Lambert Chapman LLP’s Richard Thomson looks at the Value Added Tax amendments back to 17.5%

In a bid to boost the economy, in 2008 the Government reduced the VAT rate from 17.5% to 15%. Much has been written on the overall success (or failure!) of the measure, including the administration problems the change caused to many businesses.

The change became effective on 1 December 2008 for a period of 13 months. Following the Chancellor’s Pre Budget Report we now know that on 1 January 2010 the VAT rate will return to 17.5%.

Businesses will need to ensure the change back to 17.5% on 1 January 2010 is correctly dealt with.

Legislation exists to prevent schemes which try to apply the 15% VAT rate to services or goods supplied after 1 January 2010.

A supplementary VAT charge of 2.5% will apply to the rate of 15% on the supply of goods or services which take place after 24 November 2009 when:

• The supply spans 1 January 2010. For example, when the supplier raises a VAT invoice or receives payment prior to 1 January 2010 and the basic time of supply takes place on or after 1 January 2010.

• The customer is not entitled to recover all the VAT on the supply.

 For the supplementary charge to apply, one of the following conditions has to be met.

•  The supplier and customer are connected.
• The relevant consideration is over £100,000 (net of VAT)
• The supplier or a person connected with him finances a prepayment by the customer.
• The supplier raises a VAT invoice where payment is not due until at least six month from the date of the invoice.

Lambert Chapman LLP were able to assist businesses to deal with the administration for the VAT rate reduction in 2008. We expect the transfer back to the 17.5% rate to be simpler, but should you wish clarification or assistance in implementing the change, please contact Richard or Mike Carabine on 01376 326266 to run through the procedures.                                                                                 

 

Date:15 December 2009

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