Change of Rate

The standard rate of VAT went back to 17.5% with effect from 1 January 2010.

A multitude of issues arise for supplies spanning the date of the rate change.

Goods
Services – one-off supplies
Services – continuous supplies
Retail businesses
Deposits and pre-payments
Actual tax point
Credit notes

Goods

The basic tax point is generally the earlier of the date of supply; the date the customer collects the goods or the date on which the supplier receives payment.  If this date is prior to 1 January 2010, you should charge VAT at the old rate (15%).  Even if a VAT invoice is issued after 1 January 2010, you will still be required to charge VAT at 15% if the goods were provided before the VAT rate change.

For goods supplied after this date, VAT should be charged at the 17.5% rate.

If you have already received payment for the goods, but not yet fulfilled your contract by supplying or making the goods available, you can chose to apply the 15% rate unless the anti-forestalling provisions apply.  Please seek additional advice on this point if you are affected.

If applicable, goods imported to the UK after 1 January 2010 will be subject to VAT at 17.5%.

Services – One-off supplies

In normal circumstances, on a one-off project, the basic tax point is created when the service is performed and this date will determine the VAT rate that you should charge.   For example, if an advertisement is published in a magazine on 20 November 2009, that is the date of the supply as far as the rate change rules are concerned. Even if the invoice is issued after 1 January 2010, the old VAT rate of 15% must be used.

Services – Continuous supplies

In the case of continuous supplies of services, the tax point occurs at the earlier of the date the VAT invoice is issued or the date that you receive a payment.  If this is before 1 January 2010, the VAT charged should be at the old rate (15%).  After this date it should be 17.5%.

If, for example, you have created an invoice on 1 December 2009, for a quarterly supply of services, you will have raised an invoice for the period using the old VAT rate of 15%.  In this scenario, you have two options.

1.    To leave the invoice as it was and continue as normal bearing in mind that the next quarterly invoice will be raised under the new VAT rate of 17.5%.

2.    To invoice the difference in VAT due for the two months in January and February and account for the change in VAT rates.

There is currently no requirement to inform HM Revenue & Customs of your decision and we understand this can be selected on a project-by-project basis.

Retail Businesses

In the majority of cases, retailers receive cash when the goods are supplied. Goods supplied before 1 January 2010 should therefore be accounted for at 15% and those supplied after this date at 17.5%.

If you operate a computerised till system, you may need to contact your supplier in order to ensure that the new VAT rate is used after 1 January 2010.

If you use a specific scheme in relation to the retail sector, specific guidance exists regarding the adjustments that will be required.

Deposits and Prepayments

If you received a deposit or prepayment before 1 December 2009 for goods or services that you supply after the rate change, you have the option whether or not to apply the new rate of VAT to the deposit received.  If you do use the new rate, you must inform your customer and increase the overall VAT charged accordingly.

Actual Tax Point

• If you receive a payment or issue a VAT invoice under the normal time of supply rules, the actual tax point will be created on the date of creation or receipt, whichever is earlier.

• If you issue a VAT invoice within 14 days of the basic tax point, the date of issue will become the actual tax point.

Where a basic tax point is created before 1 January 2010, the VAT rate applicable should be 15%, even if invoiced after 1 January 2010.  For example, if goods are delivered or made available on 20 December 2009 and invoiced on 1 January 2010, the invoice would still use the old 15% rate.

Credit Notes

If you make a change to VAT previously charged, you must always follow this up with a credit note at the rate of the original VAT (and if applicable raise a new sales invoice).

The VAT team at Creaseys are here and ready to answer any of your queries.  Please contact Sharon Crush sharon.crush@creaseys.co.uk for further information.