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In his Pre-Budget Report this week,
Chancellor Alistair Darling announced that
the standard rate of VAT will be reduced
from 17.5% to 15% on 1 December 2008.
This means that for any sales of
standard-rated goods or services that take
place on or after 1 December 2008,
providers should charge VAT at the new
rate of 15%.
There are no changes to sales that are
zero-rated or reduced-rated for VAT.
Similarly, there are no changes to the
VAT exemptions.
The 15% rate will remain until 31st
December 2009. From 1 January 2010, it
will revert to 17.5%.
HM Revenue & Customs (HMRC) is writing
to all VAT-registered businesses with a
summary of what they need to do. Further
guidance is available at
www.hmrc.gov.uk but this e-shot
highlights some key points.
Key points
- VAT on the sale of standard-rated
goods or services taking place on or
after 1 December should be charged at
15% and the sales invoice should show
the 15% rate.
- If you have received a payment, or
issued an invoice, using the 17.5% rate
before 1 December 2008 for goods that
will be provided (or services delivered)
after 1 December 2008, you have a
choice.
- You can leave the VAT charged to
your customers at 17.5% and account
for that to HMRC.
- Or you can account for VAT at the
new rate of 15% on amounts received or
invoiced. You will need to issue a
credit note and refund the difference
in VAT to your customer if you have
already issued a VAT invoice showing
the 17.5% rate.
- If you give a refund for a product
sold before 1 December, the refund
should use the 17.5% VAT rate.
- If you use accounting software, you
will need to change the VAT code to 15%
on 1 December 2008. Tills must also be
reprogrammed to show the right VAT rate
from 1 December.
- If you are a retailer, you do not
legally have to reduce your prices after
1 December, even though 15% will apply.
If you are asked for a VAT invoice, it
must show the correct VAT rate.
- The deadlines for submitting VAT
returns and making payments stay the
same. If the period of your return
covers before and after 1 December 2008,
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.
HMRC has indicated it will adopt a
“light touch” in relation to errors in
the first VAT return after the change.
- The Cash Accounting and Annual
Accounting Schemes remain unchanged.
However, the Flat Rate Scheme
percentages are changing to reflect the
new rate of VAT.
For further information on any issues
raised here, please
contact us.
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