On January 1st 2010 the standard rate of VAT will revert back to 17.5% from 15%.
There are some anti-avoidance rules to watch out for but for most the switch back should be straightforward. Here we will talk about the main rules and what you need to watch out for.
1. VAT is always calculated using a rate when a Tax Point (TP) occurs. The basic tax point is applied when the goods are supplied or the services are provided. Delivering a product or a service by 31st December 2009 means that the 15% rate applies. On or after 1st January 2010, the rate will revert back to 17.5%.
A good tip to improve your cash flow is to encourage your customers to pay early for supplies or services that will be provided after January 1st. Your customer only has to pay at the lower rate of 15% instead of 17.5% which is a great incentive. However, for this to be effective, your invoice must be dated on or before December 31 2009, or the goods or services must be paid for by 31st December 2009, even if the supplies or services are provided later.
2. Let’s say that the supply of goods or services you provide overlaps. You start in December 2009 and finish in January 2010. A typical example could be a software installation by an IT company that is using the Christmas period (when the office is quieter) to provide a corporate software upgrade. Any services (or goods) up to December 31 2009 would be charged at the 15% rate and any services (or goods) after that must be charged at the 17.5% rate.
As a guide any invoices after December 31 2009 that show supplies with both rates applicable (as in the example above), must show each VAT element separately.
3. If you provide a continuous service, such as a software support contract or bookkeeping, VAT is due at the appropriate rate when you get paid or raise an invoice, which ever is earlier.
Tip – Let’s say you issue a quarterly invoice on January 31 2010 for November, December and January. You simply show a 15% rate for services or supplies up to December 31 2009 and then a 17.5% rate thereafter. Remember to show each VAT element separately (as mentioned above in Item 2) on your invoice.
For full details of the VAT anti-avoidance rules take a look at the HMRC website.
If you need any further information please don’t hesitate to contact us.
There are some anti-avoidance rules to watch out for but for most the switch back should be straightforward. Here we will talk about the main rules and what you need to watch out for.
1. VAT is always calculated using a rate when a Tax Point (TP) occurs. The basic tax point is applied when the goods are supplied or the services are provided. Delivering a product or a service by 31st December 2009 means that the 15% rate applies. On or after 1st January 2010, the rate will revert back to 17.5%.
A good tip to improve your cash flow is to encourage your customers to pay early for supplies or services that will be provided after January 1st. Your customer only has to pay at the lower rate of 15% instead of 17.5% which is a great incentive. However, for this to be effective, your invoice must be dated on or before December 31 2009, or the goods or services must be paid for by 31st December 2009, even if the supplies or services are provided later.
2. Let’s say that the supply of goods or services you provide overlaps. You start in December 2009 and finish in January 2010. A typical example could be a software installation by an IT company that is using the Christmas period (when the office is quieter) to provide a corporate software upgrade. Any services (or goods) up to December 31 2009 would be charged at the 15% rate and any services (or goods) after that must be charged at the 17.5% rate.
As a guide any invoices after December 31 2009 that show supplies with both rates applicable (as in the example above), must show each VAT element separately.
3. If you provide a continuous service, such as a software support contract or bookkeeping, VAT is due at the appropriate rate when you get paid or raise an invoice, which ever is earlier.
Tip – Let’s say you issue a quarterly invoice on January 31 2010 for November, December and January. You simply show a 15% rate for services or supplies up to December 31 2009 and then a 17.5% rate thereafter. Remember to show each VAT element separately (as mentioned above in Item 2) on your invoice.
For full details of the VAT anti-avoidance rules take a look at the HMRC website.
If you need any further information please don’t hesitate to contact us.
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