VAT rate change

Businesses will know that the basic rate of VAT increased on January 4, 2011 from 17.5 per cent to 20 per cent. However, in addition to the obvious implications there are also some perhaps unforeseen consequences, amongst them being:

• HMRC has indicated that they will not necessarily apply the ‘light touch’ approach to mistakes that they adopted in previous rate changes. This is because, in their view, the increase has been well publicised in advance of the change so businesses had plenty of opportunity to plan and implement the change.

• For businesses which use the Flat Rate Scheme I recommend they check the new flat rate they should be using. Some rates have increase beyond that which may be expected.

• Take care when issuing credit notes. The credit note must be at the same rate of VAT as shown on the original invoice.
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• When issuing invoices for supplies which span the rate business have the option of either apportioning the charge pre and post 4 January in order to apply the rate appropriate, or charging VAT on the whole invoice at the new higher rate. This will not be so much an issue for VAT registered customers but it could be for those who are either not registered, or who are registered but are unable to recover all of the VAT as they are partially exempt.

Finally, can I remind you that there is no change in the rate or range of goods or services liable to VAT at the reduced rate of 5 per cent.

Andrew Stephenson,
Senior VAT manager
Pierce Accountants