VAT Rates - Important changes effective 1st December 2008
In the Pre-Budget Report Alistair Darling announced that the standard rate of VAT would be cut from 17.5% to 15%.
To keep in line with this decrease there are also changes to the Flat Rate Scheme business categories.
All rate changes are effective from Monday 1st December 2008 on standard rated goods.
Standard Accounting for VAT
If you currently account for VAT at the date of invoice then 15%
output VAT will need to be applied from 1st December. Any input VAT
will be reclaimed at 15% which it should have been invoiced at after
1st December(you should contact the supplier if the rate is incorrect).
To calculate the rate of VAT from a gross amount take the fraction 3/23.
Cash Accounting Scheme
On the cash accounting scheme you do not pay your output VAT to HMRC
until your client has paid you. From 1st December 2008 you should
charge 15% output VAT on all sales. However, any output tax invoiced
pre December will still need to be declared at 17.5% on your VAT return
regardless of when it is paid.
The Flat Rate Scheme
The following information is generally aimed at the IT freelance and
contracting industry, however the rates that apply to each business
sector can be found on our website.
You will need to log in or register if you are not already, go to
'Business Library', 'Tax Tools and Documents' and download the pdf 'VAT
changes and the standard rate'. See Annex E page 43.
The business category computer IT consultancy & data processing flat rate is 11.5%.
The business category business services not listed flat rate is 9.5%.
You may notice in the tables that some rates remain unchanged.
Cash based turnover method on FR scheme
If you account for your VAT under the flat rate scheme using this
method; where you do not pay the output VAT to HMRC until you have been
paid, any pre December output VAT that is later paid must be declared
at the original rate that it was invoiced.
Payment on account regime
If you use the payment on account scheme and make monthly payments,
nothing will change. However, if you expect your future VAT liability
to decrease more than 20% you can write to HMRC and apply to have your
payments reduced.
Fuel Scale Charges
Please note that fuel scale charges have also been changed. You can find the full listing on our website.
You will need to log in or register if you are not already, go to
'Business Library', 'Tax Tools and Documents' and download the pdf 'VAT
changes and the standard rate'. Pages 40-42.
Errors and Corrections
If you make an error charging the wrong rate of VAT you should
rectify the error by issuing a VAT only credit note not more than 45
days after 1st December.
The credit note must contain :
* The identifying number and date of issue of the credit note
* Your name, address and VAT registration number
* Your customer's name and address
* The identifying number and date of the VAT invoice
* A description of the services or goods being supplied
* The amount of VAT being credited.
HMRC have stated that they will be operating a 'light touch' in
terms of errors made in the first VAT return after the changes come
into effect.
Errors should be declared accordingly to HMRC through the normal voluntary disclosure process.