HM Revenue and Customs Brief 68/09
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VAT: Return of standard rate to 17.5 per cent on 1 January 2010 - measures
to help business
This Brief explains two HMRC measures designed to assist businesses in
implementing the return of the standard rate of VAT to 17.5 per cent. It also
includes details of the consultation currently being carried out by the
Department for Business, Innovation and Skills (BIS) about a proposal to amend
the Price Marking Order 2004.
On 1 December 2008 the standard rate of VAT was temporarily reduced to 15 per
cent. It reverts to 17.5 per cent on 1 January 2010. HMRC recognises that the
date of the change may cause problems for certain businesses at a particularly
busy time of year so we have introduced two measures to help business to
implement the change. These are:
- special accounting arrangements for businesses operating beyond midnight
on 31 December 2009;
- the 'light touch' to be operated by HMRC audit staff in dealing with
errors arising out of the rate change.
Further details on each of these are provided below.
1. Special accounting arrangements for businesses operating beyond midnight
on 31 December 2009
The temporary reduction of the standard rate of VAT to 15 per cent ends on 31
December 2009. As is normal with changes to the VAT rate, the return to 17.5 per
cent will be effective from midnight on 31 December. However, HMRC recognises
that making the necessary changes to account for VAT at 17.5 per cent may cause
particular problems for certain businesses operating after midnight at what can
be a particularly busy time of year. For example, it would not be practical for
a pub, club, restaurant or hotel hosting a New Year's Eve celebration to stop
serving customers at midnight in order to adjust their tills to account for VAT
at 17.5 per cent and to amend their prices accordingly.
In order to assist businesses in this position HMRC will allow them to
account for VAT at 15 per cent on takings received up to the earlier of:
- the end of trading of the 31 December session or
- 6am on the morning of 1 January 2010.
This treatment is subject to the following conditions:
- It is restricted to those businesses open at midnight on 31 December 2009
that account for VAT at the point of sale such as businesses on a retail
scheme - pubs, shops, restaurants etc. It will not apply to:
- mail order or on-line retailers;
- businesses that account for VAT on the basis of VAT invoices issued; or
- pre-payments for supplies of goods or services to be provided after 6am
on 1 January 2010.
- It will not apply to sales made through coin operated or similar machines
(vending, amusement or gaming machines etc). In these cases businesses must
follow the normal rate change rules as set out in section 10.1 of the detailed
rate change guidance (PDF 248K) and account for VAT based on the date that
the machine is used or by apportionment if the machine does not record the
date of usage.
- It will not apply to transactions made after midnight on 31 December that
would have been caught by the rate change anti-forestalling legislation
(Finance Act 2009, Schedule 3) had they been made before midnight. Any such
supplies will be liable to VAT at 17.5 per cent. Further guidance on the
anti-forestalling legislation (PDF 79K) is available.
- HMRC may withdraw or restrict the application of this treatment in
As the hours around midnight on New Year's Eve are traditionally the busiest
time of year for voice calls and text messages, it may similarly be difficult
for telecommunications service providers to change their accounting and billing
systems to take account of the change in the rate. HMRC will therefore allow VAT
to be charged at 15 per cent on charges for voice calls and text messages that
take place and are billed up to 6am on 1 January 2010.
2. The Light Touch
The following guidance has been given to HMRC VAT audit staff about the
approach to adopt in relation to errors discovered in relation to the rate
What if businesses make mistakes implementing the change of rate
- HMRC wants to encourage and assist businesses as they make the changes
necessary to deal with the change in the standard rate.
If a business discovers that it has made material mistakes, it should correct
them through the normal error correction process.
- HMRC will however be operating a 'light touch' in terms of errors made in
the first VAT return after the change (where the error relates to a change of
rate issue). This means that in our audit plans we will not target change of
rate errors that are unlikely to lead to any material net revenue loss. And if
we find errors which relate to a change of rate issue we will not seek an
adjustment unless we have reason to suppose that there is an overall revenue
- For example, consider a fully taxable business which supplies
standard-rated goods to a fully taxable customer and incorrectly charges 15
per cent rather than 17.5 per cent. As the detailed guidance makes clear, the
customer should treat only 15 per cent of the tax exclusive (net) price as
input tax. If the customer does this there will be no overall loss of tax.
When auditing the supplier, HMRC will assume that the purchaser has followed
the accounting documents unless there is good reason to suppose otherwise.
- However, if the supply is or may be to a customer who is not able to
recover VAT in full, then there is likely to be an overall loss of tax and
HMRC will seek to adjust (issue an assessment) in the normal way.
- In situations where HMRC do need to adjust (and issue an assessment) we
will take into account the difficulties the business has faced in adjusting to
the change in considering whether penalties apply.
3. BIS Consultation on proposal to amend the Price Marking Order 2004
Traders are required to display clearly their prices inclusive of VAT. For a
period up to 14 days, they are permitted under the Price Marking Order 2004 (SI
2004/102) to let consumers know, by way of a general notice, that an adjustment
in price, to take account of the VAT change, will be made at the till.
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Article Published/Sorted/Amended on Scopulus 2009-11-09 15:46:42 in Tax Articles