Tuesday, 5 January 2010

A happy new VAT rate

Naturally at the college we would like to wish you a happy new year.

Some acountants, however, have started the new year anything but happy about the revised rate of VAT which went back up to 17.5% on 1 January. It isn't so much the increase in the rate that will be causing dismay but rather the changes that will be required in the financial reporting systems of all UK businesses.

There are two main reasons why accountants in Britain should be ashamed to make a fuss about this. Firstly, we have known that the VAT rate was going back up ever since Alistair Darling reduced the rate as an emergency measure in 2008. Secondly. and more importantly, this ought not to be a difficult change to make. All mainstream accounting packages as far as I know, like the 'Sage 50' range, have the option to set the VAT rate throughout the entire package and changing the rate is done in moments.

What I suspect, however, and what I have seen in practice, is that a great deal of financial reporting is carried out outside of the bookkeeping process that is handled by each business' accounting packages. There are accountants up and down the country slavishly updating spreadsheets every week or month. Their worksheets have cells all over them where the calculation essentially multiplies the contents of another cell by 15% and every one of those cells now has to be changed to multiply by 17.5%. That this change is such a nightmare and so prone to error is yet another demonstration of how unfit for purpose many of these lovingly assembled spreadsheets are.

The fundamental mistake that all too many accountants fall into is to see bookkeeping as a preliminary function that takes place before the real work of the accountant gets done. Accurate and effective double-entry bookkeeping should be the main concern of every accountant. Intelligently designed and well-maintained books can not only be the historical records of a business but also the cost accounts, management accounts and financial statements. Not only that but they can also directly inform and update the budgeting process to complete the set of financial reports. So let the change of VAT rate be a lesson to you and get the beautifully accurate bookkeeping that goes into your accounting package to do the work.