Change in VAT Rate to 17.5% From 1 January 2010

As confirmed in last month's Pre-Budget report, the standard rate of VAT reverted to 17.5% on 1 January. Please take care to ensure you are charging the new rate and also claiming the correct amount of VAT on your purchases and expenses.

If you need to calculate the amount of VAT contained within a gross amount, the fraction you need to apply is 7/47 ths.

General points
The normal rule is that all sales invoices dated on or after 1 January 2010 must use the new VAT rate of 17.5 percent.

If payment is received after 1 January, but the goods or services were delivered before that date, you would normally still account for VAT at 17.5 percent on the payment.

However, in this instance, you can choose to apply the 15 percent rate on the VAT invoice. If the invoice shows 17.5 percent by mistake, then you can issue a VAT-only credit note – “Change in VAT Rate”, provided it is issued by 14 February 2010.

If you use accounting software, you will need to change the VAT code to 17.5 percent from 1 January 2010. To do this in Sage, open the Settings menu, choose Company Preferences and click the VAT tab to change code T1.

Retailers
Tills must be reprogrammed to show the right VAT rate from 1 January 2010.

Your VAT inclusive prices will need to rise by 2.2 percent of the current price to ensure you are not out of pocket from the VAT increase.

You do not legally have to increase your prices after 1 January, but you will still have to pay 17.5 percent VAT on the value of the sale. This is calculated by applying the VAT fraction 7/47 to the gross takings. Note that if you are asked for a VAT invoice, it must show the correct VAT rate.

If you give a refund for a product sold before 1 January 2010, then the refund should use the 15 percent VAT rate.

Cash Accounting Scheme
Receipts from 2009 sales invoices should be identified separately from those for 2010 sales invoices, as 15 percent VAT will apply to invoices dated 2009 where payment is received after 1 January 2010.

The Flat Rate Scheme
Many of the VAT rate percentages increased on 1 January 2010. VAT Returns spanning the rate change will need two separate calculations.

VAT Fuel Scale Charges
New rates apply from 1 January 2010.

Further details of the changes are available at the HM Revenue & Customs (HMRC) website http://www.hmrc.gov.uk/vat/forms-rates/rates/rate-changes.htm and in HMRC guidance being sent to VAT-registered businesses.

VAT Online filing
HMRC has indicated that from 1 April 2010, all newly VAT registered businesses and registered businesses with turnover greater than £100,000 will be required to file their VAT returns online.

To do this, you will need the date you originally registered for VAT as shown on your registration certificate. This can also be obtained from the HMRC VAT Helpline on 0845 010 9000.

Other VAT Changes
There are changes to the EU cross-border place of supply rules from 1 January 2010, including a new requirement to complete EC Sales Lists for services provided to other EU Countries.

Any UK business offering such services should register for EC Sales Lists. The first quarter’s EC Sales List (covering January to March 2010) must be submitted by 14 April if done on paper, or 21 April if done online.

If the EC services are over £70,000 per quarter, then the EC Sales List should be completed monthly, for example by 14 February or 21 February.

In addition, VAT on expenses paid in other EU countries can be reclaimed electronically from 1 January 2010.

If you would like further information or assistance in implementing any of these VAT changes, please contact us and we will be pleased to help.