The Government’s one-year VAT holiday will end on 1st January 2010, with rates expected to return to 17.5% from the 15% we have enjoyed all year. HMRC have confirmed the normal tax point rules will apply: date of invoice or date of payment, whichever comes first.
So if the invoice or payment is made before 1st January, VAT will be at the rate of 15% – anything after that date will be charged at 17.5%. To help us through the transition, HMRC have issued some guidelines we should note:
- VAT should be calculated at 17.5% from 1st January.
- Businesses issuing VAT invoices after 1st January should calculate their VAT at 17.5%, unless the goods/services were supplied before the rate change, in which case you can choose to charge at 15%
- For supplies of services that span the change, you can charge 15% for services provided before the change, 17.5% afterwards or charge all at 17.5%
- If you issue invoices prior to the rate change, but delivery will take place after the 1st January, charge at VAT 17.5%
- When issuing quotes and estimates for work to commence after 1st January you should quote the 17.5% rate. Customers willing to pay before that date can be charged at 15%
- Refunds or credit notes should be dealt with at the same rate originally declared or invoiced
- Invoices issued for 12 months in advance, with monthly payments plus VAT, must show VAT at 15% up to 31st December 2009. Payments after that date must be at 17.5%
inniAccounts will automatically adjust the VAT rate according to the date you raise an invoice or enter a bookkeeping transaction.