VAT increase - is your Swindon business ready?Increase in Standard Rate of VAT – 4th January 2011, useful help and advice with Mike Shawyer, VAT specialist at Monahans
Only the standard rate of VAT is changing, there are no changes to the zero or reduced rate. Mike Shawyer, VAT specialist at Monahans, highlights the following administrative headaches and opportunities the change will bring:
a. Retailers Retailers need to change their
“on the shelf” prices immediately on 4th January.
If they are advertising goods at a lower price because of the previous 17.5% rate, but seeking to charge a higher price at the till, this could be successfully challenged by the customer. So, unfortunately, there will be a major repricing exercise for retailers to implement immediately following the New Year’s break.
b. Supply of Goods Where goods are supplied, invoiced and paid for before 4th January, then, clearly, the 17.5% rate applies.
Conversely, where goods are supplied, invoiced and paid for on 4th January or afterwards, then the new 20% rate applies.
There are, however, situations relating to supplies of goods where the transaction may span the point of the rate change.
The key issue is what is the tax point date for each transaction. Although this tax point is normally the point of supply, either a prepayment of the amount due for the supply or the invoicing of the cost of supply, can create an earlier tax point. Therefore, subject to the anti-forestalling regulations which are explained below, it is possible in some circumstances for supplies of goods which are not delivered until after 4th January to be charged at 17.5% if either the invoicing or payment for the goods happens prior to 4th January. c. Supply of Services If the supply of services spans 3rd/4th January, then you can opt to charge your customer a split rate of VAT. However the split of the rate must be fully supported by the stage of completion of the work that you have completed by the end of 3rd January. In addition, similar to the point made on goods above, if the customer has prepaid or the work has been pre-billed prior to 4th January, then, subject to the anti-forestalling rules, the whole charge is capable of being made at 17.5%. d. Flat Rate Scheme As from 4th January, the rates applicable to the flat rate scheme are revised to adjust for the new standard rate. See H M Revenue and Customs website (www.hmrc.gov.uk) for details. Anti-Forestalling Rules H M Revenue and Customs have published clear anti-forestalling rules to avoid VAT registered traders taking advantage of the rate increase and falsely charging for transactions at the lower rate where the customer is unable to reclaim all or some of the VAT charged to him. If any one (or more) of the following apply to a supply which spans the 3rd/4th January, then the trader has to invoice at the higher VAT rate: · The supplier and customer are connected. · The value of the supply is in excess of £100,000. · The supplier is in some way financing a prepayment by the customer. · The invoice raised by the supplier has a deferred payment term which postpones the due date for payment until at least six months from the date of the invoice. Opportunity? There is significant scope within these anti-forestalling rules for suppliers of either goods or services to offer their customers who are not able to reclaim all or part of the VAT charged to them, by pre-invoicing or prepayment option to take account of the lower rate.
Businesses may choose to do this on a prepayment basis as a boost to their own cashflow while assisting their customer in saving up to 2.5% of the cost.
Providers of services may well choose to issue interim bills for work in progress up to, say, 31st December or even 3rd January at the 17.5%, thus boosting their billing and advancing their cash collection. Do You Have a Problem with the Rate Change?
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