With VAT rising from 17.5% to 20% in the new year, it’s worth asking what effect this will have on freelancers and contractors. For retailers, it is fairly obvious; they have to change all the prices in their shops to account for the change. For freelancers, the impact is not so straightforward and will vary depending on how they do their accounting.

If you’re liable for VAT, then your accounting processes will have a major bearing on whether the change will be an issue. It ultimately boils down to whether your accounts are done manually or via automatic online software.

The concern is that small business owners who have manual processes will find the change both costly and time-consuming.

One good aspect of the change is how the announcement gave businesses plenty of notice and is not being deployed in stages – which would have exacerbated any administrative burdens.

There has been a lot of debate over the last year or so about the benefits or otherwise of online accounting solutions, but at times like this they can come into their own. The best systems will be able to immediately switch over to the new VAT rate which means that when you draw up your invoices, the VAT rate will automatically be calculated at 20%. Further to this, when you send your first VAT return after the rate change, you won’t need to have any concern about its accuracy.

#### Basic information about the rate change:

* Invoices you send on January 4 and after must have VAT added at 20%.

* If you provided a service before January 4 but are sending the invoice after the VAT rate change then there’s an option: You can either decide to add the VAT at 17.5% or use the new rate. Whichever is best suited to you.

* Conversely, if you’re being paid or sending invoices before January 4 for work that is being done afterwards, then VAT will usually remain at 17.5%.

* HMRC states that if you offer a continuous supply of services, such as leasing equipment, you should… “account for the VAT due whenever you issue a VAT invoice or receive payment, whichever is the earlier.” So, you must charge 20% on invoices you issue and payments received on or after January 4.

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