The VAT rate reverts back to 17.5% with effect from January 1st 2010. HMRC have produced a guide to the change, available here. HMRC have not yet published the rates for the Flat Rate Scheme, which suggests that this will not be a simple reversion to the pre-December '08 regime. We will update you once these have been published.
Basically, 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 January 1st, VAT will be at the rate of 15%; anything after that will be at 17.5%. Customs have issued some anti-forestalling legislation to stop blatant avoidance, and these are summarised later, but the basic rules are:
1. Retailers should start accounting for VAT at 17.5% from January 1st, using the VAT fraction 7/47ths. Those who reduced their prices (2.13% was the calculated reduction) should increase them by the same figure. If the customer has an account and he takes the goods away prior to the change, then you account for 15% VAT.
2. For all businesses issuing VAT invoices after January 1st, they should be at 17.5%, unless the goods/services were supplied before the rate change. You can then choose to charge at 15%.
For supplies of services that span the change, then you can charge 15% for the services provided before the change, 17.5% afterwards, OR charge all at 17.5%.
Suppliers issuing invoices prior to the rate change, but where delivery takes place after January 1st, may charge VAT at 17.5%
These rules are optional and you do not need to notify HMRC.
3. Businesses issuing quotes or estimates for work to commence after January 1st should quote the 17.5% rate. Customers willing to pay before that date can be charged at 15%, subject to the anti-forestalling legislation.
4. Refunds or credit notes should be dealt with at the same rate originally declared or invoiced.
5. Invoices issued for 12 months in advance, with monthly payments plus VAT must show VAT at 15% for all monthly payments up to 31st December 2009. All payments after that date must be at 17.5%.
6. Sales of tickets to events (Theatre, Cinema, Football season tickets etc.) before January 1st 2010 will be subject to VAT of 15%, even if the event takes place after the rate change in 2010. The tax point is the receipt of payment.
