As always with changes, this anti-forestalling legislation prevents businesses taking advantage of the increase in VAT where the services or goods are supplied to a customer who cannot recover all the VAT on the supply such as a VAT exempt charity or private individual. The anti-forestalling regulations, for example, will cover situations where the customer and supplier are connected parties or the value of the supply exceeds £100,000. In these cases, a supplementary charge will be implemented which amounts to an additional 2½%.
This enquiry came through on our “Got A Question” feature on our website:
“Just read your anti-forestalling legislation note and have a quick question – we have just placed an order for a new motorhome (£45k) for delivery next April, the full price has been calculated and agreed using 17.5% VAT. We have been advised by the supplier that as long as they raise an invoice AND WE PAY THE VAT IN FULL before 4th Jan 2011 deadline that we will not have to pay the new 20% VAT rate.
Do we have to pay the VAT or is not the issuing of an VAT invoice that is all that is needed as long as we pay the full invoice within 6 months”
The answer to this is that technically this is correct. If the invoice is raised now, as long as payment is due under the terms of the purchase agreement within 6 months, then VAT at 17.5% can be charged.
However, if the company raises a VAT invoice to the purchaser now for the purchaser to benefit from the lower VAT rate, then company would have to pay that VAT over to HMRC now, unless they operate on the cash accounting scheme.
We are receiving many similar queries on our hotline service and we will be happy to advise on the correct treatment of VAT at this complex time. Just fill in the “Got A Question” form, and we’ve got the answer!