Three quarters of businesses are now considering price hikes, says KPMG

60% of SMEs unaware of New Year VAT changes

Nearly two thirds of smaller businesses are unaware of new VAT rules coming in from January 1st 2015, according to a KPMG survey.

Six in ten small businesses (those with less than £10m turnover) are unaware of radical reforms to European VAT rules that will affect the supply of telecoms, broadcasting and electronic services, despite being just two months away from implementation, says KPMG. 

From the New Year, VAT will no longer be charged and accounted for based on where the business supplier is established, but according to the EU country where the customer belongs. 

A KPMG survey of over 150 affected businesses revealed that, whilst larger companies are very much aware of the upcoming changes, 62 per cent of smaller businesses did not know about the new 2015 VAT rules and 66 per cent were not aware of the potential penalties associated with non-compliance.

Coupled with this general lack of awareness, the survey also revealed a worrying lack of clarity on the potential costs associated with getting ready for the changes. 

Mike Camburn, Indirect Tax Partner at KPMG, said: “Despite efforts by tax authorities and advisors to notify and educate businesses, with less than two months before implementation of the new rules, there remain a significant number of affected businesses that are not aware of the 2015 VAT changes." 

The survey also revealed that 75 per cent of respondents were considering raising their prices as a result of these new tax rules. More than half (53 per cent) were predicting price rises of between two and three per cent, but over a quarter (26 per cent) indicated increases of five per cent or more.

This would result in a price increase of up to 11 per cent for affected services, particularly those sold to customers in EU countries with the highest VAT rates.

But the changes should be good news for the UK economy which is set to benefit by around £300m. This is because the VAT collected from UK customers will belong to the UK Treasury, rather than to the country where the supplier is established.

Furthermore, some businesses may stop selling to certain customers altogether, as the results revealed that over a quarter (28 per cent) of affected businesses are considering limiting sales in particular EU member states in order to reduce their compliance burden.

According to KPMG, this approach may be a result of the complexity of the EU VAT regime. At present, VAT rates across the EU range from 15 per cent to 27 per cent (the average is 21.54 percent).

More information from KPMG on the changes to the VAT system from 2015 can be found here.

Image source: Shutterstock

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