Are you ready for the VAT changes? 1 January is coming fast!
There is one main thing happening on 1 January 2010 and that is VAT!
VAT is having an update and we are going to look at a few key areas.
This part will deal with the rate changes.
The VAT rate is reverting back to 17.5% from 1 January 2010.
There are some anti-avoidance rules to be aware of, www.hmrc.gov.uk/VAT/forms-rates/rates/anti-forcestall-guidance.pdf, but the general principles affecting the switch are pretty straightforward.
Tax Point (TP)
The VAT charged is calculated at the rate applicable when a TP occurs.
A basic TP is when goods or services are actually supplied. So if you supply or deliver goods or services before 1 January 2010 then the 15% rate applies, afterwards it will be 17.5%.
One way you could improve cash flow is to encourage customers to pay early for post 1 January purchases. The incentive for them is the 2.5% cash flow benefit they will receive in terms of VAT.
For this to work you need to have invoiced them or they need to have paid pre 31 December 2009, even if the supply is made later.
What about Overlapping?
If you make supplies which start in December but end in January or later, eg a builder carrying out a job which straddles the turn of the year, then all the goods and services provided pre 31 December 2009 can be charged at 15%, thereafter 17.5%.
If you need to do this then you must show each element separately on your invoice.
Continuous Servicing
If you are providing a continuous service, eg bookkeeping, where you bill 31 January for services in November, December and January then, again, you need to split your VAT charge at 15% or 17.5% according to the periods covered on your invoices.
To discuss this or any other VAT issue then please contact us at Accountancy Services Direct.
Accountancy Services Direct - January 2010 is VAT day, are you ready? Part 2
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