As you will have seen on the news, the rate of VAT in the UK is to change from 17.5% to 20%.

The new VAT conversion fraction is 1/6 (much easier to remember than the old one for 17.5%, which was 7/47).

If want to know the net cost of something, then divide by 6 and multiply by 5. For example, something sold for £100.00 has a net value of £83.33 (100/6*5).

If you want to know the gross cost of something, then divide the net value by 5 and multiply by 6. For example, a net value of £25.00 would cost £30.00 including VAT (25/5*6).

It may sound obvious, but changes to the rate of VAT affect the VAT amount, which in turn adjusts the gross value. £20.00 is not 20% of £120.00, it is 1/6 of £120.00.

As you will have seen on the news, the rate of VAT in the UK is to change from 17.5% to 20%.

VAT is an amount added by the supplier of most goods and services to what they sell, and which they must by law pay to the government. As individuals are usually not VAT registered, what we buy includes VAT, and is not reclaimable as it is to most businesses.

Offers by shops to cover the rise in VAT mean that they keep the sale price the same, but reduce the amount they get to keep after deducting the VAT they owe to the government. For example, if you buy a sofa before the increase for £500.00, the VAT due by the seller is £74.47; after the increase, the seller has to pay £83.33 to the government, meaning they are £8.87 worse off.

To most of us, the increase will mean very little, as the impact of adding 2.5% to the cost of a purchase is pretty small. For example, assuming no other changes to its price, an item costing £100.00 in the shop will be re-priced at £102.13. To incur, say, an extra £20.00 per month as a direct result of the extra VAT would mean you were spending £940 per month.

As an individual, it’s doubtful you will feel a financial impact from this change.

So although an increase from 17.5% to 20% sounds a lot, the only real winner will be the government. Some things never change.

Businesses need banks, and banks need businesses. But as a business owner, how do you decide which bank to trust your money with?

I have helped a number of organisations choose a bank – some for the first time, some because they wanted a change, and some because they needed to change!

There are many considerations to weigh up, including: cost, secondary services, knowledge of your business sector, location of branches, access to help. To me, the most important factor when deciding who to bank with is the Relationship Manager.

It is perhaps a little unfair to say that all banks are alike, however, there is generally very little between them in cost, in location, and in the general service they offer. To my mind therefore, the biggest difference between banks is in their staff.

When I needed to set up a bank account for my business, I walked down the high street in my home town, and walked into every bank. I asked the same question in each branch, “Please can I talk to someone about setting up a business bank account”. Within 30 seconds of walking in, I felt I knew how much the person I was talking to cared about me and my business.

I would not want anyone to think that choosing a bank is a decision to take lightly – particularly in today’s economic climate. Never forget who is the customer. As ever, more than numbers and statistics, it’s the people we do business with that matter, and I suggest that this includes your bank’s Relationship Manager.

I just received an email directing me to some new comments on a blog I read some time ago. Among the issues raised was the above question. I recall how the question stopped me in my tracks and made me really think.

Some lead, some follow – the world has always been this way. But what are the leaders trying to achieve? As a self employed person even I have to balance the “doing” with the “pioneering”.

But to what end. When I am no more, what will be left? What impact will I have made? Will the world be a better place?

The burden of responsibility rests on us all. Philosophers have always maintained that every one of us has the power to make a difference. It is not good enough to look around and expect someone else to make the difference for us. I agree with this.

I was recently introduced to a remarkable book called “The Tipping Point”. Its premise is that big things often happen as the result of the smallest of things. It is rarely possible to know what that small thing is until afterwards.

Standing still and waiting for everyone else to do something is not helping.

Is it your turn to be the tipping point?

If there is one radio show guaranteed to make me change channels, it’s the Jeremy Vine Show on Radio 2. Not because I have anything against Jeremy, it’s because, generally, the views of the public aired in response to the issues raised infuriate me. A couple of days ago, Jeremy conducted an excellent interview with a BBC correspondent about the Afghanistan non-election – a well informed, concise, detailed explanation of the issues. This was then ruined (for me) by uninformed points of view that added little or nothing.

Much has been written about the “demise” of the Birmingham Post, and the genuine concern at what will happen to the journalists who are losing their jobs. I sincerely hope that those skilled at writing will find new employment, albeit in a different market. I would far rather read, or listen, to someone who knows their subject and can present it well, than someone who writes and broadcasts just because they can.

The proliferation of Blogs, and the ability for anyone to write when, and on whatever subject they choose, has been cited as the end of quality reporting. I would disagree. I have more faith in readers and listeners exercising their choice to read and listen to what they like, and to switch off what they don’t like.

I also believe that there is a duty for those who know what is going on to share their knowledge and expertise.

Change is happening, but are we aware of how fast life around us is changing? And is someone in control of change any more, or has Pandora’s Box been opened and no-one knows how to close it?

Interesting post here with a sobering message.:

http://www.tom-watson.co.uk/2008/12/a-goodbye-to-woolworths/

Who is willing to take action?

The dust seems to have settled on media speculation about VAT – just how many sexy headlines were they ever going to come up with anyway?

So what should you be doing to make the most of the change?

Number one, now is the time to make large purchases, such as computers and other goods and services that have a high cost. The reduction on VAT should mean that they will cost you less. Don’t forget to haggle on price as well.

Number two, check your purchase invoices from suppliers. Make sure you are being charged at the lower rate of 15%.

Number three, check the sales invoices you are issuing. If you can justify making a supply at the old rate of 17.5%, then use it.

Number four, take proper advice if you are unsure what to do. Behind HMRC’s PR is an army of folk whose job it is to collect tax.

There is some confusion about the implications of the change in VAT.

First off, the potential saving is 2.1%, not 2.5%. This is because the saving relates to the VAT, not the whole value.

So a widget that sold for £11.75 on 30 November should cost £11.50 on 1 December. The saving is therefore 25p. 25p as a percentage of £11.75 is 2.128% (call it 2.1%), not 2.5%.

Hardly something to write home about and I have my eyes peeled to find anyone who is actually passing this saving onto the customer. Anyone found a bargain yet?

Now the banks have found a way to get back on their feet, the business owners I talk to are all wondering about what the impact will be on them. Clearly those who have relied on loans and support from banks have found life a lot harder, but those who have worked hard to avoid borrowing or overdraft facilities are feeling unsure about whether they will be affected.

An inability to manage change is, and always has been, the greatest threat to a business. The problem is that change will come fast, and only those ready for it will survive. Change may be difficult to deal with after such a long period of sustained growth, but it has to be faced.