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Taxing Times
Listed under: Retail Clinic
Published: Tuesday, November 25, 2008
Are you ready for the tax changes? HMRC answers your VAT questions
I’m a VAT registered business – what do I have to do?
The Chancellor has announced a reduction in the standard rate of VAT from 17.5% to 15% with effect from the 1st December. As a cash business you should use the new rate on all your cash takings from 1st December unless the cash is for goods taken away before the 1st December 2008 – (for example in the case of customers with an account). In these circumstances the sale occurred before the 1st December so the old rate applies.
What if I have to issue VAT invoices?
If you’re a business that sells mainly to other VAT-registered businesses and have to issue VAT invoices, the new rate applies to all invoices issued on or after 1st December unless you supplied the goods or services more than 14 days before you sent the invoice, or you were paid for them before 1st December 2008. HMRC is writing to all VAT-registered businesses with more details.
Do I have to pass on the cut in the form of a price cut?
The Government is calling on all businesses to pass on the tax reduction to consumers through low prices but ultimately decisions on prices are for businesses rather than the Government.
What about my tills or software?
Most packages will be able to accept the new 15% rate without any difficulty, otherwise you’ll need to contact your software supplier. HMRC will be supportive of businesses making the change and won’t expect businesses to put everything in place overnight. You may also be able to change your electronic till yourself but if not you’ll need to contact your till supplier for assistance. Don’t worry if your till has not been amended to calculate 15% rather than 17.5% by 1st December because you can always calculate the VAT manually.
What do I do about my VAT return?
There are no changes here. When the period covered by the return crosses over the 1st December 2008 you just add the VAT on sales at the old rate to the VAT onto the new rate. This total goes into Box 1 of your VAT return.
What if I make mistakes?
Just correct them in the normal way by writing to your HMRC VAT inspector or including them on your next VAT return. HMRC is committed to doing everything possible to help businesses implement the change not catching them out.
What do I do if a supplier charges me the old rate from 1st December? Can I just pay the new rate?
You will inevitably receive invoices after 1st December charging 17.5% for purchases made before the change – simply claim the 17.5% back.
What if a customer pays the lower rate for an invoice issued before 1st December? Can HMRC intervene on my behalf?
No, if the customer refused to pay the invoice you would need to pursue the debt in the normal way as this would be a civil matter.
What if I received part payment in advance of the invoice before 1st December?
VAT is due at the old rate on the money received. Use the new rate on the post-1st December part of the payment only.
Will anything else become subject to the VAT reduced rate (five percent) or zero rate?
Only the standard rate of VAT has been varied in the pre-budget statement.
What about when I’m providing a continuous service (work in progress) which spans 1st December?
Simply account for the VAT when you issue a VAT invoice or you receive payment whichever is the earlier. Invoices issued or payments received on or after 1st December will be subject to the new rate.
What about sales spanning before and after the 1st December?
If you’ve received a payment or sent out an invoice before 1st December for goods/services which you’ll deliver after 1st December then you can choose to pay VAT at the new rate on the amount already received or invoiced. You don’t need to tell HMRC about this but you’ll need to issue a credit note to your customer if you have already issued a VAT invoice showing the old rate of VAT.
What about the special VAT schemes for small businesses?
The Cash Accounting and Annual Accounting Schemes remain unchanged but the Flat Rate Scheme (FRS) percentages are changing to reflect the new rate of VAT. If you are on the FRS please refer to the additional information on the HMRC website. You’ll need to use the new rates for your sector from 1st December 2008.
For more information visit http://www.hmrc.co.uk
The Chancellor has announced a reduction in the standard rate of VAT from 17.5% to 15% with effect from the 1st December. As a cash business you should use the new rate on all your cash takings from 1st December unless the cash is for goods taken away before the 1st December 2008 – (for example in the case of customers with an account). In these circumstances the sale occurred before the 1st December so the old rate applies.
What if I have to issue VAT invoices?
If you’re a business that sells mainly to other VAT-registered businesses and have to issue VAT invoices, the new rate applies to all invoices issued on or after 1st December unless you supplied the goods or services more than 14 days before you sent the invoice, or you were paid for them before 1st December 2008. HMRC is writing to all VAT-registered businesses with more details.
Do I have to pass on the cut in the form of a price cut?
The Government is calling on all businesses to pass on the tax reduction to consumers through low prices but ultimately decisions on prices are for businesses rather than the Government.
What about my tills or software?
Most packages will be able to accept the new 15% rate without any difficulty, otherwise you’ll need to contact your software supplier. HMRC will be supportive of businesses making the change and won’t expect businesses to put everything in place overnight. You may also be able to change your electronic till yourself but if not you’ll need to contact your till supplier for assistance. Don’t worry if your till has not been amended to calculate 15% rather than 17.5% by 1st December because you can always calculate the VAT manually.
What do I do about my VAT return?
There are no changes here. When the period covered by the return crosses over the 1st December 2008 you just add the VAT on sales at the old rate to the VAT onto the new rate. This total goes into Box 1 of your VAT return.
What if I make mistakes?
Just correct them in the normal way by writing to your HMRC VAT inspector or including them on your next VAT return. HMRC is committed to doing everything possible to help businesses implement the change not catching them out.
What do I do if a supplier charges me the old rate from 1st December? Can I just pay the new rate?
You will inevitably receive invoices after 1st December charging 17.5% for purchases made before the change – simply claim the 17.5% back.
What if a customer pays the lower rate for an invoice issued before 1st December? Can HMRC intervene on my behalf?
No, if the customer refused to pay the invoice you would need to pursue the debt in the normal way as this would be a civil matter.
What if I received part payment in advance of the invoice before 1st December?
VAT is due at the old rate on the money received. Use the new rate on the post-1st December part of the payment only.
Will anything else become subject to the VAT reduced rate (five percent) or zero rate?
Only the standard rate of VAT has been varied in the pre-budget statement.
What about when I’m providing a continuous service (work in progress) which spans 1st December?
Simply account for the VAT when you issue a VAT invoice or you receive payment whichever is the earlier. Invoices issued or payments received on or after 1st December will be subject to the new rate.
What about sales spanning before and after the 1st December?
If you’ve received a payment or sent out an invoice before 1st December for goods/services which you’ll deliver after 1st December then you can choose to pay VAT at the new rate on the amount already received or invoiced. You don’t need to tell HMRC about this but you’ll need to issue a credit note to your customer if you have already issued a VAT invoice showing the old rate of VAT.
What about the special VAT schemes for small businesses?
The Cash Accounting and Annual Accounting Schemes remain unchanged but the Flat Rate Scheme (FRS) percentages are changing to reflect the new rate of VAT. If you are on the FRS please refer to the additional information on the HMRC website. You’ll need to use the new rates for your sector from 1st December 2008.
For more information visit http://www.hmrc.co.uk
