Constable VAT Consultancy LLP

From the 1 January 2010 the VAT rate will revert back to 17.5%. Care should be taken to ensure that the correct rate of VAT is charged and users of the Flat Rate Scheme should ensure that the correct flat rate is used for VAT returns including sales occurring after 31 December 2009.

Sales of standard-rated goods or services with a ‘tax point’ on or after 1 January VAT should be subject to VAT of 17.5%. If you charge VAT inclusive prices and currently calculate VAT using the VAT fraction of 3/23 you should revert to using the VAT fraction of 7/47. For continuous supplies of services VAT should be accounted for whenever a VAT invoice is issued or payment is received, whichever is the earlier.

Invoices issued or payments received after 1 January will be subject to VAT at 17.5%. Non-registered and partially exempt businesses may be considering accelerating significant expenditure to pre 1 January 2010 to benefit from the lower VAT rate and businesses already registered for VAT may be asked to invoice non-registered customers for any unbilled work prior to 1 January. However, it should be noted that anti-forestalling legislation is in place to prevent abuse of the low rate. This legislation is too complex to consider in detail in this short article; in summary a 2.5% supplementary VAT charge may be made if a customer cannot recover all the VAT charged on a purchase and any of the following conditions are met:· 

• The supplier and customer are connected during the period from the date of the supply to the date the reduced rate ends.  
• The consideration for the supply exceeds £100k.
• A prepayment in respect of the supply is financed by the supplier or someone connected with the supplier. 
• The amount due on the VAT invoice raised is not due until at least six months after the date of the invoice.  

HMRC have issued detailed guidance regarding the rate change, which can be viewed on their website at http://www.hmrc.gov.uk/vat/forms-rates/rates/rate-rise-guidance.pdf