Posted: 18/12/10 by MOORE
As soon as we get the Christmas and New Year celebrations over, reality will come flooding back with the introduction of the new VAT rate - 20% from 4 January, up from 17.5%. Confusion will, no doubt, be rife. Are goods and services provided before the holidays charged at the old rate or the new? Are early invoices simply avoidance or good business practice? Tax advisers at Moore Stephens Chartered Accountants provide some of the answers.
Firstly, there are three basic terms to consider:
* Basic tax point - the date on which the goods are delivered, collected or made available to the customer, or the date on which a service is delivered or deemed to have been completed
* Actual tax point - the date a VAT invoice is issued or payment received, or if a VAT invoice is issued within 14 days after the basic tax point date, the date of issue of that invoice
* Continuous supply rules apply to continuous services such as rentals, hire of goods or construction. In this case, the tax point is the earlier of either the date of receipt of payment for the supply, or the date a VAT invoice is issued
What happens if the rules are not adhered to? Failure to adhere to these guidelines will invoke HMRC’s rather complex anti-avoidance rules designed to prevent businesses obtaining an unfair VAT advantage as a result of the rate change. Essentially, the rules may apply where:
• payments are received from a connected party for future supplies
• VAT invoices are issued to a connected party for future supplies
• a supplier provides funding to a customer to enable them to pay in advance for goods or services
• VAT invoices are issued that do not have to be paid for at least 6 months
• pre-payments are received or advance VAT invoices issued in excess of £100,000 and this is not normal commercial practice
• rights or options are sold which grant the right to receive free or discounted goods or services
Where the anti-avoidance rules do apply, a 2.5% supplementary VAT charge will be payable by the supplier on the VAT return covering 4 January 2011. The customer can treat the supplementary charge as input VAT and reclaim it on its VAT returns, subject to the normal rules.
Matters for everyone to consider include:
• computer systems may need to be updated with the new 20% rate of VAT
• the VAT fraction for calculating the VAT element of a gross figure will be one sixth
• incorrectly charged VAT is not reclaimable
• updated fuel scale charge figures will need to be applied, where applicable
• standard rate acquisitions of goods and reverse charge services will be calculated at 20%
• revised rates will apply to businesses registered under the Flat Rate Scheme
There are many issues arising from the VAT rate change and not all of these can be covered here. Businesses should seek advice from their usual Moore Stephens contact where necessary or contact Pete Simons at Moore Stephens on 01604 638361.