FROM January 4, businesses will need to charge the new 20% VAT rate on all standard-rated sales they make.
If you are in retail, you must use the new 20% rate for all standard-rated takings you receive on or after January 4. The new VAT fraction for the 20% rate is 1/6 (used to calculate the VAT element of standard-rated gross takings).
If your business issues VAT invoices, you must use the new 20% rate for all VAT invoices you issue on or after January 4, which are issued within 14 days (or longer period that has been agreed with HMRC) of you providing the goods or services.
Supplies that span the rate change
If you supply goods or services before January 4 but issue a VAT invoice on or after that date, you can choose to charge VAT at 17.5%.
Continuous supplies of services
For a contract that started before 4 January you can choose to charge the old 17.5% rate on services actually performed before January 4 and the new rate of 20% on the value of services actually performed after.
Reclaiming VAT
From January 4, you may receive VAT invoices with the new 20% rate, as well as VAT invoices with the old 17.5% rate for goods or services you bought before the rate changed. In such cases, you should claim back VAT at the rate shown on the invoice.
Completing a VAT return
The deadlines for submitting VAT returns remain the same, so you should continue to submit VAT returns in the usual way – whether you send them monthly, quarterly or annually.
For returns that span the change in rate, you will need to add together both the VAT on sales charged at 17.5% and those charged at 20%. You then put this total in box 1 of your VAT return.
Countering arrangements designed to take advantage of the VAT rate change
In order to counter businesses taking advantage of the VAT rate change by making arrangements that aim to apply the 17.5% VAT rate to goods or services to be delivered or performed on or after January 4 2011, anti-forestalling legislation has been introduced. Further details of this can be found in the web link below.
Further information
HMRC has published detailed guidance on the rate change, which can be found at www.businesslink.gov.uk/vatratechange/.
For further information on other VAT and Excise matters, contact the National Advice Service on 0845 010 9000.
