterprise software to automatically remove you from our database of potential developers whenever it's submitted.
It is not uncommon for manual invoices forms or pre printed invoices for the VAT rate to be printed on already, yes it is potentially a variable, but given how infrequently it changes and that you'd expect some notice so not unreasonable to preprint it. In these cases reprinting invoices would be an additional cost.
I still remember the last VAT change, apart from the system problems the VAT returns were a nightmare, especially when you consider that you can still have invoices coming in at the old rate for a couple of months. While a system reasonably should allow for multiple rates (if nothing else 0% and 17.5%) you still have to create a new rate then anyone entering invoices has to make sure they select the new rate so that the correct VAT is calculated which if you process large volumes of invoices is going to slow people down considerably in the B2B side (think shared service centres)
Given this is a temporary change you have to think it's potentially more trouble than it's worth.
If your a contractor and cant take a 1-% variance without either
(a) going bust, or
(b) absorbing it then WTF are you doing in business anyway?
Your accountant should be able to compensate for you without it worrying you, or are you that anally retentive that you worry over a miserly rate?
its not like its 10% or 40% change?
get your accountant to drops your "salary" and up your "dividends" i am sure you'll see no real difference?
"You use a lookup function for things like this. Therefore in an admin screen the user can set the change in advance using date ranges to define when the new rate(s) apply. Think lookup tables."
+1
That's the way we do things. We don't do anything involving VAT but we provide admin-editable lookup tables queried by functions for all sorts of things as much as we can. Makes the customer independent.
... to the cries of "idiocy" with regards to the hard coding of VAT rates, as ye sew, so shall ye reap.
I mean honestly :
"... which do have the VAT hard coded into them ... [o]ur system is quite robust in it's design"
It fucking isn't.
And as for you, SImon Hobson (sic) :
"It is NOT as simple as changing ONE field from 17.5 to 15"
I think you'll find it is, or rather, it should be, but clearly isn't due to idiocy.
"there are at least 3 rates there"
So that's three fields, then.
"So it may well be that the easiest way to handle this is to write a routine which applies all the "if <condition> ..." tests and returns the rate"
And the rate should be stored in a DB field somewhere, from whence your code can look it up. The logic you describe is only applicable to deciding which rate to apply in which circumstance, it has nothing to with the actual value of that particular rate.
"but if you want to handle VAT properly, it's probably the only way to do it. Glad I'm not involved in that any more !"
I'm glad you're not as well.
No actually Sage won't churn out complete garbage. While your figures will show for both 15% and 17.5% will show in the return you can break these down simply by doing a dummy return and not flagging the vat as reconciled to 31 Nov. That would give you your figure to be put into a report. Run it again for the post Dec 1st period. don't flag, print report. then run report a final time to get the totals. Or even more simply just look... everything from before 1st December = 17.5%, every thing after =15%.
actually changing another tax code to 15% has implications as mentioned by sage like special items codes always defaulting to T1, but this can be edited in individual invoices when creating them to a different tax code.
On the other note. Yes the 15% is utterly stupid. Not enough notice, not made for the right reasons, just utterly stupid. Its seems almost like Mr Darling has spun the economy on 00 in roulette. Think its back to school for me and then another country to get the hell away from the screwed up university financing!
Haven't we all been naughty :(
I suspect the cost of making the change twice over will cost more than any profit made.
What with the confusion, the letters the government has sent, the swap over, the relabeling.
It should have been VAT gone for a year, that would have been simple and probably effective, what we actually got was a Greek Forcing a Gift - Trojan Expenses.
Whatever Sage say, you have to have 2 codes, because you have to keep the old 17.5% rate in the system as well as having a new 15% rate. Example, if you have invoiced someone for something @17.5% before December 1st, and you subsequently have to do them a refund or credit after December 1st, HMR&C says the refund has to be done at 17.5% not 15%, that was the information we got from the HMR&C adviceline this morning.
Also, as purchase ledgers normally lag sales and nominal by a month, any new purchase orders going onto a system for delivery after December 1st will have to be at 15%, but you will still have purchase invoices from before November 31st to go on next month @ 17.5%.
And I thought the contract market might be a little dry next year.
But it looks like Darling is actually stimulating the Contract IT market twice: Once on Monday, and then over the next 12 months, all those companies who realise that it's going to happen again in 2009 and cost them more moolah might actually think about the longer-term implications.
Either way: I bet a lot of the "systems" are XL spreadsheets, though...
Giving more notice was excatly what should not have been done as it would have put a freeze in sales which, especially at this time of year, could have sent yet another destructive shockwave through the system. Would you shell out a serious amount of money on something if you knew with certainty the price was about to drop? The shorter the interruption to sales, the better.
The Register 
Biting the hand that feeds IT
Copyright. All rights reserved © 1998–2024
