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Roger Troughton explains how this can be an opportunity as well as a nuisance.
The return to a VAT standard rate of 17.5% on 1 January 2010 means that businesses will have to make sure their systems can deal with it correctly - and leaving it until we return to work after New-Year parties will not be the cleverest thing to do!
“Tax Point”
The question of whether to apply 15% or 17.5% to a particular transaction depends on “tax point”. This is normally when a customer receives goods or services.
However, the basic tax point is superseded either by receipt of money, or by raising an invoice within 14 days of the goods or services actually being supplied. The receipt of a deposit, for example, creates a “tax point” and so can alter the rate of VAT which should be charged, at least on that part of the sale.
“Business Opportunity”
The creation of a tax point in December 2009 can therefore produce a saving for the customer and a cash flow benefit for the supplier. If a customer orders goods in November or December for delivery in January it may well be worthwhile asking him to pay for them before 31 December to take advantage of the lower rate of VAT.
To prevent abuse, the government has of course introduced “anti forestalling” legislation but the number of transactions affected by it are limited.
“Trap for the Unaware”
For those of you on the “cash accounting scheme” it will be very important when preparing returns covering January and subsequent months to ensure that VAT is not paid over at 17.5% when it should only be 15%. Although the customer might have paid in January, if the goods or services were supplied and/or invoiced in December, the lower rate may apply.
Contact Roger!
There are lots of areas which will be affected by the rate change – others include the Flat Rate Scheme percentages and the quarterly fuel scale charge – and so it is important that you contact me and my team at robinson+co on 01900 603623 or rogertroughton@robinsonco.co.uk!
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