In his Pre-Budget Report on 24 November 2008 the Chancellor
announced that the standard rate of VAT will be reduced to 15% on 1 December
2008. This guide sets out the key points which businesses need to be aware of as
they implement the change. It also tells you where you can get further
information. A copy of this guide is being sent to all VAT-registered businesses
in the UK.
For any sales of standard-rated goods or services that take
place on or after 1 December 2008 you should charge VAT at the new rate of 15%.
This means that cash businesses which currently calculate their VAT using the
VAT fraction of 7/47 should, from 1 December, use the new VAT fraction of 3/23.
What about continuous supplies of services e.g. work in
progress?
For continuous supplies of services, such as ongoing
construction work, you should account for the VAT due whenever you issue a VAT
invoice or receive payment, whichever is the earlier. In these cases, invoices
issued or payments received on or after 1 December will be subject to 15% VAT.
Are there any special rules for sales spanning the change of
rate?
Yes. If you have received a payment or issued an invoice
before 1 December 2008 for goods that will be provided (or services delivered)
after 1 December 2008, you have a choice. You can choose to account for VAT at
the new rate of 15% on the amounts already received or invoiced. You dont need
to tell HMRC if you do this. In these circumstances, any payments received or
invoices issued after 1 December will always be subject to the new rate of 15%.
But you do need to issue a credit note to your customer if you have already
issued a VAT invoice showing the old rate of VAT.
What VAT can I claim back on my business purchases?
The general rule is that you claim back the VAT you have been
charged by your supplier in the normal way. You will still be receiving invoices
after 1
December 2008 showing 17.5% VAT that will be expected as
these will be invoices relating to purchases you have made before the rate
change. In these cases you can claim back the 17.5% VAT.
What do I do about my VAT return?
You will continue to receive or file VAT returns in the
normal way i.e. either monthly, quarterly or annually. The deadlines for
submitting your VAT returns and making payments are unchanged. For return
periods that cover both before and after 1 December 2008, you will need to add
together the VAT on sales charged at 17.5% and the VAT on sales charged at 15%
to work out the total VAT on sales to be included in Box 1 of your VAT return.
What if I use a computer, VAT software or an electronic till?
If you have a software package that automatically calculates
the VAT, you will need to ensure that the VAT rate is changed from 17.5% to 15%
from 1 December 2008. This may be something that you can do yourself otherwise
you will need to contact your software provider or supplier for assistance. Most
software packages should have the in-built capability to deal with changes in
the rate.
You may be able to adjust your electronic till yourself but
if not you will need to contact your till supplier for assistance. If your till
has not been amended to calculate 15% (rather than 17.5%) by 1 December you will
need to calculate the VAT manually. You simply take the standard-rated gross
takings calculated by your till and multiply that sum by the new VAT fraction of
3/23 this will give you the amount of 15% VAT.
What if I make an error associated with this change?
If you discover that you have made an error you can correct
it in the normal way by making a voluntary disclosure or correcting it on your
next return (subject to the normal limit).
HMRC recognises that this is a change that businesses will
have to implement in a short timescale. Therefore we will adopt a "light touch"
in relation to errors or mistakes made in the first VAT return after the change.
We will take into account the difficulties a business has faced in adjusting to
the change.
What about the special VAT schemes for small businesses?
The Cash Accounting and Annual Accounting Schemes remain
unchanged. However, the Flat Rate Scheme percentages are changing to reflect the
new rate of VAT. If you are on the Flat Rate Scheme please refer to the
additional information on the HMRC website (see below). You will need to use the
new rates for your sector from 1 December 2008.
Other tax changes
The Chancellor announced other tax changes in the PBR.
Businesses should consult the HMRC website for details.
More detailed guidance on the VAT change can be obtained from
the HMRC website (www.hmrc.gov.uk). Businesses with tax advisers may wish to
consult them.
© Crown Copyright 2008.
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educational / informational purposes only. Article reproduced by permission of
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