Introduction
·
You should charge
VAT at the rate of 17.5% on any sales of standard rated goods or services that
you make on or after 1 January 2010
·
The change in the
standard rate of VAT does not affect sales of goods or services that are Exempt
or charged at another rate of VAT i.e Zero rated and reduced rated
·
The VAT return VAT
100 remains unchanged. You will continue
to receive it following the same monthly, quarterly or annual pattern. Payment due dates also remain the same
The upshot of the above changes
to cash accounting and flat rate schemes (you can join both schemes
concurrently so that you pay the VAT on the FRS on invoices that have been
paid.) are listed below:
Cash Accounting Scheme
While the cash accounting
scheme allows you to account for your VAT liability when you receive payment it
does not affect the tax point.
The tax point is the time that
the sale is made under the law and it determines the rate of tax applicable.
This means that VAT will be due
at 15% on supplies you made before 1 January 2010, even if you receive payment
on or after that date.
When you receive payments in
the months after the rate change, you will need to identify those payments
which relate to supplies made before 1 January 2010 on which VAT is still due
at the previous 15% rate.
The same applies to purchases
that you make before 1 January 2010. You may only reclaim VAT of 15% on these,
even if you pay for them on or after 1 January 2010.
Flat Rate Scheme
There are some restrictions
that mean you may not qualify for the FRS:
·
Turnover cannot be
expected to exceed £150,000 taxable supplies in the next 12 months, or
·
£187,500 if there
is a mix of taxable and exempt supplies
·
You cannot be an
associate of another company or group of companies
·
You cannot apply if
you have been committed of VAT fraud
·
You are not
eligible if you always receive VAT repayments
New Flat Rate %
When the standard rate returns
to 17.5%, flat rates will change as per HMRC revised rates. Many of the rates have changed from their
previously November 2008 rates.
To determine your VAT liability
for a particular transaction, you will need to refer back to the original
invoice. You must then apply the flat rate percentage that was in place at the
time of supply and not the revised rate after 1 January 2010
Example
The effect of the change in the
rate for a flat rate scheme user is set out below.
| Prior 1st Jan 2010 | Post 1st Jan 2010 |
Sale of Service | £10,000 | £10,000 |
VAT charged | £1,500 | £1,750 |
VAT paid to HMRC | £1,150 (11.5%) | £1,300 (13%) |
FRS Surplus | £350 | £450 |
As the above shows, if the flat
rates remain unchanged, you may profit from the increases.
Basic Tax Points
The tax point date plays an
important part when there is a rate change; it is the date that determines
which VAT rate applies.
Tax points are different
according to the type of supply:
Supply of Services
·
The date when the
service is performed when all the work is complete but not invoiced
Supply of Goods
·
The date the
customer takes away goods, sent goods or the date the goods were made available
for use by the customer
Actual Tax Points
An actual tax point overrides a
basic tax point where:
·
You raise an
invoice or receive a payment before the Basic Tax Point
·
You raise an
invoice up to 14 days after the Basic Tax Point
Change of Rate rules
There are special rules for
suppliers who have provided services that span January 1st and for goods received prior to the date that
have not been invoiced.
For example, if a contractor
has supplied services for four weeks in December but does not invoice for their
supplies until after January 1st; they may opt to apply the change
of rate rules and apply the 15% Vat rate.
You do not need to inform HMRC.
Anti Forestalling Legislation
If carefully planned there is
an opportunity to give your cash flow a boost e.g if you are buying goods to be
delivered after 1 January 2010, you can potentially save 2.5% by paying or
receiving an invoice before that date. There is, obviously, anti forestalling
legislation to prevent serious misuse of this opportunity but this only comes
into effect under certain circumstances:
The transactions it applies to
are:
·
Prepayments are
received from people connected to future supplies
·
Advance VAT
invoiced to persons connected to future supplies
·
You provide or
arrange funding for customers to enable them to pay for goods or services in
advance
·
Issued VAT invoices
that do not have to be paid for at least six months
·
Pre-payments
received or VAT invoices raised in excess of £100,000
·
You supply rights
or options to receive goods or services from you free of charge or discounted
Input VAT
The input VAT rate is
determined by the date on the invoice or receipt. An invoice will have the VAT listed
separately; however, a receipt may not.
VAT Fractions
Where VAT is not listed; you
can calculate it from the total amount by using a VAT fraction.
For 15% VAT rate:
Gross x 3 / 23 = VAT element
For 17.5% VAT rate:
Gross x 7 / 47 = VAT element
Fuel Scale charges
The VAT fuel scale charges will
change on January 1st and can be found in Annex D
Full details can be found in
the HMRC’s document - VAT – Reversion Of The
Standard Rate To 17.5%
If you would like us to help
you with the challenges and the opportunities brought up by the above changes,
please let us know.