Following this year’s Pre-Budget Report, the Chancellor has confirmed that the 15 percent VAT holiday will end on 1 January 2010, when the rate reverts back to 17.5 percent.

To help ensure the change is as smooth as possible, we are pleased to be sending you this eshot covering the main points to consider. 

General points

The normal rule is that all sales invoices dated on or after 1 January 2010 must use the new VAT rate of 17.5 percent.

If payment is received after 1 January, but the goods or services were delivered before that date, you would normally still account for VAT at 17.5 percent on the payment.

However, in this instance, you can choose to apply the 15 percent rate on the VAT invoice. If the invoice shows 17.5 percent by mistake, then you can issue a VAT-only credit note – “Change in VAT Rate”, provided it is issued by 14 February 2010.

Customers willing to pay before 1 January 2010 can be charged VAT at 15 percent (subject to anti-forestalling legislation which affects sales over £100,000 or to connected parties).

If you use accounting software, you will need to change the VAT code to 17.5 percent on 1 January 2010. To do this in Sage, open the Settings menu, choose Company Preferences and click the VAT tab to change code T1.

Retailers

Tills must be reprogrammed to show the right VAT rate from 1 January 2010.

Your VAT inclusive prices will need to rise by 2.2 percent of the current price to ensure you are not out of pocket from the VAT increase.

You do not legally have to increase your prices after 1 January, but you will still have to pay 17.5 percent VAT on the value of the sale. This is calculated by applying the VAT fraction 7/47 to the gross takings. Note that if you are asked for a VAT invoice, it must show the correct VAT rate.

If you give a refund for a product sold before 1 January 2010, then the refund should use the 15 percent VAT rate.

Pubs, shops and restaurants open after midnight on New Year’s Eve

The 15 percent VAT rate will continue to apply for pubs, shops and restaurants until either the close of business on 31 December or 6am on the morning of 1 January 2010, whichever is earlier.

(Note that the takings from coin-operated machines do not benefit from this concession and are subject to 17.5 percent VAT from midnight on 31 December).

Cash Accounting Scheme

Receipts from 2009 sales invoices should be identified separately from those for 2010 sales invoices, as 15 percent VAT will apply to invoices dated 2009 where payment is received after 1 January 2010.

The Flat Rate Scheme
Many of the VAT rate percentages will increase on 1 January 2010. VAT Returns spanning the rate change will need two separate calculations.

VAT Fuel Scale Charges
New rates apply from 1 January 2010.

Further details of the changes are available at the HM Revenue & Customs (HMRC) website http://www.hmrc.gov.uk/vat/forms-rates/rates/rate-changes.htm and in HMRC guidance being sent to VAT-registered businesses.

VAT Online filing

HMRC has indicated that from 1 April 2010, all newly VAT registered businesses and registered businesses with turnover greater than £100,000 will be required to file their VAT returns online.

To do this, you will need the date you originally registered for VAT as shown on your registration certificate. This can also be obtained from the HMRC VAT Helpline on 0845 010 9000.

Other VAT Changes

There are changes to the EU cross-border place of supply rules from 1 January 2010, including a new requirement to complete EC Sales Lists for services provided to other EU Countries.

Any UK business offering such services should register for EC Sales Lists. The first quarter’s EC Sales List (covering January to March 2010) must be submitted by 14 April if done on paper, or 21 April if done online.

If the EC services are over £70,000 per quarter, then the EC Sales List should be completed monthly, for example by 14 February or 21 February.

In addition, VAT on expenses paid in other EU countries can be reclaimed electronically from 1 January 2010.

If you would like further information or assistance in implementing any of these VAT changes, please contact us and we will be pleased to help.