VAT Changes

There are no changes to sales that are zero-rated or reduced-rated for VAT. Similarly, there are no changes to the VAT exemptions.

The 15% rate will remain until 31st December 2009.  From 1 January 2010, it will revert to 17.5%.

HM Revenue & Customs (HMRC) is writing to all VAT-registered businesses with a summary of what they need to do.  Further guidance is available at www.hmrc.gov.uk but this e-shot highlights some key points.

Key points

• VAT on the sale of standard-rated goods or services taking place on or after 1 December should be charged at 15% and the sales invoice should show the 15% rate.
• If you have received a payment, or issued an invoice, using the 17.5% rate before 1 December 2008 for goods that will be provided (or services delivered) after 1 December 2008, you have a choice.
  • You can leave the VAT charged to your customers at 17.5% and account for that to HMRC.
  • Or you can account for VAT at the new rate of 15% on amounts received or invoiced.  You will need to issue a credit note and refund the difference in VAT to your customer if you have already issued a VAT invoice showing the 17.5% rate.
• If you give a refund for a product sold before 1 December, the refund should use the 17.5% VAT rate.
• If you use accounting software, you will need to change the VAT code to 15% on 1 December 2008.  Tills must also be reprogrammed to show the right VAT rate from 1 December.
• If you are a retailer, you do not legally have to reduce your prices after 1 December, even though 15% will apply.  If you are asked for a VAT invoice, it must show the correct VAT rate.
• The deadlines for submitting VAT returns and making payments stay the same.  If the period of your return covers before and after 1 December 2008, add together the VAT on sales charged at 17.5% and the VAT on sales charged at 15% to work out the total VAT on sales.  HMRC has indicated it will adopt a “light touch” in relation to errors in the first VAT return after the change.
• The Cash Accounting and Annual Accounting Schemes remain unchanged. However, the Flat Rate Scheme percentages are changing to reflect the new rate of VAT.

For further information on any issues raised here, please contact us.