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Hidden VAT opportunities for small businesses

Hidden VAT opportunities for small businesses

THE VAT increase, which comes into effect in just less than a week, is an opportunity for small and medium businesses to review its processes and identify opportunities to cut costs and streamline operations. For more than 25 years, the VAT rate has remained unchanged at 14%. Unlike with income tax, many businesses have never had to adjust its systems or train its teams on new VAT rates. Well, that is until now. In preparing for the adjustment, companies should take the opportunity to review all other areas of its business to figure out where it can do more with less. Here are a few ways to do that:

Take stock. Businesses will need to adjust the prices of all products, unless its zerorated, to reflect the new VAT rate. This has to be done by May 31. It is also a good idea to do a stock audit and work out what is selling and what isn’t, and to try to sell off stock and give the business a cash flow boost.

Automate wherever possible. If the company is still using spreadsheets and other manual systems to keep VAT records, now is the perfect time to switch to a cloud-based accounting solution, like Sage One. Automated systems eliminate many of the headaches and admin associated with tax compliance, and ensure that all invoices, credit and debit notes comply with the “time of supply” clause in the VAT Act. Cloud-based software also optimises record-keeping, maximising the expenses a business can claim back from Sars.

Cut costs. Initially, the new VAT rate may plunge small businesses into cash flow problems as it balances VAT charged to its customers with the VAT it will need to pay its suppliers. Shop smarter and aim to process all stock purchases on or before March 31 so that one only pays 14% VAT. Sell the stock at 15% VAT and put the balance back into the business.

Upskill the team. There’s no better time to train a team than for a change in regulations. VAT has not increased in 25 years, so it’s possible that one’s team is not familiar with the VAT Act. Set up some time with the company’s accountant, who can clearly explain the “time of supply” clause to the team. The team needs to know how to correctly process the sales and refunds that occur before and after April 1. The accountant can provide refresher training on all tax laws to ensure the business remains compliant. While VAT should not be seen as a cost to the business, smaller businesses might have to spend money to become compliant, for example by printing new price labels, shutting down shop for a day to prepare and investing in team training. However, also view the VAT change as an opportunity to review business processes. This can help identify problem areas and growth opportunities, which will leave a business in a much stronger position than before. Viresh Harduth is the vicepresident: New Customer Acquisition (Start-up and Small Business) at Sage Africa & Middle East