Rollingsons

The 15 per cent rate of VAT introduced by the Government to help alleviate some effects of the recession, will come to an end with effect from 1st January 2010.

HM Revenue & Customs (HMRC) has issued guidance stating an increase in the rate to 17.5 per cent. VAT will be chargeable according to the normal tax point rules. Where goods or services are supplied prior to 1st January 2010 and an invoice is issued on that date or within 14 days of it, the normal tax point is the date of issue of the invoice.

There will be special rules for the change of rate that allow for the time of supply to be treated as the date on which the goods or services were actually supplied – the basic tax point.

If your service is supplied on a continual basis (eg rents charged under a lease), work carried out before 1st January 2010 can be taxed at the 15 per cent rate even if the invoice is issued on or after 1st January 2010. If you bill in advance for services, an invoice raised in December 2009 for services to be rendered in January 2010 will be charged at the rate of 15 per cent VAT.

Business owners should note that anti-forestalling legislation has been introduced. This will apply where a supplier receives payment or issues a VAT invoice prior to 1st January and one of the following applies:

The supplier and customer are connected

The supplier funds the purchase

Payment is not due on the invoice for at least six months, and

A pre-payment is made in excess of £100,000 which goes against usual commercial practice.

The change in rate is not the only alteration to VAT on 1st January 2010 – there will be changes to cross border transaction that will affect businesses dealing with customers in other EC states.

New rules are being introduced to ensure that, as far as possible, VAT is accounted for in the country in which the services are consumed. As at present there will still be exceptions from the basic rule, although this may change. The changes will mean that more businesses will have to account for VAT in the UK by using the reverse charge procedure.

There will be changes to the time of supply rules, and from 1st January 2010 EC Sales Lists will need to be completed by the supplier for services where the customer should account for VAT in their home country using the reverse charge. Monthly EC Sales Lists will also be required for goods where the value sold in a quarter exceeds £70,000. The current 42-day time limit for submission will be reduced to 14 days for paper submissions or 21 days for electronic returns.  Therefore from 1 January 2010 more businesses will have to complete EC Sales Lists and the time limits will be more onerous.

A new electronic procedure is being introduced to replace the current paper system for the VAT refund procedure relating to VAT incurred in other EC member sates.

As with any activity relating to tax and tax planning, it is vital to use the best professional advice you can find. Failure to do so could result in expensive interest charges and penalties, and unnecessary tax bills that can take time to resolve. Do not leave VAT planning too late – 31st December 2009 will be upon us sooner than we think.

If  you require further advice on this matter please contact Gareth Hughes, Head of our Private Client Department on 0207 611 4848 or by e-mail at ghughes@rollingsons.co.uk to arrange a consultation.