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VAT rate change: Are you ready?

12 November 2009

On 1 January 2010 the rate of VAT will revert to 17.5%.

Businesses should be aware of how this will affect them, paying particular attention to supplies spanning this date.

The starting point is that businesses should charge 17.5% on sales of goods and services which attract the standard rate of VAT and are made on or after 1 January 2010.

For businesses making mainly cash sales to non-business customers and not having to issue VAT invoices – hairdressers, restaurants, shops etc – VAT at 17.5% should be charged on all takings received on or after 1 January 2010 except where customers pay for something they took away or was dispatched to them prior to that date. In such cases VAT should be charged at 15%.

Businesses selling to other VAT-registered businesses and which issue VAT invoices should use the 17.5% rate on all invoices issued on or after 1 January 2010 where the invoices are issued within 14 days of the goods or services being provided – or longer if HM Revenue & Customs allows.

However, for such businesses there are special rules for supplies spanning 1 January 2010: if goods or services are provided before 1 January 2010 and a VAT invoice is raised after that date, businesses can choose to charge and account for VAT at 15%. These special rules can be applied even after a VAT invoice showing 17.5% VAT has been issued, providing a particular form of credit note is issued by 14 February 2010.

In addition, where a payment is received or a VAT invoice issued before 1 January 2010 for goods or services provided on or after that date, special rules provide that VAT can be charged at 17.5% rather than 15%.

The rules, particularly those dealing with supplies made around 1 January 2010, are complex, and businesses should take urgent advice so that they are in a position to implement the changes correctly at the beginning of next year.

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