TT144: Expected changes to VAT rate and compliance

December 22, 2009

Expected VAT changes from 1 January 2010

There are a number of changes to VAT legislation which are expected to come into effect from 1 January 2010 which readers need to be aware of. Perhaps the most important of these changes are:

Expected return of standard rate of VAT to 17.5% from 1 January 2010

The standard rate of VAT is due to return to 17.5% from midnight on 31 December 2009, so you should charge 17.5% on any standard rated sales of goods and services made on or after 1 January 2010. Other rates of VAT are not affected.

But if goods are taken by the customer or delivered to them before 1 January 2010 and not paid for until after 1 January 2010, the 15% VAT rate still applies. Similarly if a prepayment is made before 1 January 2010 but goods are not delivered until on or after that date then again, the 15% rate applies.

In anticipation of the changes in VAT rate you may want to consider related issues including the following:
– How are going to ensure the standard VAT rate change is correctly implemented on your accounting software?
– Should you consider notifying customers that the price increases are due to increases in the standard rate of VAT?

Happy New Year?

There is some good news. For pubs, clubs and other venues likely to be open at midnight, the increase in VAT comes into effect at 6 a.m. on 1 January, so your celebration drinks shouldn’t go up in price at midnight!

Proposal to phase out paper returns from April 2010

HMRC is planning to phase out the use of paper returns from 1 April 2010. This will affect businesses with an annual turnover of £100k or more excluding VAT, and all newly registered businesses. They will be required to submit their return online and make payments electronically. Paper returns remain for other businesses, at least for now.

So if you think you will have to submit your VAT Return online from 1 April 2010, you should consider how to set up and implement this process within your business.

Cross border VAT changes

Currently, where services are provided cross-border within the EC, the place of supply is considered to be where the services are performed (although there are exceptions). From 1 January 2010 where services are supplied to a business customer, the place of supply will be considered to be where that business is situated (although again, there will be exceptions!).

Services provided to non business customers will still generally be liable to VAT in the country of the supplier.

The result for UK business customers is that they will be liable to account for UK VAT on most services provided by their overseas supplier under the reverse charge provisions, rather than the supplier charging VAT.
Businesses will also need to determine whether the customer is a business customer or a non business customer in order to ensure the correct VAT treatment is being applied. This is a complex area and if you are in any doubt you should seek further advice.

Barnes Roffe Topical Tips

Be prepared for the expected changes in VAT rate and compliance.

The expected change in the standard rate of VAT is going to affect not just your VAT administration, but also the nature and timing of trade of good and services just before and after 1 January 2010. It was not so long ago that the standard rate changed from 17.5% to 15%. Most will recall the administrative burden that created and the impact it had on the operations of the business.

Please also be mindful of the expected compliance related changes, in particular on cross border transactions. The stringent penalty environment for VAT non-compliance is certainly best avoided.

If you are a client, please contact your Barnes Roffe contact partner if you wish to discuss the above.

If you are not a client but would like to discuss this issue further then please contact any one of the firm’s partners detailed in the About Us section of this website who will be pleased to discuss your requirements with no obligation. Alternatively you can submit your query using the Contact Usfeature.

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