VAT

IMPORTANT ISSUE! - Reversion of the Standard Rate of VAT to 17.5% 

We would remind you that the VAT rate reverts back from 15% to 17.5% with effect from 1 January 2010.  

Basically, the normal tax point rules will apply: date of invoice or date of payment, whichever comes first.  So if the invoice or payment is made before 1 January, VAT will be at the rate of 15%; anything after will be at 17.5%.  Customs have issued some anti-forestalling legislation to stop blatant avoidance, and these are summarised later, but first the basic rules:

Basic rules

1.         Retailers should start accounting for VAT at 17.5% with effect from 1 January, using the VAT fraction 7/47ths.  Those who reduced their prices (2.128% was the calculated reduction) should increase them by 2.174%.  If the customer has an account and he takes the goods away prior to the change, then you account for VAT at 15%.

2.         For all other businesses issuing VAT invoices after 1 January, they should be at 17.5%, unless the goods/services were supplied before the rate change.  You can then choose to charge at 15%.

For supplies of services that span the change, then you can charge 15% for those services provided before the change, 17.5% afterwards OR charge all at 17.5%.

Suppliers issuing invoices prior to the rate change, but where delivery will take place after 1 January, may charge VAT 17.5%.

These rules are optional and you do not need to notify HMRC.

3.         Businesses issuing quotes and estimates for work to commence after 1 January should quote the 17.5% rate.  Customers willing to pay before that date can be charged at 15%, subject to the anti-forestalling legislation.

4.         Refunds or credit notes should be dealt with at the same rate originally declared or invoiced i.e. if the adjustment is made after 1 January and it relates to a sale declared at 15%, then the adjustment is at 15%.

5.         Invoices issued for 12 months in advance, with monthly payments plus VAT must show VAT at 15% for all monthly payments up to 31 December 2009. All payments after that date must be at 17.5%.

6.         Sales of tickets to events (theatre, cinema, football season tickets) before 1 January 2010 will attract VAT at 15%, even if the event takes place after the rate change in 2010.  The tax point is the receipt of payment.

The standard rate of VAT is to increase on 4 January 2011 and it is envisaged that this rate will remain in force until at least 2014.

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