From the 1 January 2010 the VAT rate will revert back to 17.5%. Care should be taken to ensure that the correct rate is charged and users of the Flat Rate Scheme should ensure that the correct flat rate is used for VAT returns including sales occurring after 31 December 2009.
Sales of standard-rated goods or services with a ‘tax point’ on or after 1 January, should be subject to VAT of 17.5%. If you charge VAT inclusive prices and currently calculate VAT using the VAT fraction of 3/23 you should revert to using the VAT fraction of 7/47.
For continuous supplies of services VAT should be accounted for whenever a VAT invoice is issued or payment is received. Invoices issued or payments received after 1 January will be subject to VAT at 17.5%.
Non-registered and partially exempt businesses may be considering accelerating significant expenditure to pre 1 January 2010 to benefit from the lower rate and businesses already registered for VAT may be asked to invoice non-registered customers for any unbilled work prior to 1 January. However, it should be noted that anti-forestalling legislation is in place to prevent abuse of the low rate and a 2.5% charge may be made if a customer cannot recover all the VAT charged on a purchase and any of the following conditions are met:
- The supplier and customer are connected during the period from the date of the supply to the date the reduced rate ends.
- The consideration for the supply exceeds £100k.
- A prepayment in respect of the supply is financed by the supplier or someone connected with the supplier.
- The amount due on the VAT invoice raised is not due until at least six months after the date of the invoice.
HMRC have issued detailed guidance regarding the rate change, which can be viewed on their website at http://www.hmrc.gov.uk/vat/forms-rates/rates/rate-rise-guidance.pdf
From 1 April 2010 the time limit for both assessments and claims will be increased from 3 years to 4 years. Transitional arrangements are in place from 1 April 2009 and from that date claims and assessments can go back to 1 April 2006. From 1 April 2010 the new 4 year limit will apply.
For further information contact Helen Carey
