As from the 4 January 2011 the VAT rate in the United Kingdom will rise to 20%. As such any taxable transactions after that date will have to be at the new rates. There is no doubt that the VAT rate change will have financial impact on businesses. A common forecast is that the new VAT will result in a fall in consumer as well as business spending. Consequently some businesses may well be reluctant to implement the new VAT rates or alternatively look for ways to avoid it as a measure of trying to retain customers. In response HMRC have issued some rules and guidance in an attempt to encourage compliance and to avoid the blatant disregard of the new VAT rates.
- Businesses and self employed people should start accounting for VAT at 20% with effect from 4th January. If customers have an account and takes delivery of the goods before the change of then you account for VAT at 17.5%
- For all other transactions that require the issuing VAT invoices after 4th January 2011, the new VAT rate of 20%, should be applied.
- For supplies of services that span the change, then the old rate of 17.5% for those services can be provided.
- Suppliers issuing invoices prior to the rate change, but where delivery will take place after the 4th January, may charge VAT 20%.
- Businesses issuing quotes and estimates for work to commence after 4th January should quote the 20% rate. Customers willing to pay before that date can be charged at 17.5% (subject to the anti-forestalling legislation.)
- For any refunds or credit notes the business should apply the same rate as originally declared or invoiced. That is if the adjustment is made after 4th January and it relates to a sale declared at 17.5%, then the adjustment is at 17.5%.
- Any invoices issued for 12 months in advance, with monthly payments plus VAT must show VAT at 17.5% for all monthly payments up to 31st December 2010. All payments after that date must be at 20%.
- Sales of tickets to events such as (theatre, cinema, football season tickets) before 4th January 2011 will be subject to the VAT at 17.5%, even if the event takes place after the rate change. In these cases the tax point will relate to the receipt of payment.
It is estimated that the change in VAT from 17.5% to 20% will raise about £13bn per year. It is therefore unlikely that HMRC will lenient on business or individual who may choose to avoid implementing the new VAT rates. There is a wealth of information and guidance which is available from either your accountant or through HMRC. On a positive note it may well encourage spending in the periods leading up to Christmas 2010. It may also lead to many high end purchases being made earlier than originally planned.