Tax Update (October 2009)
VAT rates revert to 17.5%
From 1st December 2008 the standard rate of VAT was
reduced to 15% for a period of 13 months. That period is rapidly
coming to an end so what do you have to consider when changing back
to 17.5% from 1st January 2010?
Where your sales are predominantly cash based to non business
customers then you should charge VAT at 17.5% on all sales on or
after 1st January 2010. The exception to this is when
your customer has already taken delivery prior to 1st
January but pays for the goods or service after that date. In this
instance VAT should be charged at 15% as the sale took place before
1st January.
If your sales are mainly to other VAT registered businesses you
should use the 17.5% rate on all invoices raised on or after
1st January 2010 and are issued within 14 days of the
provision of goods or services. However, you do have the option of
using the Special Rules in respect of sales that span the change.
This means that where goods or services have been provided before
1st January and you issue an invoice after
1st January you may opt to apply the 15% rate. If you
have already issued such an invoice and applied 17.5% you have
until 14th February 2010 to alter this to 15%. This is
done by issuing a special credit note for the 2.5% extra VAT. You
do not need to cancel the original invoice.
Under the special rules if you have issued an invoice or
received payment prior to 1st January for goods or
services delivered after 1st January you can opt to
apply 17.5% VAT. You may wish to consider this option where the
customer can recover all the VAT charged.
If you are making continuous supplies of goods or services you
should charge VAT at 17.5% on all invoices raised after
1st January even if the invoice relates to periods prior
to 1st January. However, you may if you wish charge VAT
at 15% in relation to goods or services provided before
1st January and 17.5% on post 1st January
goods and services. You should retain details sufficient to
demonstrate the apportionment between the two periods.
HM Revenue & Customs will be taking 'The Light Touch'
approach to the first return following the changes and if they find
errors that relate to the rate change they will not seek an
adjustment unless there is an overall revenue loss.
The Government have introduced anti-forestalling legislation
which seeks to prevent avoidance where arrangements are made to
account for VAT at 15% in advance of 1st January 2010 in
respect of goods or services to be provided after that date. This
will only apply to certain transactions and is unlikely to affect
you unless:
- You receive pre-payments from persons connected to you for
future supplies; or
- You issue advance VAT invoices to persons connected to you for
future supplies; or
- You provide or arrange funding for your customers to enable
them to pay in advance for goods or services to be supplied by you;
or
- You issue VAT invoices that do not have to be paid for at least
six months; or
- You receive pre-payments or issue advance VAT invoices in
excess of £100,000, and this is not normal commercial practice;
or
- You supply rights or options to receive goods or services free
of charge or at a discount.