Vat – Reverting to 17.5%

he VAT rate reverts back to 17.5% with effect from January 1st 2010. HMRC have produced a guide to the change, available on their website. It is interesting to note, however, that HMRC have not as yet published the rates for the Flat Rate Scheme which suggests that this will not be a simple reversion to the pre-December 2008 regime.

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 1st January, VAT will be at the rate of 15%; anything after will be at 17.5%. The tax authority has 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 1st January, using the VAT fraction 7/47ths. Those who reduced their prices (2.13 % was the calculated reduction) should increase them by the same figure. If the customer has an account and they take the goods away prior to the change, then you account for VAT at 15%.

2. For all other businesses issuing VAT invoices after 1st 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 the 1st 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 January 1st 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 January 1st 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 December 31st 2009. All payments after that date must be at 17.5%

6. Sales of tickets to events (theatre, cinema, football season tickets) before 1st 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.