VAT Rise ... a problem to be concerned about?

The 4 January 2011 was not only the first day back at work but it was also the first day of the increase in the standard rate of VAT to 20%. On Monday I read a report that said that there would be a £2.2bn fall in retail sales in the first quarter of 2011 alone as consumers feel the pinch.

The media also talked about a £400 "cost" to the average family in 2011 because of the rise which Ed Miliband said was the "wrong tax at the wrong time". However the government suggest that it will raise £13bn a year by the end of the parliament.

So is the VAT rise a problem for professional photographers?

If you are VAT registered then you will be able to recover the increase in VAT that your suppliers charge you. However you will either have to increase your prices or accept a reduction in your profit.

Option A - Increase Prices, A wedding package priced at £2,000 plus VAT will now cost £2,400 instead of £2,350 a rise of £50. Whilst a £50 rise might not seem too bad your competitors might not increase their prices and you may become more expensive in the market.

Option B - take a reduction in margin, The same wedding package that cost £2,350 including VAT can remain at the same price and you could choose to accept a net price of £1,958 instead of £2,000 a reduction in profit of £42 or over 30 weddings £1,260.

You may argue that if you hold your price and market the package on that basis you might win one extra booking that would cover the profit lost!

For those not VAT registered there may still be a reduction in profit. Take the same wedding package where the price is £2,000. The gross profit margin is 66% and therefore the costs are £680 including VAT and £579 NET of VAT at 17.5%. The increase in VAT to 20% will increase the costs to £694 which will result in a reduction in profit of £14. Over 30 weddings this represents £420 or a reduction in gross profit margin to 65%.

However the non VAT registered photographer will also suffer VAT on overheads. If overheads subject to VAT were £7,500 they will increase by £160 to £7,660.

Overall you might accept the VAT increase and decide not to increase prices and sacrifice profit or you may follow others and increase prices. Either way in a challenging environment it seems there is no right answer!

For those on the flat rate VAT scheme the % has risen to 11%.  

New Years Resolutions for this blog

As we pass into a new year there is no better time to take stock and evaluate the year that is passing and set some goals and objectives for the year ahead. I have been updating this blog for around 18 months now and am fortunate to now have a good tribe following posts.

For me there have to be three objectives (resolutions) for 2011.

1. Post more often, so watch out for weekly Wednesday updates from 5 January 2011.
2. Make the site more visual, perhaps with some of my own images or those of people I meet?!
3. Add some tools and downloads that will help professional photographers.

I have set a diary note to review these objectives at the end of June!

Also look out for a new Twitter feed, arriving very soon...

Happy New Year...

I pad app for squarespace.

Having waited for ages for this app I couldn't wait for the new year to try it out!

it's snow joke

The walk into the office this morning took 30 instead of the normal 7 minutes! This was mainly because of the 16 inches of snow that had fallen yesterday and through the night. Whilst the effort of walking knee deep in places was difficult the scenery was amazing.

Anyway, for many business owners the snow will be just another challenge to contend with at the end of an already difficult year. Snow Joke!

When I got to the office I was talking to a colleague who informed me they were snowed in. However all was OK because she had 3 sets of management accounts to prepare and review all on XERO which meant that they could be done from home.

We talk a lot about mobility benefits of cloud based apps. They can be accessed anywhere but the recent freeze has really highlighted them. At least three business owners will get updated MI today despite the BIG freeze.

Maybe though, more seriously, business owners that can not get into the office and who may be losing money because they can not work can evaluate the position of their business and speak to their advisors and bank managers about it because they can access the information they need at home and evaluate the effect on the business in real time .

This must be a real benefit of using XERO.

Xero gets even better...

One of the killer features of XERO that sets it apart from other cloud based apps and certainly software such as SAGE that sits on your computer in the office is the bank feeds feature. Until today HSBC customers were the only people who could benefit from having their bank data feed directly into XERO without the need for manual csv files.

XERO have today opened this feature up by partnering Yodlee who provide the feeds from around 55 (UK and Ireland) banks to XERO. The opening up of this feature to other banks (not all UK banks are on board yet!) is going to mean that XERO becomes a must have tool for small business owners.

Each morning you can log into your XERO account and have at your fingertips all of your bank transactions from the day before. Not only that but XERO will match these transactions and make suggestions as to where they should be posted.

So within minutes you can be looking at financial information that is only one day old! Now that's up to date MI!