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Get ready for the VAT rise
In spite of the fact that tills are, hopefully, ringing like crazy during this festive season, don’t forget that the standard rate of VAT goes up from 17.5% to 20% on Tuesday 4 January 2011.
“Don’t leave it until the last minute to make any necessary changes to your book-keeping and accounting systems including invoicing and tills,” urges Jim Harra, HM Revenue & Customs (HMRC) director of CT & VAT.
The new 20% rate must be charged on all standard-rated takings received on or after 4 January 2011. However if a customer pays on or after that date for something they take away (or have delivered) before 4 January, the sale takes place before the rate change and the 17.5% rate should be used.
Electronic tills will have to be re-programmed, so that the correct VAT rate is calculated and shown on till receipts.
Normally, businesses must use the 20% rate for all VAT invoices they issue on or after 4 January 2011, which are issued within 14 days (or a longer period previously agreed with HMRC) of goods or services being provided. However, where goods or services are supplied before 4 January, businesses can choose to charge the VAT at the old rate of 17.5%.
If a business receives a purchase invoice dated on or after 4 January that shows the VAT at 17.5%, only the actual amount shown can be reclaimed.
Consumers should be aware that although the 20% VAT rate should be charged on all standard-rated sales from 4 January onwards, there will be occasions when they might be charged at the current 17.5 % rate. If in any doubt as to whether this is correct, the vendor should be contacted for an explanation.
The 20% VAT rate applies for all sales made after midnight on 4 January 2011. The temporary relief allowed on New Year’s Eve 2009, allowing retailers to carry on using the old rate if they remained open for business after midnight, will not apply on this occasion.
Further information about the VAT rate change can be found at www.businesslink.gov.uk/vatratechange
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