The British Independent Retailers Association has warned of the “huge administrative burden” changes to the way VAT is calculated will put on small businesses.
New legislation due to come into effect on April 1 is likely to double the amount of paperwork for those who offer prompt payment discounts on invoices, Bira said.
Currently businesses can calculate VAT due on the discounted rate, even if the full amount is eventually paid. If the discount is not taken up, the business is not required to change the amount of VAT invoiced and accounted for.
However, the Finance Act 2014 will force businesses to initially charge VAT for the full amount and make adjustments at a later stage via a credit to the previous invoice, re-invoicing if a discount is applied.
The laws are designed to bring the UK in line with EU rules. However, Bira has written to Chancellor George Osborne and HM Revenue & Customs to highlight the strain this could place on smaller firms, which may have to invest in costly computer software to manage the process.
Bira also worries suppliers may stop offering prompt payment discounts altogether as a result.
Bira Direct’s director of buying Steve Akers said the body is seeking a meeting with the Treasury to discuss alternative solutions and expects a response by the end of February.