The 12 VAT rules of Christmas – Day 10
On the tenth day of Christmas….
- Time to curl up on the sofa in front a roaring log fire with a glass of mulled wine and watch a Christmas movie – but don’t rent them! As with presents, buy your films from one of the many VAT-free import online retailers and for the ultimate VAT-free munchie opt for microwave popcorn or Pringles.
- Businesses on the flat rate scheme should take the opportunity to review their position. Revised flat rate scheme rates will become effective at the time of the rise so take advice to establish if there is the chance to use a lower banding. This could have a considerable impact on cashflow.
- Christmas is a time when charities may be reliant on voluntary or seasonal staff – don’t overlook their training so that VAT free sales are recorded correctly.
A positive side-effect to the VAT rate rise for retailers
We had a question from a client which raised an interesting point this week, one that was actually obvisous but not one we have come across before. It concerns the levels of commission stores operating the retail exports scheme will receive after the change of vat rate.
We are all aware that retailers will need to review prices post 4 January 2011 to reflect that a higher proportion of the ticket price will need to be paid over in VAT. However, there can be benefits. For example, some retailers operate a Retail Export Scheme. This is where the VAT is refunded to a traveller when they leave the country with goods purchased in the UK. Normally the customer is not refunded all of the VAT; the refund is less an administration fee. The fact that the administration charge is usually based on a percentage of the VAT refunded means that a rise in VAT charged will lead to more commission.
One other point; the commission itself is zero rated, which means that the VAT increase will not affect it at all!
Anti-forestalling legislation and the countdown to the VAT rate rise
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!
A supply made after 4th Jan 2011 will carry VAT @ 20%. Or will it?
It has been well publicised that the standard rate of VAT will increase to 20% on 4 January 2011. This means that all supplies made on or after this date will be subject to the 20% rate of VAT. Or will it?
It is still possible to secure the 17.5% rate of VAT for supplies made on or after 4 January 2011, as long as the provisions of the anti-forestalling legislation are not breached.
HMRC consider that anti-forestalling occurs when arrangements are put in place for a VAT invoice to be issued by a supplier or payment received by a supplier before the rate increase where goods are not due to be delivered or services to be delivered until after the rate increase.
However, the current rate of 17.5% can still apply where an advance payment is made or an invoice is issued in advance of 4 January 2011 (to be paid within a maximum period of 6 months), given the following circumstances: -
· the supply must be valued at £100,000 or less
· the supplier and customer must not be connected parties, and
· the supplier (or someone connected with the supplier) must not provide any finance.
The anti-forestalling legislation does not apply where the supply is being made to a business which is able to fully recover the VAT charged through its own VAT return.
There is scope to mitigate the impact of the rate increase – but businesses need to tread carefully to ensure that they do not fall foul of the anti-forestalling provisions.
If you are in any doubt, do contact us here at The VAT Consultancy and ask to speak to a consultant.
Were you suprised at today’s VAT rate increase?
When we looked into our crystal ball a couple of months ago we predicted that the rate of VAT would rise to 20%. What we didn’t expect was that it wouldn’t come into effect for another 6 months. So, today’s news from the Chancellor that the rate of VAT will not go up until 4 January 2011 has come as quite a surprise to us all.
The majority of people who took part in our Budget Survey agreed that the rate would be rising to 20% within 3 months of the announcement, only 6% thought it would be the New Year. And, with this increase in VAT set to raise £13 billion in revenue, we all believe this will go someway to reducing the national deficit.
So, there we have it, we now know that the rate won’t be increasing for some 6 months, some temporary relief for the consumer, however, we must remain mindful that an increase is just around the corner and there is still the potential for further rises to the rate of VAT.
In response to today’s news, John Crawford, our Managing Director comments: “Such a rise will mitigate the bitter medicine of spending cuts and deferring the rise until next year in the hope of stimulating consumer demand will give time for businesses to prepare – important since many are still fighting for their lives.
Whether registered for VAT or not, businesses will pay more for their goods and materials. Either they subsume those costs and reduce their margins, or they raise their prices.
As ever, consumers will pick up the tab in any increase passed on in the supply chain when they buy the affected goods and services.
If you are going to have to spend 2.5% more on your big ticket VAT items, it makes sense to buy them before the end of the year.”
Look out later for full details of the changes to VAT in our budget newsletter.
John’s in demand as VAT rate rise is announced!
With the announcement today that the rate of VAT will be rising to 20% on 4th January 2011, our Managing Director is having a busy day today responding to the news with our local TV and radio stations.
You can listen to him on:
3.30pm BBC Radio Gloucester on FM – 104.7, 95.8, 95, AM – 1413
http://www.bbc.co.uk/iplayer/playlive/bbc_radio_gloucestershire/
5.00pm BBC Radio Solent on FM 96.1 & 103.8
http://www.bbc.co.uk/iplayer/playlive/bbc_radio_solent/
5.45pm BBC Radio Bristol on 94.9, 103.6, 104.6, AM – 1548
http://www.bbc.co.uk/iplayer/playlive/bbc_radio_bristol/
6.30pm Points West, BBC One (West only)
If you live outside of the West area, then you can view this on Sky Channel 986
The importance of charging VAT correctly!
A case has come to our attention this week regarding a refused DIY Housebuilder’s claim.
The taxpayer paid VAT to a builder on a new build dwelling thinking they could reclaim the VAT from HMRC. HMRC refused as the VAT was incorrectly charged (zero rate applicable to new build), the taxpayer needed to get credit from their builders’ yet two of his suppliers had refused to refund.
The Tribunal agreed with HMRC that it was not up to HMRC to refund VAT incorrectly charged. This confirms again that VAT incorrectly charged CANNOT be reclaimed from HMRC.
You have been warned….